SUPPLEMENTAL CASE ­ Controlling Employee Benefit Costs   John DeCarlo is President and CEO of Quality Auto Parts, an automotive parts equipment  manufacturer and supplier in the Southwest. The company was started by DeCarlo and his father in 1968  and now employs 812 people at four different sites. Revenues and profits increased steadily from 1968  until 1992. Both were down in 1992 and 1993. During the remainder of the 1990s, both were erratic as a  result of the increased foreign competition in both the auto parts industry and the auto industry itself.  From 2000­2003, revenues have been increasing, but profitability is decreasing for a number of reasons. DeCarlo recently met with his Vice President for Finance (David Schramm) and his Vice President  for Human Resources (Harriet Poster) to determine how costs could be cut so the company could price its  products more competitively, relative to foreign competitors. At this meeting, he learned that employee  benefit costs had increased at approximately twice the rate of increase for wages alone (12 percent versus  6 percent yearly) from 1988 to 1998. In particular, the employee health insurance costs increased from  $2,184 per employee per year in 1988 to $8,316 in 2003. DeCarlo expressed frustration at these increases  and asked what could be done. Foster and Schramm invited DeCarlo to a meeting of health care providers, insurers, and employers  scheduled for the following week. At this meeting, they learned that their problem was quite common and  being experienced by most other corporations in the area. One consultant surveyed the chief human  resources executives at Fortune 500 and Fortune Service 500 corporations and found “controlling  employee benefit program costs” to be the most critical issue facing these executives. Another national  survey found that health benefit costs amounted to a whopping 26 percent of corporate earnings.  Moreover, health care costs have grown faster than overall inflation and faster than any other segment of  the economy since 1990. They also learned more about the nature and causes of this problem. Many of the speakers at the  conference cited large catastrophic­illness claims, increased use of mental health and substance abuse  services, increased use of medical services, high­technology medicine, cost­shifting from government  […]

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