Case Summary: Quality Auto Parts, a Southwestern manufacturer and supplier of automotive parts, was started by current President and CEO, John DeCarlo, and his father, in 1988. Since 1988, both revenue and profits steadily increased until 2001, where there was a decline that lasted until 2003. From 2003 to 2006 there was a recovery of revenue and profit until another downward turn in 2007 that has lasted up till the present day. The falling auto sales, compounded with the recent recession, has led the company to evaluate its employee health benefits program as a possible avenue for lowering costs.
There was a recent meeting involving DeCarlo, his vice president of finance, David Schramm, and his vice president of human resources, Harriet Windham. The meeting was to decide the best way
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At the meeting, it was discovered that employee benefits costs had nearly doubled when compared to wages alone. From 2000-2010, the cost increased from $4,680 per employee per year in 2000, to $9,869 in 2010; about an 8% vs. 2% yearly average increase. Schramm and Windham invited John to come to a meeting with them the following week. This meeting would consist of healthcare providers, insurers, and employers, and the topic would be “implications of the healthcare reform”. At the meeting, they learned that there may be some repeals to the provisions in the future and that some of the taxes on these benefits would be higher making it more expensive for employers. After hearing this, it became more obvious that Quality Auto Parts had to find a way to control their benefits. Some forecasters determined that if it wasn’t controlled, health benefit costs would be equal to all the total profits of all of the U.S. corporations by 2016. At this meeting, they also learned more about disastrous illness claims,