Health Care Case Study

Case #3908: Administrative Cost Reduction and Service Improvement

A statewide Health Insurance Company faced a significant erosion of membership and market share over the preceding four years. The company had been restructured into decentralized Customer Business Units (CBUs) with profit accountability. The CBUs handled sales, customer service, enrollment and billing, and claims transaction processing. Other departments such as Marketing, Finance, Provider Networks, Corporate Relations, and Administration remained centralized and were organized functionally.

New executive talent was brought in to combat membership erosion, but an unintended outcome of this high-priced infusion was a worsening of the administrative expense ratio. As membership declined some adjustments in volume-sensitive positions had been made. However, they were largely inadequate, and overhead structure had not been realigned. The company hoped to correct some of the imbalances through a concerted TQM effort and a corporate-wide benchmarking initiative, but these efforts were stalled by divisional in-fighting.

We were engaged to remove redundant and non-value added work, improve processes, and quantify workloads across the organization. The objectives were to reduce operating expenses by more than $20 million without negatively affecting service and quality levels. The aim was to implement changes in just 18 weeks.

Within three weeks of starting the engagement 25 consultants were deployed on site. During the course of the 18-week project, 480 positions were identified as excess capacity, an annual savings of $23 million. Before the end of the fiscal year, 341 of these positions had been eliminated while quality and service levels were maintained.