What every CFO should know - and do - about medical benefits.

• Author: Jones, Michael B.
• Position: Chief financial officers

Financial executives are timid participants in the health-care debate. Is it out of ignorance - or simply to protect the bottom line?

Did you know that General Motors spends more on medical care than it does on steel for its cars? That annual medical costs at General Electric exceed $1 billion? That the U.S. government spends more money on health care than it does on the military?

As businesses recognize that medical care is a major controllable expense, more and more often they're calling on financial executives' analytical skills to help develop and monitor employee medical benefit plans. Such major corporations as Merck, General Electric, General Motors, Lockheed Martin, Armco and Bethlehem Steel have formed formal groups that include financial and human-resources specialists, as well as operating management, to oversee medical benefits. Their goal? To make sure the company's health-care strategy is aligned with its business strategy.

In general, companies have concluded that a shift toward managed medical care plans will reduce expenditures, and generally this migration has been successful in controlling benefit costs during the last few years. But to participate effectively in the decision-making process, financial executives need to understand the available alternatives - the strengths and weaknesses of each and then take a stand on the health-care issue.

Getting Educated and Aligned

In the classic business planning process, a company's business strategy flows down to both its financial strategy and its human-resources strategy, which in turn should combine to produce a benefits and health-care strategy. Most firms, however, haven't spent enough time ensuring that their health-care strategy is connected to their overall business strategy. Developing a well-thought-out business plan for health care is becoming a very useful tool for financial and human-resource executives. This plan should include assumptions about medical care cost trends and offer measurable goals for the strategies that you, as the CFO, choose. (See the sample plan on page 39.) It also should offer a way for health-care managers, human-resource executives, financial executives and others in top management to agree on a specific direction for a firm's health-care plans.

Once you establish the plan, the difficult job of making it work begins. Many tools are available to help health-care professionals in this task, but the one tool that can use your input, as a...