1. Your company designs and makes electronic counting and control devices for manufacturers. It employs 300 people in the Midwest and has been in business on a privately owned basis for nine years. The industry is competitive, and your company must preserve an edge in getting new products to market faster than others, maintaining a high-quality product, offering good and sustained service to its customers, and selling at a competitive price. The company offers a privately insured health care plan, among other benefits and rewards, for all employees and their dependents. It is a traditional indemnity plan design and the cost as a percentage of total employee compensation has increased from 16 percent to 25 percent over the last two years. There is no cost to the employees for their health care. Your competitors are sponsoring much less expensive plans. Your CEO has asked you for a complete review of the health care plan and to create a design that is in line with the business strategy, is cost-effective, provides employees with choice and quality, and helps recruit and retain employees.

Identify an optimal plan design, including all of its major design features, that you would recommend to the CEO. What factors would you use in measuring its value to the company?