J.C. Penney Co. Inc.'s aging employee population was taking a toll on its benefits budget, exacerbating the impact that sluggish post-recession sales were having on the retailer's bottom line.

If it did nothing, the cost of providing benefits to its employees would double in five years to $400 million.

Though the solution seemed obvious to Matthew Harmon, J.C. Penney's benefits delivery and retirement director, it also was a radical idea at the time, especially for a Fortune 500 company. He proposed replacing J.C. Penney's rich, self-funded preferred provider organization health plan that had copays of just $10 with a high-deductible consumer-driven health plan.

But that kind of out-of-the-box thinking was just what Plano, Texas-based J.C. Penney needed in 2009.

So in 2010, J.C. Penney “pulled off the Band-Aid” that had been insulating its employees from the true cost of health care and went full replacement. Although employees could still receive preventive care at no cost, all other health care services would be subject to a deductible of at least $1,150.

Employees were challenged further: Complete a health risk assessment and take steps to get healthier or pay $600 more annually for health benefits.

As a result, instead of growing by 8% to 12% annually, as in the past, this one-two punch has slashed J.C. Penney's health care costs by 15%, shaving $30 million off its $200 million annual health benefits budget.

Though the plan design was modified somewhat in subsequent years, all of J.C. Penney's benefits-eligible full-time employees continue to be enrolled in a consumer driven health plan. And employees are sharing the savings by keeping their contributions flat and spending less on health care as they lose weight, quit smoking and eliminate the health risks that could have led to costly and debilitating illnesses down the road.

For this and other accomplishments, Mr. Harmon, 38, has been named Business Insurance's 2013 Benefit Manager of the Year^®.

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“We were not going to get younger overnight, and we weren't going to become completely consumer-driven overnight. So we looked at the continuum and decided to start by helping people understand what health care actually costs — not $10,” said Mr. Harmon.

Today, a self-insured CDHP is the only option offered to J.C. Penney's full-time benefits-eligible population of about 40,000. However, there are four different deductible levels, with premiums based on the amount of risk taken.

A user-friendly Web-based portal called Powerline is helping to facilitate this education and transition, along with customer service provided by Aon Hewitt, lifestyle and medical management services provided by UnitedHealth Group Inc., and a total absence management program overseen by Sedgwick Claims Management Services Inc.

Besides revamping the company's health benefits, Mr. Harmon also has made a significant impact on other J.C. Penney benefits programs, such as its 401(k) plan, where enrollment and contributions are up after a targeted communications initiative.

J.C. Penney awarded Mr. Harmon the Chairman's Award for Excellence in Benefits in 2009 for his efforts.

Mr. Harmon “brings his own brand of compassion, out-of-the-box thinking and energy to people and projects, which to me means he recognizes the "right thing to do' and then goes about making it possible,” said Brynn Evanson, J.C. Penney's executive vice president of human resources, in a letter nominating Mr. Harmon for this year's Benefit Manager of the Year® award.

Mr. Harmon also has taken service partnerships to a new level, treating the external vendors as members of his employee benefits team.

“What we have with J.C. Penney is special,” said Laura Dunn, J.C. Penney's Aon Hewitt account executive in Chicago. “Matt views Aon Hewitt as part of his team. To do that, we need a transparent and flexible model. I feel when I'm calling Matt, there are no boundaries. That helps when we need to get things done. We have context, and I trust Matt.”

J.C. Penney “is in the throes of a major transformation of their business. Matt has done a very good job of keeping the entire team working together throughout that transformation,” said Bradley F. Johnson, executive vice president of disability operations at Sedgwick.

J.C. Penney Co. Inc.

BUSINESS: J.C. Penney operates department stores selling family apparel and footwear, accessories, fine and fashion jewelry, beauty products and home furnishings. It also provides various services, such as styling salons, optical, portrait photography and custom decorating.

HEADQUARTERS: Plano, Texas

FOUNDED: 1902

2012 FINANCIALS: $12.8 billion net sales. Traded as JCP on the New York Stock Exchange and a component of the S&P 500.

EMPLOYEES: 116,000

Did you know:

• J.C. Penney operates 1,104 department stores in 49 states and Puerto Rico. It also sells its products through www.jcp.com.

• James Cash Penney opened his first retail operation, The Golden Rule store, in 1902 in Kemmerer, Wyo., in partnership with Guy Johnson and Thomas Callahan. This “mother store” still operates today and was designated as a U.S. National Historic Landmark in 1978.

• By 1912, Mr. Penney had 34 stores in the Rocky Mountain states. In 1913, all stores were consolidated under the J.C. Penney banner.

• J.C. Penney’s store in Anchorage, Alaska, partially collapsed and was damaged beyond repair in the 1964 Alaska earthquake. The company rebuilt the store as a shorter building on a larger footprint, accompanied by the city’s first public parking garage, which opened in 1968.