A good time to save on employee health benefits

Written by Rosaline Chow Koo | Updated: Feb 28 2009, 07:15am hrs
During an economic downturn, employees understand the need to share the burden. For employers, this presents a narrow window of opportunity-a chance to ensure the financial sustainability of benefit programmes for employees.

In Asia, the competition for highly skilled talent is still fierce while economic downturns are cyclical. So, that short window of opportunity could be used now to make decisions that will allow employers to emerge stronger once the economy recovers. Here we discuss savings in health benefit programmes.

Medical cost trends are anything but encouraging in India, especially with insurance detariffication increasing medical premiums by 15 to 40% this year, and higher for cases with very high claim ratios. Insurers are not eager to pick up loss-making business as they used to a year back. There have been some cases with unrealistic pricing but the market is moving towards sustainable pricing.

The usual drivers of healthcare cost in India areincrease in chronic diseases driven by lifestyle changes, culture of providing parents medical cover, lack of governance, new drugs & medical technologies and double-digit medical inflation. This is compounded by downturn-driven cost drivers such as rising healthcare utilisation due to employee stress levels, employee stockpiling of drugs and diagnostic testing, and an increased focus on profitability of medical portfolio by insurers in the absence of cross-subsidy after detariffication.

After years of insurance premium rate shopping, firms now find that it no longer has the same impact. Companies must, therefore, look into cost containment by first controlling employee claims. This can be done by encouraging employees to take personal responsibility for their healthcare spending by incentivising the use of cost-effective options such as preferred provider networks and generic drugs.

In addition, companies should educate employees on health and cost issues such as the risks of Caesarean births, diseases linked to smoking, diabetes, and hospital pricings, and offer tools such as guides for talking to doctors about the range of treatment choices and costs. In India, where 60% employee health insurance costs are attributed to parental medical claims, employers are rethinking the provision of such coverage, and considering such proactive measures like diabetes coaching to decrease the hospitalisation costs of chronic diseases that typically afflict elders.

But ultimately, the key to long-term healthcare cost management comes down to the efficient management of the primary cost drivers of your claims and the health risk within your employee population. These cost drivers and solutions typically fall into four categories:

Benefits design: involving benefits structure such as defined contribution or flexible benefit plans; eligibility requirements and determination of what should and should not be covered; premium and claim cost-sharing arrangements; and competitor benchmarking.

Benefits delivery: vendor contracts; claims management to reduce fraud and ensure payment of only reasonable, customary and medically necessary expenses.

Benefits financing: including negotiating better pricing with insurers for profit-sharing or with networks for multinational pooling; and volume purchasing.

Health management: this involves prevention programmes that will keep healthy employees healthy; at-risk management to identify and manage those with health risks; disease management to manage the progression of illness; case management to manage high-cost claims and absence management that includes effective return-to-work programmes.

A specific solution in an economic crisis is flexible benefits, or Flex. Flex allows employees to choose the mix of health insurance and other benefits that suit their life stage, while the cost-shifting aspect of Flex reduces employer expenditures amidst rising costs. Flex is responsive to changing economic conditions as additional voluntary benefits can be added without incurring extra costs. Compassionate employers can, for example, include insurance programmes to financially protect employees between jobs and retain a good reputation for hiring when the economy recovers.

In India, employers are just starting to be interested in Flex, though Flex has been popular in mature markets like Singapore and Hong Kong. Indian firms are looking to use Flex to offer young GenY professionals extra benefits such as fitness, tuition and professional development, and new parents benefit choices such as dependant cover and child care reimbursement.

Controlling claims and reaping the benefit of improved claims experience require proactive steps like auditing third party administrators to determine the controls in place; identifying other potential claim payers; and looking out for options to share in positive plan financial results. It is also vital to assess whether your providers will offer rate guarantees and if it is possible to consolidate vendors for economies of scale.

In India, cost savings can be gained by negotiating packaged pricing for common procedures like cataracts and maternity where the hospital would bear financial risk of complications.

Across Asia-Pacific, large MNCs are turning to multinational pooling networks to reduce premium pricing and provide for dividend refunds from favourable claims experience. Some are also reducing their HR and benefits costs by consolidating their insurance to a single broker for negotiating their regional insurances and providing full outsourcing to handle their employee administration needs. Other financing opportunities include renegotiating vendor and insurance fees and volume purchasing deals with preferred provider networks for large employee populations.

Ultimately, the success of these cost-containment strategies lies in their fit with the organisations healthcare needs and cost drivers. Sustainable savings and the maintenance of a strong workforce call for a combination of short-, medium- and long-term approaches to health benefit cost-containment.

Consider, then, that changes in Benefit Plan Design (see chart) can yield short-term results, resulting in quick savings and improved consumerism, but they do simply shift costs onto employees which can result in an erosion of the benefit value which is why less intrusive cost containment tactics should also be considered. Enhancing Benefits Delivery and optimising Financing can certainly result in better plan management, funding and governance over the medium term, but long-term savings may be limited. And Health Management strategies may not yield short-term cost savings, but these strategies offer the strongest long-term solution for a stable productive workforce and results in particularly quick wins in emerging economies.

By adopting a combination of theseand applying such innovations as Flexorganisations can position themselves to thrive in economic cycles.

The author is Asia-Pacific health & benefits leader with Mercer. She acknowledges inputs from Anchit Kalra and Suresh M of Marsh India