Employee Benefits: When Cost-Cutting Is Not Enough

by Marsh, 06 April 2012

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topics:
Business Expense Management Human Capital Management

tags:
employee benefits healthcare costs

The quest to find and keep high quality employees is more intense than ever across Asia.

To gain competitive advantage in this battle, firms are increasingly looking to differentiate themselves by evolving their employee value propositions to offer a broad package of employee benefits beyond simple financial reward.

In particular, health insurance provision by employers has grown exponentially and is rapidly becoming the most valued employee benefit, particularly in developing markets. This reflects companies’ growing recognition that poor workforce health, as well as medical and disability costs, are a drag on productivity and financial performance.

As demand for these benefits has grown, so too has the cost of providing them.

This spiralling and often unsustainable cost is compounding the existing financial pressures felt by organisations, many of which continue to manage through the current global economic uncertainty.

But with more than one third of Asia’s firms experiencing employee turnover rates of 10-20%, the struggle to attract and retain talent means organisations are loathe to cut back their employee benefit programs.

Instead, they are looking to reinvent their strategies, embracing innovative ways to deal with the immediate need to contain costs, and instituting longer term ‘wellness’ solutions to curb the underlying cost drivers.

Rising costs and shifting landscape

Data shows health and medical costs have risen rapidly since 2006 in nearly all global markets. Many countries have experienced double-digit growth often exceeding general inflation.

Across the Asia Pacific region, health insurers experienced a medical cost increase trend of more than 10% in the past year, and there is little relief in sight as higher trends are projected.

Many factors are driving healthcare cost increases. The ageing of populations, growing incidence of chronic disease due to lifestyle changes, and prevalence of infectious disease in Asia are contributing to claims inflation. Overuse of care and expensive new medical technologies are also contributing to higher costs.

Compounding this inflationary trend, policy changes are dramatically altering the healthcare marketplace, resulting in increased cost-shifting from government to employers and their employees.

For example, China recently enacted ‘interim measures for the participation in social insurance of foreigners employed in China,’ which requires that foreigners legally employed in China maintain basic pension insurance, basic medical insurance, work- related injury insurance, unemployment insurance and maternity insurance.

As a result of all of these trends, the vast majority of employers across Asia expect their employee benefits package spend to increase in 2012.

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