Asia may be pulling out of the global economic recession, but the region is still heading in the direction of the U.S. with its spiralling, unsustainable healthcare expenses, and too few effective systems in place for controlling costs and managing access equitably and sustainably. We continue to experience the usual drivers of healthcare cost – an aging population, increase in chronic disease driven by lifestyle changes, expensive new drugs and medical technologies, government health reform shifting costs to the private sector, and rising demand and expectations from the expanding middle class.
Economic downturns compound these cost drivers by adding their own unique impact on health care utilisation:
• Stressed employees increase their use of medical services
• Insurers see spikes in claims and health care utilisation, and increase their prices to compensate
• Participants who fear their health insurance is running out accelerate prescription filling and engage in expensive emergency procedures they otherwise might not
Taking personal responsibility
But employers must acknowledge that cost cutting is not the only solution. Creative health cost containment solutions are needed to combat the seemingly irreconcilable issues of offering meaningful benefits that can help an employer retain talent at the same time they are trying to control escalating health care costs.
After years of insurance premium rate shopping, companies are finding that it no longer has the same impact. In Asia, there is much money spent on unnecessary diagnostics, prescription drugs and even specialist visits. In other words, in order to decrease plan costs, each employee must take personal responsibility.
Therefore, employees must be encouraged to take personal ownership for responsible use of health care services typically in the form of:
Incentives. Companies can offer flexible benefits or different tiers of cost-sharing to incentivise employees into using preferred provider networks, government hospitals instead of private hospitals, generic drugs instead of brand name drugs, seeing a generalist before visiting a specialist, and/or taking proactive measures to improve their health (for instance, stopping smoking or losing weight).
Knowledge. Companies can educate employees about the risks associated with their choices. A Caesarean birth, for example, creates a risk to the mother’s health and increases the cost of childbirth. Lifestyle decisions, such as smoking or poor food choices, can lead to life-threatening illnesses. Information can also help employees make better decisions about their choice of hospitals and the cost of their services.
Tools. Companies can help employees and their dependents with a variety of ways to improve their understanding and skills. For example, they can provide scripts for talking to doctors about the range of treatment choices and costs, which can help improve their confidence in dealing with medical practitioners.
Some amount of cost shifting gives employees ‘skin in the game’ to think about the value of the benefit or service they are receiving. However, too much cost sharing or continually making benefit cuts at every renewal is not sustainable or strategic. Over time, aggressive cost shifting to employees can make the program uncompetitive and may diminish the perceived value of the benefit.
Ultimately, the key to long-term cost management comes down to efficiently managing the primary cost drivers of your claims and health risks within your employee population. Experts recommend that you look at four categories of such drivers: 1) benefits design, 2) benefits delivery, 3) benefits financing, and 4) health management.
A number of emerging best practices in benefits design are being developed throughout Asia.
• Employers in India are rethinking their traditional approach toward providing medical coverage to parents of employees.
• In Singapore and Hong Kong, employers are implementing and better communicating incentives to utilise the region’s high-quality public health facilities instead of expensive private hospitals.
• In the Philippines, employers are introducing hospital deductibles to discourage unnecessary hospital stays.
Regardless of location, there are keys to successfully designing cost-efficient benefit plans. They include:
• Benchmarking plans to determine whether they are more generous than industry competitors.
• Considering more limits or coinsurance or co-pays for inpatient and outpatient expenses.
• Adopting defined contribution approaches such as Singapore’s Medical Saving Accounts, which create accounts for each employee and reward lower utilisation.
• Removing coverage that does not lead to better health outcomes such as luxury rooms.
• Considering the needs of specific employee segments. Young single employees, for example, have very different needs than older employees with families.
While these approaches are sound, there is a risk in continually shifting costs onto employees since it can result in eroding overall benefit value and the employer’s reputation. Thus, less intrusive cost-containment tactics should also be considered.
A specific solution that is especially relevant in Asia today is flexible benefits, or Flex, which encompasses a menu of benefits and cost-shifting mechanisms. Flex involves implementation costs, but it can pay off significantly in the long term.
Flex allows employees to choose the mix of health insurance and other benefits that suit their personal needs. At the same time, it increases the employer’s control over total benefit spending. The cost-shifting aspect of Flex can reduce employer expenditures as health care costs continue to rise.
A recent client study by Mercer, a unit of Marsh, found overall satisfaction with Flex in Asia. Specifically:
- 97% agree that Flex meets the diverse needs of employees at different life stages
- 89% agree that Flex results in happier employees regarding benefits and differentiates a company from its competitors
- 81% agree that Flex harmonises benefits in case of an M&A
- 80% agree that Flex communicates the value of benefits to employees
- 78% agree that Flex promotes employee appreciation of benefits, changes employee behaviour in benefit utilisation, and contains escalating medical costs
Not surprisingly, all companies now offering Flex in Singapore, Hong Kong and the Philippines said they intend to continue doing so.
Flex Case Studies
A large global bank with approximately 1,500 employees in Singapore has found Flex to be an effective differentiator for attracting and retaining talent – as well as a way to help manage health care costs. Before Flex, the company’s medical spend was skyrocketing by 30% a year. The company turned to HR as a strategic business partner to manage these costs and attract the right workers.
In 2001, the company introduced a Flex program. The scheme focuses on health care, with every employee given a yearly ‘spending account’ based on the experience of the employees’ average health care costs. Employees manage their own accounts, and a percentage of any unused benefits is rolled over for future use.
The program has proven to be a win-win solution for both employees and management. Employees are empowered to take charge of their own health and medical choices while being rewarded for properly managing their spending accounts. Thus, instead of sharing costs with employees, the bank now shares savings, creating an incentive for employees to spend less.
The company estimates that it has saved nearly US$1 million in the past four years. What’s more, the bank today has a staff retention rate that is 20% better than the industry norm. It has also increased productivity due to lower absenteeism, better employee engagement and improved employment branding.
Aside from benefits design, some companies in Asia also focus on best practice benefits-delivery initiatives around improving vendor cost, processes, accuracy, timeliness and quality. Employers are evaluating what aspects of program administration are best done by their own organisation, and what can be done by insurers, outsourcing firms, niche vendors or other third parties.
In Thailand, some employers are establishing guidelines and educating employees about which organisation they should contact first for payment of claim expenses, whether it is social security, private insurance, workers’ compensation or motor vehicle insurance. In Hong Kong, some employers have asked insurers to provide telephone help lines to provide information on physician pricing and other health care information.
In Malaysia, some companies are turning to third-party case management niche players to question the accuracy of hospital and physician billing. In Singapore and Hong Kong, large employers are outsourcing their employee benefits and Flex administration workload to brokers and third-party providers.
But controlling claims and reaping the benefit of improved claims experience requires proactive steps on the part of organisations as well as the fiscal responsibility to audit insurers, third-party administrators and other claims payers.
Employers need to know what kind of quality controls their vendors have in place to verify eligibility, pay the right type of benefit, apply cost sharing accurately and ensure that the provider has submitted an accurate bill. One best practice to consider is auditing the vendor prior to the ‘live’ date to ensure the plan is set up accurately and thus avoid errors at a later time.
Employers also need to know that they will get credit for any savings that come from audits or recovery of funds that another carrier should have paid. It’s also vital to assess whether your providers will offer rate guarantees and whether it is practicable to consolidate vendors for economies of scale.
In addition to benefits design and benefits delivery, companies should also look at benefits financing in the quest to contain healthcare costs.
Large multinationals and large local companies are turning to multinational pooling networks to reduce premium pricing, which may provide the opportunity for favourable claims experience. Some employers are also reducing their HR and benefits costs by consolidating their insurance policies.
They are doing so by hiring a single broker who negotiates all of their regional insurance coverage and provides full outsourcing to handle employee administration needs. Other financing opportunities include renegotiating vendor and insurance fees and volume purchasing deals with preferred provider networks for large employee populations.
Finally, any cost containment healthcare program should have a health management component. Best practices in health management are emerging in Asia.
• In China, for example, where manufacturing is pervasive and construction projects are innumerable, employers are proactively undertaking ergonomic assessments to reduce the costs associated with worker injury.
• In India, 60% of employee health insurance costs are attributed to parental medical claims, so multinational companies are considering providing such proactive measures as diabetes coaching to decrease hospitalisation costs of chronic diseases that typically afflict elder populations.
• In Australia, Mercer is helping companies negotiate group health premium discounts contingent on the establishment of health risk management programs.
Recently, a U.S. business process outsourcing firm with 24x7 operations in the Philippines was concerned about the impact on productivity of employee chronic disease and psychosomatic illnesses. It was also worried about the low return on investment (ROI) from high health expenditures.
Mercer helped carry out an ‘organisational health check’ to review the effectiveness of the company’s programs using demographic and health data. The results helped the company choose health risk management interventions that were targeted and not wasteful because they were appropriate to the type of high-risk population and illnesses in the Philippines.
The firm also recognised and addressed employee stress issues that were exacerbated by the insecurity and uncertainty of the current financial turmoil. Finally, prevention initiatives were based on the biometrics of specific employee profiles in order to generate ROI. As a result, the outsourcing company achieved a complete employee population health profile and improved ROI from current health spending.
About the Author
Rosaline Chow Koo is Asia Pacific business leader for Mercer’s health and benefits business. Mercer is a unit of risk advisor Marsh. This article first appeared in The Marsh Directors’ Series, October 2009 and has been re-edited for conciseness.