Paying for Healthcare: How Savvy CFOs Can Get a Break From Insurers

Corporate earnings may be under pressure and jobs may be on the line in Southeast Asia as the consequences of slower growth in China hits the region. Also clouding the picture are economic uncertainty in Japan and Europe, and volatile oil and commodity prices, which are particularly affecting Asia’s resources-based economies.

So why is insurance firm Aetna International Southeast Asia expanding its suite of products?

On the face of it, forking out cash for pricey employee insurance plans at a time when corporates are tightening their belts and bracing for harder times may seem a little absurd. Yet Managing Director Derek Goldberg reckons it makes complete sense.

“A rising number of CFOs are reevaluating how they spend on employee benefits to see how they can still attract and retain talent with generous healthcare benefits while minimizing the costs at the same time,” he explains. As a consequence, says Goldberg, corporate demand for customized healthcare insurance packages is increasing.

“Employers [can] choose the areas they want covered . . . depending on what they feel is required for their employees. This way, employers save costs by not having to pay a lump sum for areas of coverage that might be irrelevant to them”

Customized plans

Recent talent management research is broadly consistent with this observation. Global executive recruiter Hays surveyed 1,283 candidates across Asia last year and found that 48% of those who say they are contemplating a move are looking for a better salary or benefit package from a new employer. Of those who are staying put, 40% cite their salary or benefit package as a key reason for staying.

The catch is that 72% of the 3,018 employers surveyed do not plan to increase salaries in 2016 (7 percent), or will do so only minimally, by up to 3% (26 percent) or 3%-6% (39 percent). That leaves benefits as the main retention tool, which typically means health and medical benefits – 78% of employers offer a healthcare package, compared with only 42% for life assurance and 33% for car allowance.

This is providing an opening for healthcare insurance providers like Aetna, a 106-year-old US company that began expanding in Southeast in 2012. In February, Aetna launched a product called Aetna Summit, the latest in a series of offerings that allow employers to customize their healthcare plans based on what is needed in the company, as opposed to purchasing a generic plan.

“We designed Summit to enable employers to choose the areas they want covered such as basic in and outpatient treatment, dental or maternity depending on what they feel is required for their employees,” says Goldberg. “This way, employers save costs by not having to pay a lump sum for areas of coverage that might be irrelevant to them.”

One example is providing employees who travel frequently within Southeast Asia with a healthcare plan that has only regional coverage. The result is a decrease in the total cost of the plan, because global coverage is restricted. Another example is for employers located outside Singapore to offer employees who travel access to high quality healthcare in Malaysia or Thailand, but excluding Singapore, where costs are much higher.

Holistic approach

Aetna is not the only insurer going this route. Other providers like AXA, Bupa, Cigna and Manulife are coming up with similar approaches and offerings. It seems to be working, at least from the cost management point of view. The Aon Global Medical Trend Rate survey finds that net medical inflation across Asia was 6.3% in 2015, up only slightly from 6.2% in 2014.

The “levelling off” in medical inflation is attributed in part to insurers “exerting more control over healthcare utilization and control,” reports Aon Risk Solutions, a unit of insurance brokerage Aon plc. Other drivers include the slowing global economy, which is exerting less upward pressure on benefits costs, and the growth in generic medications as patents on expensive drugs expire.

“While rising costs pose a daunting challenge to most employers, many are also seeing it as an opportunity to consider alternative strategies to get the most out of their health spend without simply adding more programs,” says Chris Mayes, Director, Benefits Optimization, Asia Pacific, at professional services company Towers Watson.

“If an MRI test is recommended to a patient, our care team can suggest going for an X-ray instead, which can be just as useful and is just one tenth of the cost of an MRI”

Health benefits such as medical inpatient and outpatient remain the most valued by employees and vital to employee engagement. But employers are also “starting to consider concepts such as wellness,” says Mayes.

“Taking a holistic approach to health can help to increase employee engagement and productivity without adding materially to costs – and, in fact, may lead to cost savings in the long run as the workforce becomes more productive.”

Action steps for finance

What can CFOs and HR do to contain healthcare costs while strengthening employee engagement and retention at the same time? Using Aetna’s approach and strategies as representative of industry trends, below are some suggestions:

Explore pick-and-choose menu of benefits. Technology is making possible customization of healthcare plans down to the individual level, something that was too complicated in the past when manual processing was the norm and computing power was costly, particularly with large workforces.  

Why should the company pay for global coverage of employees who travel only within Asia? Why can’t someone beyond child-bearing age swap maternity benefits with higher eye care benefits? Companies could potentially lower premiums by reducing benefits that some employees do not want in exchange for cheaper benefits that are more appropriate for certain age groups.

Include a level of employee responsibility in insurance plans. “Some employers provide full medical coverage with direct settlement, which results in employees not thinking about the cost of healthcare and spending freely because the expenses are very easy to claim,” says Aetna’s Goldberg.  

By including say, a 10% co-insurance option in the health plan, employees are forced to pay 10% of the cost of their visit to the doctor’s out of pocket. So, employees spend much less on healthcare, which significantly drives down costs.

See if your company can join a pool with other firms. “Smaller employers can sometimes see the cost of healthcare go into the thousands of dollars for just one employee,” says Goldberg. “We are able to combine these companies into a pool such that any spike in costs can be averaged out across the whole pool and the risks are spread out and reduced.”

As a result, he says, “we can help smaller employers pay more predictable premiums to cover against high healthcare claims.” Goldberg claims companies can realize up to 60% savings on their premiums, depending on the area of coverage, level of co-insurance, and coverage limits.

Ask for the insurer’s help in managing costs and promoting wellness. Aetna can make available a team of qualified healthcare professionals to dispense advice. “For example, if an MRI [magnetic resonance imaging] test is recommended to a patient, our care team can suggest going for an X-ray instead, which can be just as useful and is just one tenth of the cost of an MRI,” says Goldberg.

“We interact with the care providers to give employees the type of care they really need to help bring down costs.” 

Aetna incorporates care management into its plans to help employees manage potential illnesses and provide guidance on how to prevent existing ailments from getting worse. “When someone is diagnosed with an illness, say diabetes, our nurses can reach out to them and help them navigate the healthcare system to obtain the best care,” says Goldberg.

“By looking after the wellbeing of your employees and making sure they lead healthy lifestyles, you can raise the productivity of your firm by insuring against having some of your best people quitting because of a medical condition,” he says.

“In an environment where healthcare benefits are most valued by employees, having the right insurance plans in place to attract and retain talent is essential. At the same time, markets are in disarray and CFOs want to keep costs low”

The company also runs online assessments and initiatives helping employees understand and manage existing ailments and maintain healthy lifestyles, as well as counselling programs that help to prevent them from falling susceptible to stress-related disorders.

“We are addressing all healthcare concerns upfront so that we can help to prevent people from getting ill and incurring more costs later on,” says Goldberg.

Expat packages

One area that may be resistant to the cost-cutting trend, however, are benefits packages to cover expatriate employees. Aetna’s most generous plan for expats is worth up to US$5 million in benefits, including access to the best medical institutions worldwide as well as dental, vision, emergencies and evacuation.

“The expat market traditionally gets the most high-end insurance plans because this involves employees who are highly paid and travel around the world a lot,” says Goldberg.  

These days, though, the distinction between expatriates who are permanently relocated to a certain country on assignment and locals who travel frequently is blurring.

“Clearly, the needs of these two categories of employees are not the same, yet there is a gap between expatriates and locals when it comes to the insurance benefits available,” says Goldberg. “We have been one of the pioneers to offer solutions to this gap by customizing the relevant benefits to suit their needs.”

Whether that means premiums for both local and expats will converge in the middle or decrease to the level of the locals or increase to the level of expats depends on the CFO, in large part.

But finance and HR do have options now in customizing packages to put a lid on costs without adversely affecting recruitment and retention.

“In an environment where healthcare benefits are most valued by employees, having the right insurance plans in place to attract and retain talent is essential,” Goldberg reiterates. “At the same time, markets are in disarray and CFOs want to keep costs low.”

“Buying a package which allows them to customize the benefits they want to offer and include some form of employee responsibility is the best bet.”

About the Author

Kristin Kang is a Contributing Writer at CFO Innovation based in Singapore.

Photo credit: Shutterstock

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