Are you concerned about further rises in the cost of health insurance for your employees this year? Quite rightly, you don’t want to remove this benefit as it serves as a major incentive for both your current and prospective staff, but you know you can’t keep paying higher and higher premiums.
Unfortunately the upward trend in health insurance costs seems to be inevitable in most markets, but there are steps you can take to keep your premiums under control without removing the staff benefits you provide. By understanding the factors that influence price increases, you can gain some control over the premiums you pay in the future.
Why medical costs outstrip inflation
In a time of low inflation, as we have experienced in recent years, you may wonder why this constriction on rising prices has not applied to the cost of health insurance. Take Dubai, for example. Between 2009 and 2013, general inflation hovered around the 1% mark. Over the same period, health insurance inflation fluctuated between 7-10%, going up and down almost in direct opposition to the general inflation rate. In fact, price rises in private medical insurance have always been consistently higher than the rate of inflation. This is because the price of health insurance is driven mostly by demand, which can be affected by factors other than general inflation.
In Dubai, between 2009 and 2013, general inflation hovered around the 1% mark. Over the same period, health insurance inflation fluctuated between 7-10%.
In 2015, with the mandatory employee health insurance deadline looming, the rise in demand saw the price of health insurance premiums in Dubai rise by an average 9.5% against a national inflation rate that had crept up to around 3%. The market was flooded with providers competing for a share of the new business, many of which set their prices artificially low and made a loss as a result. Of course this was not sustainable, and the inevitable bounce-back contributed to the sharp rise in prices in 2016.
As an industry that depends predominantly upon the expertise of people rather than machines, healthcare is also affected by what the American economist William Baumol described as ‘the cost disease’. Whereas machines become increasingly cost-effective as they are refined over time, people become more expensive as their wages rise above the rate of inflation. As wages rise, so the cost of healthcare provision rises too.
How to control your own premiums
While there is nothing you can do about general price rises, when it comes to your company’s health insurance scheme and hence health insurance premiums, there are four key drivers that are worth understanding. Each one throws up considerations that, if managed carefully, can help you to tailor your health insurance scheme more closely to your needs and save costs as a result.
1. Learn from your claims history: Ask your insurance provider or consultant for a detailed breakdown of your claims over the last year. Analysing this data could help you work out ways in which you might address rising costs.
For example, if you spot that a high number of claims are made by employees who are overweight, you might be able to help them improve their health by offering after-work fitness training. And if there is a high level of claims related to diabetes or other chronic conditions, you could address this with targeted disease management support. Your insurance provider or consultant may be able to help you put measures like this in place as part of a wellness programme.
You might even be able to secure a price that’s less dependent on your previous usage by getting some of your employees to commit to wearing digital fitness tracking devices.
2. Trim your provider network: Many health insurance providers offer various tiers of coverage, with higher tiers covering consultations and treatment at a wide range of healthcare facilities, and lower tiers restricting users to a pared down choice of facilities.
Although there is less choice available with the lower-tier options, this doesn’t necessarily equate to lower quality care. The hospitals and clinics included in the lowest band – known in the US as a narrow network – will often be selected based on their performance in terms of quality, safety and efficiency to ensure maximum value.
Although there is less choice available with the lower-tier options, this doesn’t necessarily equate to lower quality care.
You could stand to make substantial savings by providing coverage that encompasses care at a wider network of facilities only for your top executives. This will avoid valued senior staff becoming disenchanted and potential new talent being deterred from working for your organisation. Meanwhile, people in lower level roles will still get great care but at a smaller range of facilities.
If employees choose to go to a provider outside the network permitted by their coverage, they will usually be responsible for paying the fees in full. You can certainly select a package which enforces that and make sure your staff understand the options available.
3. Target your location: For employees who regularly need to travel for work, international health insurance is, of course, the logical choice. However, local health insurance comes with significantly lower premiums.
So for staff whose work doesn’t involve travel and who don’t commute to work from a neighbouring jurisdiction, opting for local cover makes sense. This is certainly the case for organisations based in Dubai and Qatar (though that being said, in the Gulf in general the reality is that many expats in the region prefer to have the option to “go home” for certain types of treatment, so depending on your people management strategy, you may feel obliged to include this option).
For those based in Kenya, where hospital care still has a way to go to meet global standards, you will probably find that international cover is essential to keep staff happy. You may also want to consider adding cover for emergency evacuation, in case employees need urgent treatment in another country, such as South Africa.
Either way, opting for cover provided by an insurer with a local base is generally a good idea, because it will tend to work out cheaper and dealing with claims will usually be more straightforward. In Dubai, signing up to a locally administered policy is actually a prerequisite of the mandatory coverage law.
Also worth a mention here is that for mobile workforces a company could also consider supplementing local plans by making sure they have the right travel insurance to include emergency medical cover and benefits (that is, to supplement a local health insurance plan with top travel insurance).
4. Share the benefits: Benefits play a major role in driving engagement and job satisfaction and will also be a key deciding factor for potential recruits. However, with falling oil prices and the arrival of mandatory health insurance for employees in Dubai and Qatar, some employers in the Middle East and Africa have felt under pressure to reduce the level of coverage they provide for executives. This could be a dangerous false economy.
For example, in Dubai the minimum value of coverage employers are required to provide for each employee by law is AED 150,000 per year. However, this may not be enough to cover treatment for a serious condition like cancer, leaving employees facing financial difficulties at a very stressful time.
In Metlife’s United Arab Emirates Employee Benefit Trends Study, 53% of respondents who admitted they were considering moving companies said that a better benefits package would encourage them to stay. Meanwhile, 70% also said they would be interested in additional benefits like supplemental health cover (for care not included within their standard policy), life insurance or disability insurance, even if they had to pay some of the premium.
So consider giving employees the chance to pay a top-up fee for additional coverage and benefits (depending on compliance with the local regulator). Options might include:
- In-patient only
- Dental cover
- Optical cover
- Maternity cover (employers in Dubai are responsible for providing this for married women)
- Life insurance
- Accidental death cover
- Work-related injury or illness insurance
- Disability insurance
- Cover for alternative therapies
Another add-on you might consider offering is additional assistance cover, to fund things like second opinions, evacuation or repatriation, or even reimbursing out-of-pocket medical expenses.
Match your cover to your people strategy
Throughout this article you might have spotted the recurring theme of balancing the insurance cover you provide with the interests of your staff. This is where your people strategy should come in.
A people strategy is a document that succinctly outlines your company’s approach to and relationship with its employees. It should include a statement of your organisation’s attitude towards the salary-to-benefits ratio: For example, do you prefer to keep salaries high and cut benefits in difficult times, or preserve benefits at the expense of salaries? Having a policy like this set in stone will help your HR team with the individual decisions they have to make when it comes to renewal time.
A people strategy is a document that succinctly outlines your company’s approach to, and relationship with, its employees. It should include a statement of your organisation’s attitude towards the salary-to-benefits ratio.
When developing a people strategy, it’s important to think about how you attract and retain top talent, as well as ways to limit your expenditure. Benefits like health insurance and workplace wellness are major attractions for employees and can help to boost their general wellbeing, which in turn can help to reduce your medical bills.
In the final analysis, the costs saved by cutting back on your employee health insurance should be weighed against the value to the business of having top talent, fully engaged and incentivised. Taking your people strategy into account, a good insurance consultant will be able to help you achieve the right balance between keeping your people happy and controlling costs.