Building a cost effective health insurance solution

How it’s possible for China-based MNCs to implement more sustainable (and cheaper) medical insurance plans, by adding a few simple checks and balances:

It’s no secret that here in China probably the biggest headache faced by managers is how to hold onto their company’s star performers. It was a major problem before the current climate of tightened belts and slashed budgets, and despite reduced headcounts, the need for companies to hold onto their best people has not diminished. In fact, it’s a need that has probably become even more acute with various estimates suggesting that losing a senior executive costs a company more than double that person’s annual salary. Here in China, one of the most successful ways for companies to tackle this problem has been to put in place more effective employee retention programs that have traditionally included offering employees more holiday time, more flexible hours, tuition reimbursement, improved management feedback, more structured career progression, better compensation and an extensive benefits program.

But all of this of course costs companies money and the need to keep in place an innovative employee retention program is entirely at loggerheads with the just as pressing need for companies to save money. According to one senior insurance executive, “employee retention is a major benefits objective for employers, [but] controlling costs is a close second. The strong relationship between benefits satisfaction and job satisfaction indicates that there is more pressure than ever on employers to strike this balance and utilize benefits strategically to achieve both objectives.”

Medical insurance, particularly for your more senior management, and even more especially if those senior managers are expatriates, is without a doubt the key component of a companies’ benefits program. That’s even truer in China where many expatriate managers worry about both concerned about the quality of China’s local hospitals (which are at least very low cost) and about the high costs of those healthcare facilities that traditionally target the expatriate market (oftentimes too expensive for those without medical insurance). So while some of the more expensive components of your company’s retention strategy might have already been put on hold, medical insurance is one benefit that senior executives will simply not go without.

A more balanced solution

Companies then need to find a way to implement more cost effective medical insurance plans. When looking to build a more cost effective solution, it’s not as simple as picking the cheapest insurance plan out there. Companies need to balance the interests of HR managers, board members and shareholders to cut costs (let’s loosely define this as a medical insurance plan that is cheaper than what is currently in place) with the interests of employees (defined as a medical insurance plan that offers an acceptable level of cover). This is not impossible.

The essential components of a medical insurance plan are generally considered to include emergency evacuation, hospitalization, and outpatient consultations. Dental cover, vision cover, wellness cover and access to a direct billing network are likewise generally considered to be less essential. While largely keeping intact those core, essential components, and by reducing or eliminating the non-core components, companies can save anywhere from 5 to 40 percent of their plan’s total premium.

Such a solution is achievable by building into the non-core components of your company’s medical insurance plan a number of checks and balances – or controls – that exist to keep a company’s annual claims at a sustainable level (high claims have a significant impact on your insurance plan’s premium at renewal) and to reduce the initial annual premium of the new, more controlled plan.

‘The 5 Controls’

We have called these checks and balances ‘the 5 Cs’, or ‘the 5 Controls’, with reference to clinics, country, co-pay, cash and cover:

  • Clinics

    Consider excluding certain expensive healthcare facilities from the insurance plan altogether or putting in place a co-pay (excess) at such facilities, thereby making them less attractive for your staff to visit. Somewhat surprisingly to those new to China is that Shanghai has some of the most expensive medical clinics in the world. This is even more surprising when you consider that a comparable level of treatment is offered in places like Thailand, for a fraction of the price (and some insurance plans will cover costs of travel to Thailand for elective (non-emergency) treatment). The prices charged at these facilities in Shanghai has probably been the single biggest contributing factor to the increasing costs of medical insurance in China witnessed over the past few years. Steering your employees to lower cost facilities will help to bring down the dollar-amount of your company’s annual claims, and therefore your renewal premium. Another solution is to only include direct billing or elective treatment at those facilities that represent better value for money, and exclude direct billing at the more expensive facilities. The good news is that there are an increasing number of healthcare facilities in Shanghai that offer extremely good value for money for a comparable quality of care when compared with the most expensive facilities on offer in China.

  • Country

    Consider limiting coverage within the United States to emergency cover only, to a set number of days each year, or excluding cover within the United States altogether. Similar to the above rationale, not allowing your employees to have elective treatment in the United States (treatment in the United States is commonly the most expensive in the world) will certainly help to reduce your overall claims cost exposure. Many companies supplement their employee’s medical insurance plan with an annual accident and emergency travel insurance plan that covers business trips to the United States.

  • Co-pay

    Consider putting in place an annual copay or deductible so as to reduce the frequency and exposure of frivolous claimers, and also to reduce your plan’s overall claims cost exposure.

  • Cover

    Consider reducing the overall insurance cover limit, particularly for outpatient treatment. It’s possible to reduce your plans overall premium by reducing the outpatient cover to 90 or 80 percent of your current amount (similar to introducing a co-pay) or by removing cover and benefits that are not relevant to your staff or relevant to China. You might also consider reducing (or removing altogether) the amount of dental, vision or wellness cover.

  • Cash

    Consider using the money saved on a new, more cost effective, medical insurance plan to offer employees a supplementary cash voucher (less than the cost of the overall saving generated) to redeem as cash or to pay for additional medical benefits, as an employee wishes.

Making the transition

Many companies argue that it’s next to impossible to convince their employees that building such checks and balances into their medical insurance plan is in their best interest. Employees, we are told, complain that the company is only doing this in order to get a better deal on the insurance. This is of course partly true, and the transition to such a plan will certainly require senior management to educate employees on why such a change has come about. Take comfort in the fact that some companies in China have already made the transition to a more controlled insurance solution, and they are still able to attract and retain key staff. Consider bringing in representatives from your insurance broker andinsurance provider to help with this education process. Given the tough financial choices that many businesses are still facing today, one could argue that there’s never been a better time to have such a conversation with your employees.

The most important aspect of a medical insurance plan is that it works and that it covers the policy holder when they need it most. It’s important then to point out that by serving to limit the overall annual cost of your company’s medical insurance plan, you are not looking to deny your employees the opportunity to claim, increase their level of risk or reduce their basic level of cover. Such checks and balances are more often than not designed simply to limit those claims that might be categorised as unnecessary, whether unnecessarily expensive or otherwise, and to remove those aspects of your company’s current medical insurance plan that might be classified as irrelevant.

It’s often said that you “you can’t put a price on your health”. Well actually you can – because your insurer does every year. And so it naturally follows that companies will find it very difficult to reduce their annual medical insurance premiums, unless they can find a way to implement more controlled plans. Once the hard work is out of the way, you’ll be able to move forward with a considerable cost saving made to the most important aspect of your company’s employee retention strategy and a sustainable saving that will stay intact for many years to come.


AUTHORS: David Bortz, director, One World Cover and Michael Pennington, client services director, One World Cover.