How it’s possible for international schools in Asia to implement more sustainable (and cheaper) medical insurance plans, by adding a few simple checks and balances:
Year-in, year-out we hear international schools in China asking the same question: Just why is the renewal premium for our medical insurance plan so much more expensive than last year? With prices sometimes increasing by as much as 150 percent at renewal time and at times even higher and annual premiums often in excess of USD 2,500 per person, its a question that is not only worth asking, but one that many schools simply cannot afford to ignore in the long-term.
By way of background, lets take a look at some of the factors that have contributed to such high annual premiums in the first place. As is well-known, international schools in China have traditionally been exceptionally generous with the level of medical insurance cover that they offer to their faculty members, with many schools offering the most wide-ranging and extensive cover available on the market. Many schools would argue that given the highly competitive nature of the teacher recruitment market in China, they have no choice but to offer the very best cover with no limits or controlling factors. Such plans offer 100 percent cover and an extremely comprehensive list of inpatient benefits, 100 percent cover for out-patient benefits, no excess, deductible or co-pay of any kind, complete medical history disregarded (MHD) and uninhibited access to all of the most expensive medical facilities China has to offer.
But while such plans can look attractive on paper from the outset (and something many teachers have come to expect) such uncontrolled plans are hugely unsustainable. Many of the larger international schools in China (and particularly those based in major cities such as Beijing and Shanghai) have appalling claims ratios (claims cost versus annual premium) with annual claims sometimes far exceeding the annual premium. Given that claims ratio is the rough equivalent of gross profit margin for an insurance plan, after the payment of all operating expenses, administration and broker fees, one consequence of this situation is that many international insurance companies have in the past walked away from the international schools market in China altogether, rather than continue to lose money. A typical reaction we see from a number of schools is to simply move on to the next insurance company that is willing to offer the same high-level of cover at a cheap price. That is until the next year, when the inevitable happens and the premium jumps again on account of the high cost of claims. And so the cycle continues.
Given the uncertainty associated with changing medical insurance provider each and every year such a short-term solution is becoming increasingly frustrating for your faculty members. Questions asked include: Will the new policy work? Will claims be reimbursed in good time (or at all)? Will the new insurer impose waiting times before certain types of cover come into effect? Will any pre-existing condition be covered under the new plan? That’s a lot of uncertainty.
Possible Solutions
So what’s the solution? How to build a plan that works year-in, year-out without huge hikes in premium and enables schools (and their faculty members) to stay with the same insurance provider?
One possible solution is to negotiate an across-the- board discounted policy on a group-basis for all international schools in China. However, lumping together those schools with famously high costs of claims together with those schools with a better track record onto an uncontrolled plan will only serve to negatively impact the premiums of all the schools in the group at a later date. And such a solution is hardly sustainable. Because while the underwriting insurer might be able to offer discounted premiums at the launch of the plan, there’s simply no way they’ll be able to limit the claims costs, therefore resulting in the high renewal premiums that schools are trying to move away from in the first place. So unless this discounted policy is a well-designed, controlled plan, such a solution then in reality presents nothing more than just a quick fix.
When looking to build a sustainable insurance solution, it’s not as simple as picking the best possible cover for the best possible price. We need to face up to the basic tenet that for many of the larger schools it’s simply not going to be possible to bring down the cost of your medical insurance plan without first addressing the issue of the how to bring down the cost of your school’s annual claims. By doing so, many schools will for the first time achieve claims ratios that enable the insurance provider to keep the renewal cost of their medical insurance plan at a much more acceptable level.
Schools need to start building sustainable plans that balance the interest of their senior management and board members (let’s loosely define this as a medical insurance plan that is cheaper than what is currently in place) with the interest of the faculty members (defined as a medical insurance plan that offers an acceptable level of cover). Furthermore, whatever plan is eventually put in place should not compromise the ability of the school to attract the very best talent nor the health of those teachers once they’ve joined the school’s faculty.
‘The 5 Controls’
This is not impossible. Such a solution is achievable by building into the plan a number of checks and balances or controls that exist for the sole purpose of keeping a school’s annual claims at a sustainable level. We have called these checks and balances, the 5 Cs (or the 5 Controls), with reference to clinics, country, co-pay, cover and cooperation. Implementing just one or two of these five can result in significant cost savings.
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Clinics
Consider only including direct billing or elective treatment at those facilities that represent better value for money, and exclude direct billing at the more expensive facilities (faculty members still have the choice to go there). Somewhat surprising to those new to China is that Beijing and Shanghai have some of the most expensive medical clinics in the world (including the United States). This is even more surprising when you consider that a comparable level of treatment (and arguably better) 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 Beijing and Shanghai have probably been the single biggest contributing factor to the huge hikes in renewal premiums witnessed over the past few years. Such high prices are combined with questionable sales techniques by these clinics that are designed to dissect international schools insurance policies in order to draw the most amount of money from the insured party in any given year. Limiting access to these facilities will not only help to bring down the dollar-amount of your school’s annual claims but may also help bring the costs of treatment at such facilities close to the level seen at comparable facilities elsewhere in Asia. You might also consider excluding certain expensive facilities from the plan altogether or putting in place a co-pay at such facilities, thereby making them less attractive for your faculty members to visit.
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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 faculty to have elective treatment at the most expensive facilities (treatment in the United States is the most expensive in the world) will certainly help to reduce your overall claims cost exposure.
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Co-pay
Consider putting in place an annual co-pay or deductible so as to reduce the frequency and exposure of frivolous claimers. Many schools have already seen considerable success by putting in place an annual co-pay that is paid by the school to the teacher either at the beginning of the year or at the end, thereby incentivizing your faculty to use lower cost facilities. This has the added advantage that not only are faculty members unable to accuse the school of scrimping on their medical insurance, but those teachers that have few or no claims can do exactly as they please with this money.
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Cover
Many schools currently offer a list of benefits that tend to encourage over-usage of the plan such as wellness benefits, dental, and unlimited out-patient cover. It’s possible to reduce your plan’s overall premium by reducing the out-patient cover which most insurers can accommodate or by removing cover and benefits that are not relevant to your faculty members or relevant to China (such as ambulance and nursing fees). Another option is to not include wellness or dental coverage at all, and perhaps instead to offer faculty members a reimbursement voucher at a designated high quality, local clinic for such treatment.
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Cooperation
International schools in China should work together at the board-level to find a sustainable solution to the problem of out-of-control premium renewal hikes. Perhaps by benchmarking schools with more sustainable programs that are already in place, and identifying what works (and what doesn’t work), schools can then look to roll out similar programs at other schools, right across the board.
One other control that some schools have also brought into play is to bring claims administration in-house. A word of caution: This can bring up issues of confidentiality in that many faculty members may not want senior management to have knowledge of the medical treatment they are receiving. Handled correctly however, such a move can also help to reduce the frequency and exposure of frivolous claimers. And of course the information collected by the school on how their faculty members are using the insurance plan can prove invaluable when trying to tailor plans at renewal to better suit your faculty by lowering the level of cover in areas that have seen low claims, removing any benefits that are not relevant and increasing the level of cover in areas that see high claims.
The implementation
Many schools argue that it’s next to impossible to convince their faculty members that building such checks and balances into the plan is in their best interest. Teachers, we are told, complain that the school 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 their faculty on why such a change has come about, making sure to point out that given the fact that so many insurance companies have been burnt in China as a result of the high cost of treatment at many of China’s medical facilities, no school will be able to offer the very best cover available forever. Change is unavoidable. Take comfort in the fact that some schools 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 and insurance provider to help with this education process.
It’s important to point out that by serving to limit the overall annual cost of your school’s claims, you are not looking to deny your faculty members the opportunity to claim, increase their level of risk or reduce their basic level of cover. Such checks and balances are designed simply to limit those claims that might be categorized as unnecessary, whether unnecessarily expensive or otherwise. After all, 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.
But you must not be held hostage to your faculty’s resistance to change from the types of uncontrolled plans that they have become accustomed to nor to the belief that change is impossible. When schools do start the ball rolling in implementing more controlled medical insurance plans, resistance to such a move usually comes from a small group within the faculty the most frequent users. But for the majority of faculty members common sense prevails, they accept these changes are necessary, and appreciate the great benefits they still have.
Remember that your faculty members will like the idea that you’re working to put in place a plan that does not require them to be with a different insurance provider each year. Given the tough financial choices many businesses are facing today, one could argue that there’s never been a better time to have such a conversation with your faculty.
It’s often said that “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 schools will find it very difficult to reduce their annual premiums, unless they can find a way to reduce their overall claims exposure by implementing more controlled plans. Once the hard work is out of the way, very soon you’ll start to see renewal rates much more in-line with standard medical inflation and a sustainable policy that will work for many years to come.
AUTHORS:David Bortz, director, One World Cover and Michael Pennington, client services director, One World Cover.
