Working with so many international group clients, we often get asked what is the ideal plan design. Unfortunately, there is no such thing as an ideal plan design – amongst our many company clients no two plans are the same. If you are struggling with trying to decide which benefits to keep and which to take out of your plan (to lower the cost), help is at hand however in the form of this guide where we have outlined some of the core components (or “building blocks”) of medical insurance plans and the “levers” that can be adjusted to ensure long-term sustainable pricing and or cost savings.
The core “building blocks” of medical insurance plans
Medical insurance plans can be difficult to understand with many different levels of cover and components that make up your plan’s table of benefits. The more benefits included in your plan, the higher the cost of the plan. There are certain benefits that all plans have such as emergency medical evacuation and cover for hospitalisation or in-patient stays – the foundation of any medical insurance plan. On top of this foundation are additional benefits that can be added to the plan to enhance the cover and protection for your staff. With each added benefit the cost of the plan (or “premium”) will go up.
The core benefits
Emergency medical evacuation
Every medical insurance plan should include emergency medical evacuation. Medical evacuations are usually to the nearest appropriate medical facility. It’s also possible to pay extra to ensure that where possible members can elect to be evacuated to their home country in the event of an emergency.
Similarly, every medical insurance plan should include cover for hospitalization, also known as “in-patient cover”. Hospitalization could take place following a serious accident, for the treatment of catastrophic illnesses such as heart disease or cancer, or for scheduled surgery such as a hip replacement. It’s possible to purchase in-patient only plans which are typically the lowest cost plans available. You should check if there is any limit for the type of hospital room available to you. While these benefits are not used a great deal – at least that is the hope – hospitalization can be very expensive and therefore this benefit, together with evacuation, is probably the number one reason people buy medical insurance plans.
Most in-patient only plans also include cover for out-patient surgery. If purchasing an in-patient only plan it’s important to check that it also covers you if the surgery takes place on an out-patient or day-case basis – such situations do not require an overnight stay in hospital and therefore would not be classified as in-patient.
Out-patient family doctor consultations
If people are accessing healthcare at all, it’s most likely that they will be seeing their doctor for an out-patient consultation. This includes visits to a family doctor or family physician (or GP) and given that people tend to use this benefit, it’s also amongst the most expensive components of a medical insurance plan. Generally speaking the cost of in-patient and out-patient medical insurance plan is about double the cost of an in-patient only plan. You should pay attention to things like caps on the number of visits per year or restrictions on seeing certain doctors such as specialist consultants or physiotherapists.
Usually covered in the same part of the plan as out-patient doctor visits, all or most plans
that include out-patient cover will also cover you for your prescriptions drugs or medication.
Similarly all or most plans that include out-patient cover will also cover you for the maintenance and treatment of chronic conditions such as high blood pressure, diabetes and asthma. You should check there are no restrictions on the cover of chronic conditions such as lifetime cover limits. Some group and nearly all individual medical insurance plans will impose some type of restriction such as a waiting period on the cover of chronic conditions.
Depending on your company’s hiring policy and culture, the cover of maternity benefits will either fall into the above core benefits (the “must haves”) or the additional benefits (the “nice to haves”). While some plans will impose a waiting period on maternity cover, most group plans will have no waiting period which means that new employees will have immediate access to the cover. Generally speaking, the addition of maternity cover to a plan will add around 10% to the plan’s premiums – to the cost of the whole plan, not just for your female employees.
Annual health check-ups (wellness)
This is an important part of any good medical insurance plan as it’s a benefit that is available to your staff immediately and even if they don’t get sick. A comprehensive health check-up can help your staff identify health problems before they start and therefore lower the costs of your plan’s premiums in the long-term. Most clinics and hospitals have packages that are built to closely match the caps (typically around US$500) of the insurance plan’s wellness or health check-up benefit.
Dental and vision
Dental and vision cover are without question the components of an insurance plan that can most easily be described as a “nice to have” rather than essential. Given that people will use these benefits, they are amongst the most expensive components of a medical insurance plan. Generally speaking, the addition of a dental cover to a plan will add around 10% to the plan’s premiums, though this depends on the level of cover you have in place.
Possible plan design adjustments to lower premiums
Once you have divided the above benefits into the “must haves” and the “nice to haves” and you have the key elements of the plan in place, it’s time to consider what adjustments you might make to the plan to lower the cost, ensure sustainable pricing and influence how your staff will use the plan.
Area of cover
Most international companies will either provide Worldwide cover for all staff (most expensive) or Worldwide cover for their US staff and Worldwide excluding the USA cover for their non-US staff. As a general rule, plans with full cover in the USA are about double the cost of a plan that provides emergency only cover in the USA. For companies in China, it’s also possible to provide cover in China only. Companies can consider supplementing the medical insurance plan with travel insurance plans that cover business trips outside the core area of cover – such as trips to the US.
Adding an annual deductible to your plan is a great way of bringing down the premiums and passing on some of the cost to the employee. An annual deductible is a set amount of money that members will need to pay towards the cost of healthcare at the beginning of the policy year, with deductibles usually ranging from US$100 to as high as US$1,000. The higher the deductible, the lower your plan’s premiums. A deductible also has the added advantage of helping to lower your plan’s overall claims exposure and therefore helping to manage the cost of your plan in the long-term.
A co-pay is similar to a deductible in that it asks members to contribute towards the cost of healthcare, but rather than being a set amount, a co-pay is typically a percentage of the cost of treatment, such as 10% or 20%. There are two types of co-pay – policy co-pay and provider co-pay (below). A policy co-pay can ask members to pay a percentage of out-patient treatment costs, in-patient costs, or both. The higher the co-pay, the lower your plan’s premiums. A co-pay similarly has the added advantage of helping to lower your plan’s overall claims exposure and therefore helping to manage the cost of your plan in the long-term.
A provider co-pay is different from a policy co-pay in that it only applies to a set list of medical facilities only. In China a very common plan design amongst international companies is to have a co-pay (usually 20%) on the so-called high-cost medical facilities – a list of hospitals and clinics in cities such as Beijing, Shanghai, Hong Kong and sometimes Singapore that charge higher than usual prices for healthcare. The intention of the provider co-pay is to limit access to these high-cost facilities by asking your staff to contribute towards the cost of treatment there. Such a plan design encourages your staff to “shop around” and consider the cost of treatment without automatically going to the most expensive clinics and hospitals. This plan design is therefore sometimes known as a “directed plan” as it directs people away from the high-cost providers towards lower cost alternatives. The provider co-pay has a powerful impact on how your members will use the plan and therefore has a strong impact on helping to manage the cost of your plan in the long-term.
If you are concerned about the impact of asking your staff to pay a co-pay and contribute towards the cost of their treatment, it’s possible to put a cap on their total out-of-pocket expense. This is known as an “out-of-pocket” maximum (or OOP max). The higher the OOP max, the lower your plan’s premiums. A lower OOP max will be better received by your staff but will diminish the impact of the co-pay on lowering your plan’s overall claims exposure and therefore help less to manage the cost of your plan in the long-term.
Some companies will impose a limit on out-patient treatment. Remember that since out-patient treatment is a highly utilized benefit any change here will have a powerful impact on lowering your plan’s overall cost. If you are considering imposing an out-patient limit of, for example, US$10,000, it’s important that the limit only applies to out-patient benefits such as visits to a family doctor and prescription medication and not to out-patient surgery and out-patient cancer treatment. The lower your plan;’s out-patient limit, the lower your plan’s premiums.