Why underfunded staff medical schemes put your company at risk
It’s no secret that the cost of medical care is on the rise. The latest Willis Towers Watson Global Medical Trends Survey report shows the projected average rate for 2017 for the UAE at 10.2 per cent compared with the general inflation rate of 3.2 per cent. This compares with 7.8 per cent and 2.6 per cent respectively for the global average. And this trend looks set to continue, with drivers including new medical technology and medication, an increase in chronic conditions such as cardiovascular disease, diabetes and cancer, and overtreatment by providers.
Companies are understandably responding by looking for ways to keep their outgoings as low as possible. But this can result in underfunded medical schemes, bringing numerous problems that will directly impact on the health and wellbeing of your employees – and ultimately your productivity.
In this context it is worth bearing in mind The Common law of Business Balance on which John Ruskin allegedly opined in the 19th Century: “It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot – it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”
Here are some of the most common pitfalls – and why it pays to avoid them.
1. Buy low now, pay high later: Paying a lower rate may seem like the most straightforward way to lower costs, but it’s highly likely to increase your premium further down the line. Medical insurance is not the same as office supplies that you can buy cheaply and regularly replace.
Technological medical advances can be costly, so it follows that prices need to rise to provide access to the latest treatment. When a scheme is underfunded due to premiums dipping below costs, it will always have an adverse effect on those covered.
The Willis Towers Watson 2017 Global Medical Trends Survey report revealed that by 2018, more than half of employers intend to make changes to their healthcare plans that are specifically designed to lower premium contributions. While some of these changes bring in welcome cost efficiencies – encouraging use of telemedicine and use of data to drive care management decisions, for instance – too much restriction of cash flow will lead to some tough decisions for medical insurers down the line.
Ultimately, they may find the only solution left to them will be to charge more for a product that may have diminished due to lack of funding, before it disappears altogether.
2. No money, no investment: The cash flow structure of the health insurance market allows for insurance companies to ensure a profit in a variety of ways. The time lag between collection of a premium and payment of a claim means that insurance companies are able to invest in stocks and bonds, increasing revenue. But when a scheme is underfunded, investment will suffer first. If an insurance company is struggling to maintain its current operations, investing in future profits becomes a luxury.
Yet the shifting nature of healthcare challenges means that investment is an essential arm of any successful scheme. Simply defining what the scheme needs to cover to give employees the best possible chances of protection should they fall ill is a challenge in itself.
In many countries, infectious diseases have all but been wiped out due to economic development and advanced medical care, so now the challenge lies with non-communicable diseases. When Willis Towers Watson asked medical insurers in the Middle East and Africa (MENA) to rank the top three illnesses they expect to deal with in the next three years, they said cardiovascular disease (82 per cent), cancer (74 per cent) and respiratory diseases (69 per cent) – often long-term and costly conditions.
Our fast-changing world brings new challenges for the health of a population and, to counter this, insurance premiums must be high enough to ensure that there’s enough to reinvest into providing appropriate, high-quality services for employers and their staff.
3. Reluctance to accept claims: It’s a stereotypical view that the insurance industry wants its clients to be making fewer claims, but in the medical profession there’s more to it than not wanting to pay out. Having unnecessary treatment can result in side effects and put a body under stress so it’s best to act only when necessary.
Of the medical insurers surveyed, 74 per cent said overuse of care due to medical practitioners’ recommendations is the most significant cause of costs rising. A further 54 per cent list overuse of care due to employees seeking inappropriate treatment and 31 per cent chose underuse of preventive services.
Overuse covers anything from inappropriate treatment of a viral infection with antibiotics to performing expensive diagnostic tests, such as MRI scans, that are unnecessary. These issues don’t only affect the employees directly involved because wasting money in this way eventually reduces the quality of care for everyone.
This all paints a picture of an industry that feels overstretched. Pushing down pricing will mean that there are fewer resources to go around and the likelihood of claims being rejected will rise. Also expect ex gratia, or ‘goodwill’ payments (those made when a claim falls into a grey area and an insurer is not legally obligated to pay) to become a thing of the past.
4. Limited coverage: Most insurance policies have different sub-limits and exclusions, which may dramatically affect some of your employees in a negative way. If, for example, certain conditions become subject to a lower sub-limit – in other words the maximum costs claimable for a condition are reduced – this may have a huge financial burden on some of your staff.
Underfunding already means that certain areas of healthcare are neglected. For instance, our research has revealed that 43 per cent of insurance companies exclude HIV/AIDS and 72 per cent exclude treatment for alcoholism and drug use. Meanwhile, 31 per cent exclude treatment for mental health and stress from their standard medical insurance programmes, despite the fact that the World Health Organization (WHO) says mental health problems affect one in four of us over a lifetime.
The more premiums are cut back, the more services will be scaled down to cover fewer and fewer areas. We’ve already seen the results of this process in the US, where underfunded pensions are subject to a series of legal restrictions and freeze altogether below a 60 per cent funding threshold, according to Pensions: Reform, Protection and Health Insurance.
Benefits such as good health insurance packages are key to attracting the best talent. A 2016 study carried by insurance company MetLife in Egypt found that benefits such as health insurance were a major reason why 52 per cent of people stay loyal to their current employer. With competition fierce to provide the best employee benefits package, it will reflect poorly on a company that is unable to guarantee certain medical cover and benefits for their staff.
To avoid reaching this stage, we must realise that health insurance is about providing good care for employees. If companies continue to prioritise low spending to the point where similar legislative action must be taken, they may find that it becomes hard to retain employees – or even attract them in the first place.
5. Cost-share crunch: Cost-sharing schemeswhereby employees contribute towards their own healthcare, are not new and can be a good way for a company to provide the right level of care, even if they are not able to cover the entire cost. In the Middle East, annual limit out-of-pocket expenses and member co-insurance are the most common forms of cost sharing.
But if companies begin to look towards their employees to recoup healthcare costs too much, those at the lower end of the wage spectrum will struggle. In the US, where these co-sharing practices have been commonplace for many years, there’s growing concern about the squeeze medical costs are putting on those who earn the least.
On top of this, studies show that there is still little enthusiasm for the cost-sharing model. Healthcare can be expensive and cost can be a major factor in people’s decision to seek care. The perception alone of having to share the cost for healthcare could lead to your staff suffering in silence. A subsequent delay in diagnosis could result in more expensive care further down the line, or even jeopardise the outcome.
Worst-case scenarios aside, presenteeism – when staff come to work sick and underperform – can be costly. A 2016 Insights report by Global Corporate Challenge found that the equivalent of three months per year are lost in productivity for this reason, costing businesses ten times more than absenteeism.
Again, this is a problem that boils down to the concept of health insurance. It’s an exercise in protecting your employees to keep them fit, healthy, and productive. In the UAE, it’s an expected part of good employment. The more widespread cost-sharing becomes and the higher the contributions your employees are expected to pay, the less satisfaction there will be.
6. Lost health education opportunity: In the next year, the number of insurers offering lifestyle and health education is expected to grow from 48 per cent to 60 per cent. Education on healthy lifestyles can help with prevention and reducing requests for inappropriate treatment. In addition, encouraging employees to give feedback on their experience of healthcare providers can help encourage use and development of quality services.
Education can be a powerful cost-mitigation tool for both employers and insurance companies alike, but only if the insurance companies are sufficiently funded to run such programmes. This is a prime example of how cutting premium prices can end up costing more in the long run.
It’s understandable that companies worried about their bottom line should look to cut costs but burning your medical insurer is a very short term strategy and can only lead to correction in the medium to long term, and potentially a lot of pain and hassle with diminished service in the interim.
An appropriate and cost efficient programme can be designed by working in partnership with a good quality broker to understand the needs, circumstances, objectives and budget of the employer and aligning those with appropriate solutions available from the insurance market. The objective should be to build a viable robust solution in partnership with the stakeholders.
Does that sound like a good deal to you?
(By Simon Stirzaker, Regional Leader, Health & Benefits at Al-Futtaim Willis)