Is Group Medical Insurance Sustainable?

A group medical insurance plan which costs US$ 500,000 today will increase to a fraction under US$ 1,000,000 by 2020.

Read that again; over the next 7 years the cost of corporate medical insurance schemes are set to double if current premium inflation trends remain constant.

The plan will have remained the same, and the benefits on offer will remain stable, but the cost of providing a medical benefits package to employees will soon escalate to the point where it will simply be unfeasible for a range of organizations to provide this perk to their employees.

Simply put, Traditional Group Medical Insurance packages, in their current form, are becoming too expensive.

A primary reason for this, especially with regards to multinational corporations, is that many companies have opted to obtain international Private Medical Insurance (iPMI) coverage for their staff. In previous decades, and even years, the purchase of iPMI coverage was a sensible choice as enticing key employees overseas on an international assignment required additional benefits on top of the standard increased pay packages, housing and education allowances, and extended leave benefits.

However, in the current age there has been a demographic shift in the type of expatriate which companies across the world are sending overseas. The paradigm has changed to the point where expatriate employees in locations like Hong Kong, China, and Singapore are much younger than they were during the 1980’s (and even the 1990’s); these individuals often do not have families accompanying them on their offshore secondment, are willing to work for lowered overall salaries, and very rarely receive the comprehensive housing or living allowances of their predecessors.

So why are the costs of insuring these individuals through the company’s group health insurance plan increasing? Organizations are still providing the same types of protection to their staff members as they have been for the last 30 years and in many cases are choosing to decrease the coverage benefits of their policies, but the price of obtaining the coverage is still spiralling out of control.

And therein lays the problem.

Health Insurance for a new generation of Employees

The new generation of expatriate, the Generation X’s, Y’s, and Millennials, has a different set of needs and expectations of the expatriates of yesteryear; and, in many cases, are increasingly being offered compensation and benefits packages more in line with their domestically hired local co-workers. However, companies and businesses across the planet are not adjusting their health insurance coverage offerings to these needs, remaining with the same style of medical insurance protection that they have been offering for, in some cases, many decades.

This is exposing a needs gap, where companies are increasingly finding themselves out of position to purchase traditional iPMI protection for their employee; and employees themselves, due to the lowered remuneration on offer in the wake of the 2008 financial crisis, are also no longer in a position to purchase this type of coverage due to their needs and lessened income. However, in many cases the domestic health insurance coverage options are often found to be far too constricting – they may be highly inexpensive, but will often have premiums calculated through experience rating and will normally provide extremely low levels of medical protection.

On top of the unsustainable pricing points of traditional iPMI policies, the twin issue of a changing expatriate workforce points to a changing marketplace which, in turn, requires changes in the health insurance products being offered by insurance companies throughout the APAC region.

Astute readers may, at this point, be thinking that the changing demographics of staff alone are not enough reason for the inflated costs of group medical insurance coverage, and they would be right. In fact, there are a myriad of reasons for the premium increases currently being experienced by group medical schemes across the world. Not in the least of these reasons are changes, and rises in health and lifestyle risks.

Increased rates of obesity, diabetes, tobacco related illnesses, cancer, and heart disease, especially amongst corporate executives have all led to higher healthcare expenses for companies covered by a group medical insurance policy. Cardio Vascular illnesses are currently the highest expenditure for global insurance claims, but are expected by a vast majority of international insurance companies to be replaced by cancer within the next 5 years. While the costs of treating heart conditions are high, the price of intensive radiotherapy and chemotherapy treatments is significantly higher – even if a younger expatriate workforce is emerging, the prevalence of these costly diseases will continue well into the future.

So the actual health, or indeed future health, of a company’s workforce is a significant factor in the increases being seen with regards to the cost of group medical insurance coverage. This factor, set against the backdrop of a more youthful employee and startling increases in global healthcare costs, where medical inflation is running at an approximate 10 to 11 % per year, all combine to point to a seriously grim future for the management and upkeep of comprehensive group medical insurance schemes under current trends.

Finding the right Group Health Insurance Products

With all that being said, what then are the options?

Obviously, if organizations intend to attract and retain the best possible talent, doing away with a health insurance policy for staff members is not a viable option; especially if the costs of healthcare are spiralling out of control to the point where individual out-of-pocket payment is not a feasible scenario.

The short answer to all these issues may, in fact, be painfully apparent; fresh thinking is needed to identify different solutions with regards to corporate benefits packages which include health insurance coverage. However, a number of options are beginning to emerge which give businesses in Hong Kong and across the APAC region a flexible range of options with regards to this type of insurance protection.

For example, Maternity coverage, one of the more expensive benefit options available under traditional iPMI products, is no longer considered a necessity by the changing expatriate workforce or even for locally hired and more junior staff. Yet many businesses continue to obtain this type of coverage for their employees without taking the time to adequately assess whether this is a requirement for the entire workforce in their policy. However, for more senior executives and older expatriates a coverage benefit like Maternity is deemed to be a requirement.

Larger corporate groups, where premiums are directly related to the individual group claims experience, retain the ability to tailor-make their benefit package under a traditional iPMI product. Some of the higher cost benefit areas are now under serious review, including maternity and psychiatric cover, both of which can have detrimental long term effects on overall costs. Particularly in the community sector, if plan premiums are rated on a community basis, the end result of this is that groups are often paying for someone else’s maternity.

As such, an ability to select Maternity coverage is an element of health insurance which needs to be available on a wider platform. The alternative of including such coverage as standard within the policy means that, more often than not, businesses are paying for protection which employees do not fully utilize or in some cases actually need – leading to ever more inflated premiums.

Building on the idea that corporate health insurance should be specific to the needs of your employees is the concept that a move away from full blown iPMI coverage may be more suitable to a range of business. This is not to say that the purchase of a wholly localised product is the best solution, especially not for foreign workers who view the ability to receive treatment in their home nations as a vital necessity; but rather that a combination of aspects of both localised domestic and iPMI products is needed.

Simply put, Hybridization is the order of the day in the modern world.

Hybrid Group Health Insurance; Changing the Solutions

Products which combine the flexibility of international plans at the price points of localised offerings are starting to emerge across the world. More than simple “Catastrophe Coverage” options, but remaining at a stable price over a long period of time (doing away with the need for comprehensive annual reviews of the policy), there are currently a number of options available for the hybridization of health insurance coverage currently being offered to employees.

A truly Hybrid health insurance plan is one that could be considered to blend the best aspects of both local and international coverage options; mixing the benefits so that the policy is the perfect fusion of benefits and cost. A hybrid health insurance policy will provide coverage for Semi-Private rooms at leading hospitals, lowered maternity coverage based around an individual group’s need for such protection, lowered overall internal benefit limits, and more territorial specific coverage while still allowing for catastrophe protection outside of the policy’s geographical coverage area.

A second coverage option is that which many insurance providers are beginning to refer to as “local plus;” not quite the complete hybrid policy, a local plus plan will provide levels of coverage that are more standard under fully local health insurance products but will offer the benefits needed for the employee to access higher quality care options at medical facilities like Hong Kong’s Sanatorium or Adventist hospitals.

One of the unfortunate downsides to a Local Plus plan is the fact that there is very rarely coverage available outside of the policy’s geographical area; meaning that such a plan purchased in Hong Kong would only allow protection for medical treatment received in HKSAR. However, with the development of a changing expatriate workforce many new expatriates are beginning to view the ability to receive treatment in their home country as a luxury rather than a necessity. On the positive side of Local Plus plans, these policies will provide higher benefit levels than true “Local” protection options, but at a similar premium, allowing for flexible coverage which can be tailored dependent on an organization’s needs.

One of the major reasons why many companies eschew a localised option for their corporate health insurance coverage is the historical tendency to view these products as simply insufficient for their needs – often providing restricted coverage for a myriad of benefits with the premium pricing to match. Certainly when a premium per employee is in the range of HK$ 2,500 per year the total coverage being provided will not be high, and will not provide coverage which includes a comprehensive outpatient benefit!

As such, because of the lack of attractiveness in place with truly local insurance policies, many companies and businesses have simply discounted these products when reviewing the health insurance which they are offering to their employees. However, there are local options which can be viable for comprehensive group medical insurance schemes, especially when looking at the creation of products that include concentrated direct settlement networks at premier medical facilities on both an inpatient and outpatient basis. Moving towards bespoke settlement networks allows for more stable pricing points while still enabling the plan to provide benefits which are going to be valued by the employee.

The problem with the options illustrated above, that is to say Hybrid, Local, and Concentrated Local Settlement products, is that these coverage options are not yet universal within the global health insurance industry, nor have they been widely developed by the various providers operating within Hong Kong, China, and Singapore. Although these options would make sense for businesses within the changing Asian economic landscape, especially in light of changing employee demographics and needs, demand for such coverage options has not yet grown to a level where many insurers are designing these products to address the specific concerns highlighted in this article. The options for new and innovative policy types are limited, and the current products on offer are, in many cases not suitable to the needs of the organizations which are purchasing them; but the historical tendency to stay with a specific product type because it is a known quantity is still prevalent throughout the business landscape.

This is not to say that business should completely disregard traditional international Private Medical Insurance options all together, but there is an issue of finding the mix of coverage and premium which is correct for a specific organization.

Bespoke Group Health Insurance; Fitting the Organizational Requirements

It is a simple truth that no two companies are exactly alike, but there is a tendency within the Hong Kong insurance market to treat all organizations as if there were the same. This is why only a select number of “quality” iPMI products are being sold throughout the local business landscape as the plans which have become ubiquitous are easy for both brokers and providers to sell. While a “one size fits all” mind-set was manageable in the past, and there have been minor tweaks to the policy provisions being offered to businesses over the years, the changing dynamic of the employee landscape together with the vast premium inflation levels currently being seen throughout the marketplace have shown that there needs to be a fundamental shift in the advice being given for group medical coverage; especially by intermediaries.

The fundamental point on a group medical insurance policy is that the market is changing and the advice being provided to businesses needs to change as well. This is not to say that the fault lays with the underwriters and providers, despite the ever increasing premiums being paid for the coverage. The providers, as much as anyone else, want the prices of their products to come down as it is leading to smaller groups of clients as the costs involved with coverage spiral ever more out of control. However, the healthcare market the world over has also become less stable, with many healthcare operators moving to a stance where policyholders are being charged fees for their treatment which are many times higher than the fees being charged to individuals with less comprehensive policies or no coverage at all.

This is not only true in Hong Kong and the USA, two of the most expensive countries in the world to receive private medical treatment, but is a trend which is also starting to emerge in Singapore, China, and throughout the APAC region. At the end of the day health insurance is a risk based product, as the risk involved – in this case the risk of the policyholders healthcare costs – increases so will the pricing involved in the coverage.

The root of the problem is, in fact, the actual cost of healthcare and something needs to be done to reduce these costs. As long as the costs of care continue to increase at astronomical rates so will the costs of any and all health insurance options. Imagine if every insurance company, and business holding a group medical insurance policy, were to join forces and talk to the various healthcare providers in a high-cost location like Hong Kong, there may actually be the possibility of resolving the inflation levels through a hard stance of utilizing alternative treatment avenues in countries like Thailand; where it is cheaper to book a flight and stay in the hospital for 2 days than it is to receive a general check-up at some of HKSAR’s leading medical facilities.

The fundamental conclusion to the issue of spiralling Group Medical Insurance premiums is this; the market is changing. The fact that employee needs, product types, and service availability are shifting towards new paradigms highlights the need for change within both the insurance and healthcare industries if companies are to continue providing key members of staff with benefit packages commensurate with their positions. Unless drastic action is taken with a view to exploring ever more innovative and flexible types of coverage the continued offering of health insurance packages to employees will no longer be sustainable.

It really is that simple.