By Carl Redondo, Regional Benefits Consulting Leader, Hewitt Associates, Hong Kong
Introduction
The employee benefits market in Hong Kong is straightforward when compared with most other countries in Asia. Employers typically only provide pension benefits, via an MPR of ORSO plan, life insurance and medical insurance as the main benefit programmes. Pension is normally the most expensive benefit but medical is usually the most valued by employees. The pension plan, ORSO or MPF, has a whole regulatory structure to ensure minimum governance standards but no such regulations apply for medical plans.
The cost of providing medical coverage is rising rapidly as the population ages in Hong Kong and more expensive treatments come onto the market. These rising costs combined with the perceived value to employees are encouraging employers to make sure they are extracting maximum value from their medical providers. Hewitt is working with a number of companies in Hong Kong who are now looking to build a governance framework around their medical plan to ensure it is both cost effective and providing the most value to employees.
As premiums continue to rise from year to year, the first question that employers are asking is around value for money. What is justifying the premium increase? Does the premium rise adequately reflect the claims experience of the employee population or just general medical inflation trends?
The other major question employers are looking at is around the policy design. Does the coverage provide value to employees? Are the covered illnesses and diseases appropriate for the employee population? Do the policy limits and co-sharing arrangements ensure the policy is effective?
Rising insurance premiums:
make sure there is justification
The underlying costs of providing healthcare benefits are rising and so it is unavoidable that premiums will rise as part of this trend. The issue that employers need to tackle is ensuring that the rise in premiums reflects the insured population (ie their employees) and not just the general trend of medical inflation.
Many companies in Hong Kong are pursuing "wellness" campaigns to ensure their employees stay healthy and are then shocked when premiums continue to rise in line with overall market trends. There may be genuine reasons for this, but the key is for employers to make sure they are receiving timely and detailed analysis highlighting why the premiums are rising tied to their own population. Industry best practice is such that premium rises are tied to the experience of the insured population rather than the insurance company's pooled experience.
The implication to this is that once an employer knows why the premium has increased there may well be action they can take to reduce the impact of this particular disease or illness. This is particularly true if claims are related to lifestyle or stress related claims. The company can actively target its wellness initiatives to reduce the claims in the areas associated with premium increase.
Policy design: one size doesn't fit all
It is typical for a medical provider to offer standard coverage terms to new clients. This is understandable and fair. Over time though, the insurance company should be working with employers to ensure the policy design is aligned with the experience of the employee population.
Coverage for certain diseases and illnesses can be reduced or increased to suit the population. The insurance company should also work with employers to ensure future demographic changes are anticipated. For instance, if the proportion of female workers at the age of 20-30 is increasing then employers may want to improve the level of pregnancy cover offered. Similarly if the workforce is steadily ageing then overall levels of coverage may be increased to suit the needs of the employees.
The other major area of policy design that should be kept under review is the co-sharing and deductible arrangements. These policy levers are used to try and ensure that only genuine claims are made and that there is some disincentive to employees visiting the doctor every time they sneeze. Total claim numbers —particularly for relatively minor ailments—should be monitored from year to year and if there is evidence of an increasing claim numbers then the co-sharing arrangements should be reviewed.
Medical plan governance: bringing it to life
Employers that we work with are in broad agreement that better governance of employee medical programmes is needed but they lack the structure to implement it easily. Employers often make the comparison with MPF plans which come with a ready built regulatory system and trustees. None of which currently applies to medical plans. We advise our clients to take the following basic steps to building the governance framework:
1. Formal three-year review of medical provider. Insurance companies benefit from inertia in the sense that employers do not like to change things unless they have to. We support this mindset but argue that it is always beneficial to test your provider against the market every two to three years. Employers have a duty to ensure employees are receiving best in class service from their insurance company whilst also providing value for money. Our experience of supporting clients in these types of reviews is that changing the provider is the last resort but the review does ensure your current provider continues to give you the best service they can offer.
2. Annual claims analysis. If medical insurance is purchased via an insurance broker then employers should ensure that the insurance broker provides annual, if not quarterly, analysis of claims trends. This analysis should go further than just statistical analysis of what claims have been made but should provide advice in relation to coverage levels and co-sharing relationships. This analysis should support the annual premium setting exercise.
3. Establish an employee benefits committee. Many companies already have a pension committee that provides oversight to the pension plans via a series of regular meetings. Our advice is to extend this committee to become an employee benefits committee that also provides regular oversight to the medical plan. The committee would typically meet quarterly or bi-annually and would build a regular series of agenda items as well as taking responsibility for reviewing claims analysis and owning the formal provider review.
Closing comments: lay the foundations ahead of PHI changes
With the Hong Kong Government committed to introducing a more robust Private Healthcare system in Hong Kong, it is very likely that employer provided healthcare benefits will become more significant in future years. There is also the distinct possibility that the new healthcare system will be combined with the MPF pension to become one single pension and medical system. If this combination does happen then the lines between healthcare and pension benefits will become blurred and the governance associated with pension will become even more relevant to medical plans.
Even without the changes associated with the medical system the costs associated with providing medical benefits are rising each year and we are encouraging employers to manage these costs as they would any other significant cost of their business.
Introducing a relatively simple governance framework allows companies to ensure the plan is effective in the short term whilst laying the foundation to deal with the long term changes that are coming.
Paul Arkwright
Publisher
