How to Manage Your Staff Medical Costs

29 March 2019

JLT’s Benefit Solutions teams work collaboratively with the HR Departments of clients

This article looks at the different ways that JLT’s Benefit Solutions teams work collaboratively with the HR Departments of clients to control, and often reduce, the costs associated with funding a comprehensive employee medical insurance programme.

But first, a spot of role-playing: Close your eyes for a moment and assume the role of a HR Director.

  • You are in charge of your company’s employee medical insurance programmes and the renewal anniversary date is approaching.
  • The employee claims have been worse than usual — your health insurer advises that utilisation is projected to be at least 115% of the premium paid by expiry of the policy and as a result, your Insurer is already flagging their intent to increase in premium at renewal.
  • Meanwhile, your CFO has been on a “take no prisoners” cost-cutting drive and she has already made it clear that she wants at least a 15% reduction in the employee benefits insurance spend come renewal…15% off the expiring premium!
  • To add to your woes, staff turnover levels are increasing and engagement surveys show that employee engagement levels are falling. Exit interviews reveal that the health insurance programmes that your key competitors offer are more generous and provide more flexible cover and this is luring your staff away. Attracting good replacement talent is proving a challenge.
  • To cap it all off, your Benefits Manager just advised that the CEO’s wife has been hospitalised, but the hospital is refusing to treat her, citing some problem with her membership card. The Insurer claims that she does not appear to have been enrolled as a dependant according to their records. Your team may have slipped up due to their heavy workloads.

“That is a wildly improbable scenario,” I imagine some of you might be thinking. I disagree. Having worked closely Clients and Prospects in several countries all across Asia, I have witnessed HR teams struggling with very similar scenarios to this, time and time again.

As you undoubtedly noticed, the challenges identified in this particular scenario go beyond just cost issues — there are employee engagement and employee retention issues, along with process efficiency challenges as well. This is usually the case: cost issues are often linked to other related issues, meaning that the challenges need to be addressed holistically and strategically.

I would like to explain how JLT’s Benefit Solutions team works collaboratively with HR teams to provide practical help and effective solutions to the challenges of:

(A) Cost,

(B) Attracting, Engaging & Retaining Talent, and

(C) Improved Efficiency

The solutions are interlinked and form the bedrock of JLT’s Employee Benefits value proposition.

This value proposition was formulated after talking to HR teams from a wide selection of JLT Benefit Solutions clients and prospects across the Asia region. I have yet to meet a HR team who said this value proposition had zero relevance to them.

We will now examine each of the value proposition elements and explore the options that JLT can work on collaboratively with the HR team in our role play to address the 3 challenges.

A. MANAGE & REDUCE COST

Now I have to say, I have never met a Client or Prospect who said Cost was unimportant. It is not necessarily the #1 issue, but it IS always a factor.

Too many employers take for granted that their Employee Benefits insurance broker will deliver them a premium reduction and do not really know or care how the reduction is achieved. Focusing solely on price may lead to the Broker proposing short-term solutions at the expense of more lasting and more impactful ones.

So much more can be achieved when the employer works collaboratively with their broker, understanding that:

  • There is a range of possible strategies and solutions to manage and reduce costs and they will deliver both immediate and longer-term benefits.
  • Both Broker and Employer have respective roles to play in order to achieve the best possible result.

Here are a few ways that JLT and a HR Department can work together to help the employer first take control of their health insurance spend and then start to reduce it.

1. Presentation & Marketing of the Medical Insurance Programme

The quality of the information that is provided to Insurers, and how it is presented, can have a direct impact on the eventual premium charged to the employer.

  • Underwriting information. Less is not the best. Some employers believe that the less information you give Insurers, the better. The reality is: the better an Insurer understands your risk profile, the more comfortable they feel and the more likely they will be flexible in negotiations. Positive trends and results need to be highlighted. Unknown risks will be priced into the premium as a hedge, whereas failure to disclose a materially-relevant fact could void the cover altogether. Therefore it is worth spending the time to get all of the information that your Brokers say is required.
  • Analyse & Understand your Data. Many HR Departments are reliant on their medical insurer to capture and provide analysis on enrolments and claims experience. It is still your data, so own it! Analyse and dissect the statistics with your Broker and understand what the key trends are and where losses are coming from. Only then can you start to develop strategies to address the negative trends. Being able to share with your insurer or proactive measures you are prepared to undertake will directly influence your premiums in a positive way
  • Competition works — to a point. Conducting a comprehensive marketing exercise is traditionally the Brokers “go-to” strategy.

Generating competition between Insurers is a proven, effective mechanism for securing a competitive price and broader cover. JLT certainly uses its market relationships, market position and the leverage afforded by its combined premium volumes to drive prices down and secure improvements to the benefit levels offered.

But, like any tool, if it is overused, it can become worn out and ineffective. Employers that re-market their employee benefits programmes every year quickly develop a reputation and eventually Insurers develop “quote fatigue” and eventually they just stop quoting for that medical programme.

Insurers prefer long-term relationships with employers. There are costs associated with On-boarding a new Client and if Insurers know they likely only have 12 months to get to a profitable position before they are tendered again, they will have little choice but to either load up the premiums or decline to quote.

Far-sighted employers recognise there is a greater cost benefit in developing a long-term partnership with their Insurer as opposed to changing Insurer every year to chase a premium reduction. (We will return to this point under C. Improve Efficiency).

Our advice: remarket the medical insurance programme only every 2–3 years and allow the preferred Insurer to recoup their on-boarding costs, BUT, secure concessions from the Insurer in return for not putting them under competition after the first year.

These concessions could take the form of improved benefits, additional covers or agreed premium reductions linked to target claims / utilisation levels.

In short, collaborating with the chosen Insurer in a tripartite relationship (Employer / Broker / Insurer) delivers better and longer lasting results for employers.

2. Budgeting for Employee Medical premiums

I mention this one because it never ceases to amaze me how many companies have no structured way of budgeting for their employee medical insurance spending. The most favoured approach to budgeting appears to be either, (a) assume that the premium will stay flat or (b) assume there will be a reduction. The danger, of course, is if the claims utilisation blows out badly, for example, due to a chronic disease, then there is no provision for the inevitable premium increase in the budget.

A far better approach is for HR teams to be reaching out to their Employee Benefits Insurance Broker when the annual budget is being prepared and asking them for an actuarial projection of the expected premium increase / decrease based on forecasted claims at policy expiry. There is no need for guesswork when budgeting for employee medical costs, but, in my experience, many employers do not ask their Insurer / Broker for this support.

On one or two occasions, I have been asked by HR to meet with their CFO to explain why the premiums were likely to increase — and I have always been more than happy to do so.

3. Claims / Utilisation: The single largest premium factor

An employer’s utilisation / loss record plays a major role in the premium that their Insurer will try to impose during renewal negotiations. As mentioned already, thorough analysis of your claims data is essential — this is where your Broker should help.

In-depth claims analysis: A specialist Employee Benefits Broker should be ready to work with you on an in-depth analysis and help you identify:

  • Where are your biggest claims costs coming from?
  • Is there a Frequency or a Severity problem?
  • Are the bulk of claims from Employees or Dependents?
  • What are the most common medical conditions?
  • Are some sites incurring higher medical costs than others?
  • Is the choice of hospital or clinic a factor?

Once you have identified the trends and key factors contributing to your loss data you can start to plan how to manage and reduce claims / utilisation and how to strategically prepare for the renewal negations with your Insurer. Forewarned is forearmed as they say!

4. Health Risk Management & Wellness

Once you have detailed insight into your loss data there are a number of proactive measures that can be deployed to curb adverse trends and manage and start to reduce the frequency and severity of medical claims.

You could, for example, fund or subsidise:

  • Annual influenza injections to reduce absenteeism due to flu symptoms
  • Annual health screenings as an early warning screening
  • A Quit Smoking campaign
  • Annual gym memberships and/or exercise classes
  • Nutritional cooking classes to promote a healthy diet
  • Health workshops training parents how to treat basic but costly frequent conditions such as diarrhoea, fever, and gastrointestinal bugs
  • More factors impacting cost

Policy Limits: When an insurance programme is running well (low claims) a broker can usually convince Insurers to offer increased benefit levels at no extra cost. Over time, however, the benefit limits may reach the point where they far outstrip what is a realistic level of need and if the claims utilisation deteriorates, the premiums will be charged on the policy limits regardless of if they are needed or not. Conducting a thorough benefits review every 2 years or so is a recommended exercise that your broker should be undertaking for you.

Superfluous covers: A careful review of your insurance policy may reveal some “free covers” that have been thrown in by your Insurer at no cost (initially) to sweeten a deal. If they are not really needed or not seen as valuable by employees, let your broker use them as chips to trade-off when negotiating the renewal premium.

Co-payment: Some Insurers will offer co-payment as a way to reduce premiums. Co-payment is where the employer accepts a level of self-insurance — this may be passed on to the employee. Co-payment / self-insurance can drive desired behaviours. For example, if employees tend to visit 24-hour ER for minor conditions because they want to skip the queues at the local clinic, applying 30% co-payment for non-critical ER visits may quickly curb that trend.

 

B. Attracting, Engaging & Retaining Talent

In the role-play scenario shared above, the employer was experiencing falling employee engagement and consequently struggling with high staff turnover and was finding attracting talent a challenge. A generous employee medial programme that includes wellness activities and provides flexibility is used by astute employers to help address these workforce issues.

Employee engagement is good for both employees and employers. Engaged employees care about their jobs, the employer and the employers’ goals. Engaged employees also feel positive about getting up and going to work, go above and beyond in their roles, and get more work done.

1. Benchmarking

Understanding how your medical insurance programme compares to your industry competitors is essential, so choose an Employee Benefits Broker that has the capability and data. Benchmarking allows an employer to compare:

(a) Benefits levels and coverage

(b) Claims trends

(c) Premium spend

(d) In some cases, benchmarking will also reveal future directions and developing trends such as the increasing popularity of Flexible Benefits and Health Risk Management (Wellness) programme.

Communication and sharing of benchmarking results are important to engagement. It is not enough for only Management and the HR department to know that their benefits programme is competitive — the employees need to get that message too. In my experience, Employers who get the most from benchmarking have a clear and structured communication plan to ensure they message how superior their benefits are to their staff.

2. Health Risk Management / Wellness

We have covered Wellness activities already, in the context of controlling and reducing cost, but such programmes can also have a very positive impact on employee engagement and retention. Put simply, happy, healthy and engaged employees equal better productivity.

Through participation in exercise classes or other wellness activities, employees develop friendships and feel part of a team, which contributes positively to engagement levels.

Exercise has been proven to deliver stress relief. This is because exercise and other physical activities produce endorphins (chemicals in the brain that act as natural painkillers) and improve our ability to sleep, which in turn reduces stress. Employees who are able to focus and perform better at work are more positive and more engaged.

3. Flexible Benefits

Traditional medical insurance plans are usually set by the employer, and employees have little or no choices or options. All employees get the same benefits package, no matter their individual needs. Giving dependants or maternity cover to an employee who is single, for example, is of no benefit to that employee whereas for an employee who is a parent, this will be an attractive benefit that is welcomed.

Flexible Benefits is all about giving employees options. Employees can choose from a range of options that the employer has made available. Employees appreciate the choice and autonomy associated with these flexible plans. When employees can choose their health benefits, they can choose a plan that delivers the best value. Employees who are satisfied with their health benefits are more engaged at work.

JLT helps clients manage their flexible benefits via its BenPal employee portal which is detailed in the next section.

Done right, a flexible benefits plan, coupled with a generous medical insurance programme, is a sure-fire way to boost employee engagement and productivity.

 

C. IMPROVED EFFICIENCY & PRODUCTIVITY

Every HR team that I have ever spoken to is always looking for more efficient ways to handle their workloads and interactions with their employees.

Technology is obviously one of the go-to solutions and rightly so — new platforms and new apps are providing very innovative solutions in the HR space.

JLT’s own BenPal portal is an innovative Human Resources (HR) and Employee Engagement tool, available to clients as part of our Employee Benefits (EB) offering designed to attract, retain, engage and reward employees.

The platform was designed and built by JLT drawing on insights from clients, thought leaders and our broad experience working in the EB space. Insights have been gained from our clients' issues across the globe to understand the demands of the workforce today and predict their needs of tomorrow.

By developing our own solution, we have full control and flexibility of all of its functionality — what it is now and what it can be in the future.

Now you're talking my language

The multilingual platform allows for the employee-centric design of flexible benefits packages with the ability to increase levels of cover where needed, allowing for online payments and claims submissions for ease of use. It also provides a hub for wellness programmes helping drive employee engagement.

Being online, users have access 24 hours a day, 7 days per week worldwide.

From an employer's perspective, it allows easy member management plus access to comprehensive analytics, reports and dashboards.

Shopping for Benefits

The system allows for a virtual shopping environment for benefits providing freedom of choice to the individual. With an allowance (monetary or points based) and clear cost for each benefit, the employee can select the most appropriate combination of benefits for themselves and their family, whatever their stage in life.

Whether they want gym memberships and healthy eating options or dental plans and life cover, it's the employee's choice.

However, improved efficiency and productivity does not necessarily depend on a slick portal or the very latest app.

A number of the elements that we have covered above also contribute significantly to HR efficiencies, for example:

  • Realistic, structured budgeting for medical insurance premiums means less reactionary programme remarketing (Conducting a tender of a medical insurance programme is incredibly labour intensive for the HR department).
  • Reducing employee medical claims (e.g. through health risk management and wellness) results in considerably less administrative workload for the HR team, allowing them to focus on more productive projects.
  • Improving both employee engagement and employee retention means substantially less work for HR (Every resignation triggers an admin-heavy exit process and then a talent search and laborious on-boarding exercise for the replacement).

In conclusion, my message is that when it comes to controlling and reducing your medical insurance expenditure, it is as the saying goes: “There is more than one way to skin a cat”.

It is important for a HR team to work collaboratively and strategically with their Employee Benefits broker to identify the various ways that medical expenditure can be brought under control and then choose the most appropriate solutions to be implemented.

And, as identified, some of these solutions will also have flow-on effects and positively impact employee engagement and retention as well as efficiency.

 

About the Author

Graham Edwards is JLT Asia’s Head of Sales, Marketing & Communications. Prior to this role, Graham was President & CEO of JLT Philippines and helped build one of JLT’s most successful Employee Benefits businesses in Asia.