Features - Corporate healthcare gets flexible
By: Jacelyn Woo, Singapore
Published: Feb 01, 2005
No area is undergoing more reform than healthcare benefits in the rapidly evolving sphere of benefits administration. Introduced in the mid 1960s as a low-cost alternative to higher wage increases and economic restructuring, technology and demographic changes have made health care costs take on a life of their own. However, even as companies curtail and redesign their healthcare benefits, incentives, not costs, should be their primary consideration. At Eastman Chemical, its medical program is an extension of its philosophy. Says its human resource manager, Foo Wah Teng, “We look at our programme to show that we are a caring employer and one of our values is work-life balance because ultimately, the motivation of our benefit plan is to attract the right people.” Despite benefits’ place in attracting and retaining talent, multinational corporations have long struggled to contain healthcare costs. In Singapore, this challenge manifests itself in a new generation of healthcare programmes based on defined contributions, flexible options and portable benefits. Mark Myerson, managing director of health benefits programme designer, i-Benefits states, “Flexible benefits, transfer benefits and portability schemes are being introduced because the old model of CPF plus defined benefits is under increasing strain from a number of economic, demographic and technological changes.” Andrew Ong, the regional practice leader of Mercer Human Resource Consulting Asia reports that the old system’s rigidity also works against employees since “One-size-fits-all defined benefits with fixed generic benefits package cannot cater to employees with different needs.” While Singapore does well in managing healthcare benefits, cost pressures are driving both companies and the government to design more flexibility into the existing system. According to Rose Tan, human resources manager at the National Library Board (NLB), “Healthcare costs have been rising by 10 to 15 percent a year globally, far faster than wages or almost any other expense. In Singapore, they are increasing by five to seven percent. This is much faster than the Republic’s one to two percent core inflation but much more slowly than in most other developed countries.” Up to now, Singapore’s healthcare cost-control strategy has a stable synthesis of public and private initiative. Christine Kho, senior consultant with the Hay Group says, “Singapore’s policy has long been that every person must take responsibility for their own health and welfare.” At the same time however, NLB’s Tan says, “Companies and their employees do this within the framework established by CPF, medisave and local healthcare laws.” Mercer’s Ong says that healthcare benefits amount to about two percent of an average employee’s salary. “This is far lower than in most western countries where they typically cost 10 to 15 percent of staff salaries. However, “From the viewpoint of employers, they feel the money spent on healthcare benefits is a cost on top of their existing CPF contributions, a substantial portion of which is earmarked for medisave and other related health schemes.” After replacing traditional, defined benefit-based systems, HR executives are now using feedback to fine-tune their recently rolled out defined contribution-based flexi-benefits. However, some HR consultancies report that only a minority of to three decade long tenure with a company have become irreleant.vescompanies have introduced flexible benefits. Eastman Chemical’s Foo notes, “Not many companies are using flexible benefits yet because of its upfront costs.” This, however, is due to a widespread misunderstanding of flexible benefit’s mechanics. Contrary to popular opinion, flexible benefits work as much through incentives as they do on cost cutting. Company values, not size, determines feasibility of flex benefits Indeed, individual Singaporean companies vary considerably in the way they approach this transitional era in healthcare benefits. Size need not stand in the way of an organisation’s capacity to offer flexible health benefits. The optimal fine-tuning of healthcare benefits depends as much on a company’s HR values as it does on cost. Design outsourced, with input of stakeholders For example, both Eastman Chemical Asia and the National Library Board (NLB) represent large local organisations that employ thousands of staff. However, Eastman instituted a flexible benefits program on 1 January 2003. On the other hand, NLB continues to offer traditional, fixed benefits. NLB’s Tan states that the organisation offers fixed healthcare benefits at this time and “has no plans to introduce flexi benefits in the future”. On the other hand, Eastman Chemical requires a more detailed approach to health care. However, Foo says that Eastman Chemical’s migration to a flexible benefit system was as much about attracting and empowering staff as it was about capping costs. He gave the following two motivations for moving to a flexible benefit system: “One, we want to be an innovative company but we also want employees to have a benefit of choices. Secondly, we want employees to have the benefit of choice so they can more closely match their changing personal needs. Ultimately, the motivation of our benefit plan is to attract, motivate and retain the right people.” Eastman first hired Convergys (which is now a part of i-Benefits) to determine the healthcare needs unique to Eastman Chemical’s staff. After designing a preliminary programme, Foo states that the next step was to educate management and staff so as to get the buy-in of all stakeholders. After incorporating input from all stakeholders, the healthcare system was designed to incorporated a rich array of health and non-healthcare options. “Under flex benefits, we allocate employees certain credit points which are converted into dollars. If they don’t use all of their allotted points for healthcare, they can use them to pay for other options in the flex programme. They can also carry these points over into the next year,” says Foo. Incentives to stay healthy, substitute stable cost items for health benefits Hence, rather than being a straight cost-saving to the company, employees who stay healthy can convert excess flex health benefit points into reimbursements for vacation expenses, gym membership, extra leave – items that are less inflationary than healthcare. “Besides insurance and healthcare, our flex program also covers benefits for employee and family wellness, personal and work life enrichment,” says Foo. Options in the flex programme include conversion of points for reimbursement of items, such as dental care, vacation expenses and gym membership.” However, he explains that there are limits on its medical expenses. “By giving employees a fixed amount, we are containing costs.” Further, to minimise the cost of running the flexible benefits program, administration is outsourced. This has three beneficial effects. Firstly, employees are given an incentive to substitute leisure and fun items that are stable in cost in the place of inflationary healthcare benefits. Second, by creating incentives and cost economies, “Employees have the option of taking ownership and determining their benefit options.” For the first time, staff have incentives to pursue cost effective, healthy lifestyles because carrots such as extra leave and other benefits are provided as incentives. Thirdly, by outsourcing administration, fixed costs are minimised.takeholderss work as much xible benefitt' Measuring flex’s success As part of its ongoing feedback, Foo uses several measures to evaluate the success of Eastman Chemical’s flexible healthcare benefits system. In addition to staff and employee feedback, “We measure medical expenses per employee to judge the success of our programme. If they are spending less than before because the success of our healthcare program helped them to be healthier, they can use the savings for other things.” On the other hand, “with traditional benefits, an employee with a good medical record is at a disadvantage.” Under flexible benefits, this perverse state of affairs is no longer the case. Foo adds that by giving staff control over cost, it also helps them gain control over their health. “This is better for everyone.” Although it was not designed to be cost-effective so soon after its implementation, Foo is happy to report that since flexi benefits were introduced, the healthcare cost per employee has gone down, so has the total amount they spent on healthcare. Incentives, not tight-budgets lead to cost savings Foo also emphasises the importance of integrating the flexible benefits programme into a larger vision of employee health and wellness. of employee health.e flexible benefits program into a larger vision of employee health. “In addition to our non-flex, such as annual leave and flex benefits programmes, we organise health and wellness activities such as jog-walk sessions, badminton, health talks, fruits day, and smoke cessation programmes to promote an active and healthy lifestyle.” Eastman’s experience with flexible benefits demonstrates the true nature of flexible benefits by disproving several misconceptions. Firstly, although the programme succeeded in lowering Eastman’s healthcare costs, it never was implemented with short-term budget-cutting considerations in mind. Indeed, the objective of such benefits was to create incentives that drive individual employees and the programme collectively to mutually beneficial cost economies. Despite the cost pressures it generates, corporate healthcare remains an important part of any leading company’s talent recruitment and retention strategy. ,This means empowering employees with so many attractive options that they are motivated to efficiently utilise the resources devoted to their health. In sum, flexible benefits create cost efficiencies only when they are structured in such a way that staff are motivated to economically ration and conserve their buffet of attractive features.rich array of health and non-healthcare options.Designing a flexible healthcare benefits plan Designing, implementing and fine-tuning a flexible benefits-based healthcare plan is a complex and problematic process. Eastman turned to i-Benefits to design its flexible benefits plan. However, there are three executive levels of decision-making steps that HR directors must undertake during the design of a flexible benefits program. Below is a brief description of these key steps. 1. Which type of flexi benefit plan? There is a great diversity in the structure and details of flexible benefits schemes. However, flexible benefits are generally structured in one of the following three basic designs A Full Choice Plan is a pure flexible healthcare benefits system. The elements include doctor’s visits, dental care and hospitalisation. The advantage of this system is that it fully empowers employees and lets them adapt their benefits menu to their age, family situation and personal values. However, empowered employees sometimes suffer the consequences of their own choices. For example, an employee who decides to forgo accident insurance in favour of a comprehensive dental plan, but then is involved in an accident and requires cosmetic surgery not covered by his chosen health options.sues when empowered employees suffer the consequences of their own choices. from injuries but no A Core Plus Options programme provides a core of compulsory benefits such as doctor visits and hospitalisation insurance, while other parts such as eye care or dental plans are optional. This is essentially a synthesis of the traditional comprehensive plan and flexible benefits, as this health benefits system contains elements of both the traditional, fixed plans and a full flexi benefit system. This contains some strengths and weaknesses of both systems. According to the Hay Group’s Kho, “Core Plus Options is the system currently offered by most companies that roll out flexible health benefit systems.” A Modular Plan is one where employees choose from a range of different health and non-health benefits. They may, for instance, choose a standard leave and flexible health benefits or choose a more comprehensive, fixed health benefit module and combine it with a flexible leave plan. This plan provides more empowerment but its complexity of choices means it requires more expertise in its design lest some of the modules exhibit unintended cost behaviours. ystem. e plan and flexible benefits, as this health benefits systems cone industry company.he benefits of 2. Getting stakeholder buy-in Eastman Chemical’s Foo reports that after investigating the feasibility of a flexible healthcare benefits programme, “The pre-roll out challenges included things like costs, management buy-in and employee acceptance.” Hence, it is the responsibility of HR directors to educate management and staff in order to counter equally extreme misconceptions about flexible healthcare benefits. Management must be informed that flexible benefits are a long term investment in employee productivity, not mere cost containment. Staff must be made to realise that flexible benefits empower them to select what is best for their own health and lifestyle. Eastman organises sessions to educate employees about how flexi benefits work before rolling out the programme. 3 Externally benchmark flexi benefit plan’s effectiveness Objectively evaluating the success of a newly introduced flexible healthcare system can be problematic because each industry’s unique risks, business models and demographics gives it a different healthcare cost structure. The only way to objectively evaluate one’s flexi benefit system’s success is to measure it against that of its peers in the same industry. For this reason, Foo says the company benchmarks its healthcare programmes against The Sakra HR Group, a network of petroleum companies on Jurong Island. In this way, ongoing feedback from a company’s flexi benefit program can be compared against those of its industry peers. Box Out PBMS & TMIS remain a work in progress The Portable Medical Benefits Scheme (PBMS) and Transferable Medical Insurance Scheme (TIMS) appear to, at best, receive a mixed review from local employers. According to i-Benefits’ Mark Myerson, “TIMS and PBMS were created partly because restructuring means that there are fewer people working at one employer for their entire working life. This makes it imperative that a means of allowing employees to carry over the benefits they already paid for be devised.” Under PBMS, the tax exemption limit for additional CPF Medisave contributions is being raised from one percent to $1,500 per year for every employee. Under this scheme, medical benefits can be transferred from one employer to the next. This additional tax- free $1,500 employer contribution to their employees’ accounts can then be used to purchase approved medical insurance programs such as Medishield. The corresponding deductible co-payments however, will not be liable for full medical expenses Poor uptake of PBMS According to Eastman Chemical’s Foo, “Only about 10 percent of employees use the portable medical benefits scheme” He says the reason for the slow uptake may be that, “it’s a relatively new programme.” On the other hand, TIMS allows employees to continue enjoying their former employer’s group hospital coverage for up to 12 months or until he or she finds employment with another organisation that participates in the TIMS program, which is voluntary. Whereas PMBS allows persons to carry both employer and employee benefits to their next job, TIMS is targeted more at retrenched persons or early retirees. The Hay Group’s Kho reports that at this time, TIMS is the more popular alternative for two reasons. “First, benefit costs rise by only between five and 15 percent under TIMS. Besides, TIMS is more applicable to retrenched employees or retirees, not those who would jump to a competing company.” The ‘free rider’ dilemma However, PMBS creates a perverse set of incentives known to economists as ‘the free rider dilemma.’ According to Mercer’s Ong, “Employers ask, ‘why should I put money in a fund that my worker can then take to another company?’ After all, good benefits are a way of keeping talented employees and PMBS makes it easier for them to walk away.” According to Ong, a solution to PBMS’s unintended job-hopping incentive would be a rule whereby, “An employee can only take his employer’s health care contributions to the next job if he has been at his previous employer for several years.” On the other hand, i-Benefits’s Myerson makes a significant counterpoint. “You do not want to be stuck with unhealthy or unproductive staff. Without PBMS, your sick or unproductive employees have no reason to leave your company. With PBMS assuring their coverage, they have a better reason to leave.” It appears that PBMS and TIMS are transitional measures expected to be fine-tuned over the next few years. According to Ong, one solution is for healthcare providers such as Mercer to market insurance or benefit schemes that they can carry with them after they leave the company. For companies and individual staff, this may be the best intermediate term solution of all until the government fine-tunes policy with respect to portable benefits.
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