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Healthcare Benefits in India
The financial crisis has changed many a paradigm and has compelled business entities to critically assess their business strategy, organisational dynamics and their impact on its human capital. A need for cost rationalisation has pushed organisations to freeze or reduce their benefits programme budget. Consequently, the issue of managing increasing costs of healthcare benefits has emerged as one with far reaching implications, both for the employers and employees alike. Paradoxically, these very benefits often play a crucial role in differentiating the perceived employee value proposition and progressively compliment an organisation¶s µtalent management strategy¶; to attract and retain a skilled and productive workforce. Therefore to remain competitive and yet efficiently manage costs, it is increasingly important that employers develop a strategic and considered approach towards managing their health benefit provision. In order to precisely understand the perceived value that employers and employees associate with healthcare benefits and their resulting liabilities, Towers Watson recently conducted a comprehensive survey in the second half of 2009 covering 125 of India¶s largest employers. The respondents represent a cross section of industries, mainly from the private sector, reporting average revenue of more than Rs 400 crores. The survey titled ³Healthcare benefits in India: changing landscape´ provides insightful information on current trends, issues on hand for employers providing health benefits and best practices for cost control. In India, healthcare benefits are an essential part of the benefits package provided by employers. While in absolute terms, healthcare benefits do not account for a significant part of an employee¶s cost to company, the proven potential to insinuate higher associated value among employees is profound. A Towers Watson benefits trends survey, published in mid 2009, reported that almost 46 percent of employers in Asia believe that health is the benefit to which their employees attach the greatest importance. The findings of the ³Healthcare benefits in India: changing landscape´ survey indicates that almost 96 percent of the companies provide medical coverage of some form to their employees and approximately 17 percent provide Post Retirement Medical Benefits (PRMBs). Usually these benefits are insured and employers have not experienced the full impact of the increasing costs until now. Historically, health insurance has been subsidised by other general insurance portfolios; but, with continuing de-tariffication, any further cross subsidies are not sustainable. In the recent past, the cost of such insurance cover has been increasing to the extent that medical cost inflation is expected to be around three to four times the general price inflation, in the future. Employee health care provision is at an interesting cross road trying to make ends meet - need for better benefits on one hand and cost control on the other. As a result, companies will have to apply serious thought to health care issues in the foreseeable future.
notably China. Employers in India are also likely to find interest in health saving plans which are offered with varying degrees of success in several countries such as Hong Kong. Buoyed by favourable regulations. Great emphasis is placed on increasing communication to employees in order to improve perceived value of benefits and efficient utilisation. There is a similar opportunity for the Indian corporate sector to consider innovative approaches in controlling health care costs and at the same time provide valuable health care benefits to its large workforce in organised employment.400 crores. Health saving accounts is accepted as a viable form of financing long-term health care expenses. mainly from the private sector. The increase in insurance premium for covered health benefits is lower than the increase in claim ratios over the past three years. sick leave. there is the possibility of having more stand-alone health insurance companies to be licensed in India in the next few years. disability pay and worker¶s compensation. an initiative which is known to have brought substantial improvement in the coverage and quality in many countries. The effect of rising premium is largely borne by employers as almost 58 percent of the companies do not deduct any premium cost from employees¶ salary. The top three concerns of employers are:Higher costs due to new medical technologies Poor employee understanding of how to use the plan/seeking excessive care Providers recommending too many services Nearly 50 percent of the respondents want to increase benefits despite increasing costs Employers have expressed the importance of health care benefits to attract and retain talent in the future. . Such companies specialising in employee health plans in other countries could develop health insurance as a viable business proposition in India. reporting average revenues of more than Rs. covered 125 large employers in India. a well-designed employee wellness programme can lead to a 25 percent reduction in health plan costs. Future developments Moving forward. The respondents represent a cross section of industries. found them beneficial in terms of higher productivity at work and better quality of life.y y y o o o y y y y More than 55 percent of the respondents have reported higher than 10 percent average premium cost escalation in the last three years. The report quoted that 98 percent of employees who have undergone preventive health check ups. we could expect a joint sharing of health care expenditure between employers and employees. the Indian Council for Research on International Economic Relations. As suggested by a research report published in September 2007 by a leading think tank. We also envisage that a major component of health care initiatives in India is likely to be in the form of preventive and wellness-based health programmes. Singapore and South Africa. which was conducted in the second half of 2009. Participant profile The survey.
real estate and engineering 3 Information. healthcare and medical services 9 .Source: Purchasing value in Health Care Survey 2009 Towers Watson Industry Groups Business & professional services Percentage of companies 7 Construction. mass media & communications 8 Manufacturing 22 Pharmaceutical 4 IT and ITES 13 Financial 8 Wholesale & retail trade 3 Education.
storage and logistics 1 Others 22 Current health care provision With signs of economic recovery. Figure 1: Objective of providing health care plan Source: Purchasing value in Health Care Survey 2009 Towers Watson Further analysis of specific features of health care provision by employers. This clearly substantiates the view that µbenefits¶ are being avidly deployed as an µemployment value differentiator. Almost 96 percent of the surveyed companies provide hospitalisation and 93 percent provide personal . provides a deeper understanding of the context. companies need to closely evaluate their talent management policies to ensure they can attract and retain key talent. a majority of the surveyed companies report the use of their health care plans as a talent management tool (Figure 1). It is equally important that such benefits are relevant and adaptive to changing market conditions.Transport. I: Types of Health Care Provision Hospitalisation and personal accident cover seem to be the most widely provided health benefits in India. Not surprisingly.
400 crore. Figure 2: Health care provision by employers II: Benefit Coverage . Moreover. Over 22 percent of companies provide health insurance other than traditional mediclaim and nearly 17 percent of companies claim to cover post retirement medical expenditure. Disability.accident cover to their employees. Post retirement medical benefit is mostly provided by companies in the public sector while a very small proportion of private companies provide such long term benefits to their employees. this benefit is provided mainly by companies that reported revenue in excess of Rs. the survey validates that health benefits are a valuable differentiator. Post retirement medical benefits and other forms of health insurance (other than traditional mediclaim) do not seem to be prevalent benefits provided by employers. Moreover. critical illness and domiciliary cover are also provided by more than 50 percent of the employers. irrespective of the size of the company (Figure 2).
Hence. A floater hospitalisation cover is generally provided to all employees irrespective of their management level. However. it will not be surprising if a high number of claims arise from treatment of family members covered under the µfamily floater¶. Almost 38 percent companies provide life time coverage to employees¶ parents. marital status. medical benefits are not restricted only to employees alone. with a majority of respondents reporting it to be compulsory for all. Figure 3: Family coverage under healthcare Source: Purchasing value in Health Care Survey 2009 Towers Watson III: Benefit Plan Governance The cost of providing health care services can also be sensitive to the efficiency of plan administration. children as well as dependant parents. it appears that health care benefits are by and large provided to all employees. it is possible that the cover being provided may not be commensurate to individual needs. employers may consider moving beyond a µone-size fits all¶ traditional approach towards flexible employee benefits. which may differ by age. The benefit generally differs in terms of the insured amount based on management level of the employee in the company. current health status etc. Figure 3 shows that most of the surveyed companies provide medical cover to the employees¶ spouse. Figure 4 shows that most plans offered by employers are covered by insurance companies except . But with increasing competition for talent and rising premium levels. the solution lies in giving employees the liberty to choose benefits that they value most and thus would make optimum use of. In Towers Watson¶s view. unmarried sisters and unemployed brothers below 25 years of age.Amongst the companies surveyed. This could be one of the strong factors leading to higher premia charged by the insurance company which is discussed in the subsequent section. Therefore. Some liberal plans provide coverage to other dependents like parents in law. 88 percent provide health care floater to employees¶ family members as well.
Interestingly. public insurance companies still seem to dominate.domiciliary cover. employers need to focus on other qualitative issues and not just administrative aspects alone. Challenges and strategies Recently there has been a substantial increase in healthcare premia charged by insurance companies. These elements range from designing an appropriate plan which is tailored to the needs of different employee groups to increased communication and education. The effect of rising premia is largely borne by employers as almost 58 percent of the surveyed companies do not deduct any premium cost from employees¶ salary and this trend is likely to continue into the next financial year. Figure 5 shows the average rise in the last three years to be in the range of 10 to 15 percent. Figure 5: Average increase in premium in last three years . approximately 52 percent are covered by public insurers. in spite of the health care insurance market being privatised. as most of these insurance companies have a tie up with a large network of hospitals either directly or through their Third Party Administrators (TPA). Yet. Figure 4: Health plan insured or self managed Source: Purchasing value in Health Care Survey 2009 Towers Watson Insuring most of the health benefits provided may help in better claim administration. which largely seems to be self-managed. Amongst the companies surveyed. This could be due to a lack of suitable health care policies in the market or the amount being restricted to a certain fixed sum. looking into the future. Such an approach towards plan governance will ensure operational efficiency while also helping employers to meet their plan objectives at the same time.
200 crore in 2006-07. As can be seen the full impact of the high claims ratio has not translated into equivalently higher premiums in majority of the instances. which roughly translates into 33% per annum growth over these six years. This is because of the high competition amongst insurers and their focus on topline growth to increase the health insurance portfolio.3.200 crore in 2005-06 rose to Rs.000 crore by 31 March 2011.2.12.Source: Purchasing value in Health Care Survey 2009 Towers Watson There are a number of factors accounting for this rise in premium: y Health Insurance ± claim ratios Many general insurers providing medical cover are experiencing claim to premium ratios (loss ratio) of more than 100 percent. As per the latest available IRDA statistics on health insurance claims for the year ending 31 March 2008. As per a IRDA journal report for June/July 2008 the health premium.800 crore in 2007-08. High level of claims by policyholders adds to the poor profitability of health insurers. This increase may be interpreted as a µcatch up premium¶ as insurers try to manage loss ratios at a more sustainable level. Health insurance segment is estimated to grow to about Rs. which was about Rs. This will necessitate health insurers to increase their premiums in order to cover claim and expense costs. and it further rose to Rs. the average claim to premium ratio was over 110 percent. The health insurance market (comprising of both group and individual covers) is growing at an exponential rate. Figure 6 shows the link between claim ratios and health insurance premium. Figure 6: Average rise in premium by rise in the claim ratio .4. depicting that companies who reported a high claim ratio have also reported rise in premium charged by insurance companies.
In addition to this. But. inflation in hospital care and professional care costs will also have to be factored in as these are other components contributing to total medical costs. insurers are bound to revise their health premium charges.Source: Purchasing value in Health Care Survey 2009 Towers Watson y o Rising medical cost Changing medical practice patterns and greater availability of new and specialised medical procedures are also putting pressure on the cost of providing health insurance. Increased awareness amongst the employee population will increase their demand for insured health care services and lead to higher utilisation and increased claim costs. Hongkong and ³about the same´ for countries like Singapore and Philippines. Based on recent analysis of data by Towers Watson. higher than the long term general price inflation. As per approximate projections we could expect inflation in medical costs to continue to be anywhere between 17 to 25 percent per annum in the foreseeable future. making it increasingly difficult o o y . motor etc. insurance companies cannot offer cross subsidisation and companies will be required to do independent pricing for each business line. Changing regulatory environment Prior to the de-tariffication policy introduced by IRDA. A Towers Watson study on global medical trends in 2008 reveals that insurers expect medical costs in India to rise ³significantly higher´ over the next five years as compared to ³higher´ for countries like China. it is observed that the inflation in costs of drugs alone has been 8. Consequently. health coverage was cross subsidised by other lucrative insurance products like fire.1 percent per annum over the past 15 years. post de-tarrification. This adds to the insurer¶s concern and they partly share the cost by increasing the premium charges.
Figure 7: Challenges faced by employers to maintain affordable benefit coverage Source: Purchasing value in Health Care Survey 2009 Towers Watson * Companies were asked to rate top three challenges Despite these challenges. employers are also concerned about moral hazard issues related to health insurance.for employers to maintain an affordable health cover. Moreover. Therefore. Such practices by employees and providers leads to higher claim ratios and consequently. Figure 7 highlights that approximately 30 percent of the employers are concerned about employees using unneeded benefits as they do not have to bear the financial consequences of their choices. The survey results re-emphasise the concern of improving medical technology leading to higher cost. Figure 8 shows that more than half of the companies in the survey plan to increase their health provision. Figures 8: Planned changes in health cover . This trend can be attributed to increasing competition and changing corporate attitude. it is important for companies to implement appropriate solutions to achieve the inherently conflicting objectives of increasing health care benefits while simultaneously controlling rising costs. a corresponding rise in premium. companies do realise the importance of health care and plan to increase their benefits in the near future. There have been instances of providers recommending more medical services than required for insured employees.
Moreover. offer on-site exercise facilities or health club memberships to their employees. a healthier workforce can also lead to higher employee productivity and high contribution to company performance. In order to address the issue of rising costs. Preventive measure/ focus on wellness: Wellness plans promote healthy behaviour and practices. Cost sharing with employees: Companies can consider several options in order to share health care costs with employees. Greater levels of customisation: Ensuring that health care plans are tailor-made keeping in mind costs. there are very few companies that employ these practices and worryingly there are no evident signs of a changing precedent in this regard. Communication of health care benefits in monetary terms as a part of the total remuneration package can play an important role. utilisation rate or policyholder behaviour can help organisations in efficiently managing their costs as well as achieving other desired objectives. Periodic vendor assessment and analysis of claim data will align the plan to strategic objectives. spousal waiver and surcharges can help employers in bringing down claim ratios Administration: Monitoring plan administration can also help employers in cutting costs. companies y y y y . They can offer plans with co-payment or high deductibles. Such initiatives can make employees¶ healthier and help the organisation in curtailing premium costs. Companies can offer regular health check ups.Source: Purchasing value in Health Care Survey 2009 Towers Watson There are five broad ways in which employers can attempt to restrain cost: y Strategic plan design: Designing a plan that aligns well with the desired outcome in terms of cost. This will not only help companies reduce their costs but will also increase the accountability on the part of employees. utilisation rates and policyholder behaviours. designing a plan that penalises employees with unhealthy habits such as smoking or tobacco use. Currently. For instance.
44 49 54.44 42 46. Moreover. This practice is clearly unsustainable and companies will have to take more strategic decisions to deal with the broader issue of increasing health care benefits while managing costs.89 14.22 * Companies were asked to rate the top three Case study . On a more positive note.44 40 44. Table I: Employer views to help employees be better health consumers.44 12. it will lead to employees¶ appreciating the health care benefits provided by employers.have traditionally preferred to switch insurers as against redesigning their existing policy.56 28. They believe that effective and regular communication will help employees become better health consumers. vendor summit) Other Number of respondents 67 Percentage 74. companies seem to understand and value the importance of employee education (Table I). Critical to help employees become better health consumers Educating employees to be more informed/active consumers of health care Creating company-specific communication/education on health care costs and living a healthier lifestyle Actively managing vendor prepared communication/education on health care costs and living a healthier lifestyle Branding the wellness programme for use in all communication related to wellness Senior leadership visibly supporting the importance of a healthy work environment Creating wellness-related activities calendar Offering healthier food options in cafeteria/vending machines Communicating to spouses about the company wellness initiatives Communicating to spouses about the company wellness initiatives Integrating multiple vendors to improve the delivery of information to our members (e.22 2 2.g. apart from helping employees¶ make informed choices. The survey shows that approximately 51 percent of employers have changed their providers in the last two policy years.44 14.44 32 26 13 13 11 35.67 40 44.
the claim ratio has been brought under control. Till 2006 they experienced high claim ratios. Additional measures such as providing no claim bonus to employees who do not make any claim are also being considered to further bring down claim ratios. hospital room rent expenditure etc. But. aerobics. the general practice is to follow the traditional approach with most surveyed companies providing hospitalisation and personal accident cover to their employees and their families. which reached its peak at around 150 to 160 percent. but these are not linked to the medical benefits as insurance companies do not offer premium benefits on account of such initiatives. y Conclusion Health care benefits are not merely an operational cost for employers but a tool to maintain a healthy workforce and be competitive in the market place as a preferred employer. As a result.000. create plan efficiencies and change employee behaviour. yoga. it is essential to design a plan that meets the differing needs of a diverse employee profile. A special emphasis on wellness and preventive health care plans.I: Health care strategy with design focus A large diversified corporation was faced with the challenge of controlling their rising claim ratio while maintaining the quality of health care facilities. In order to curtail this increasing cost they developed a health care strategy with special focus on appropriate benefit design: y y Initially they had no ceiling on their benefit provision but then introduced a limit on maternity expenditure. in order to include medical benefits as a competitive part of the employment package. In the recent past the health plan has undergone changes on a yearly basis:y y y y The parental coverage has consciously been capped to Rs. Introduced a co-payment system which required the employees to share the treatment cost above Rs. This step not only shared the cost with the employees but also prevented them from seeking excessive services. etc. There are standalone facilities of free regular medical checkups. Current experience suggests that employees only opt for basic health care cover and not add on versions where they can take additional cover with self contribution. 000 so that the resultant savings could be used for better employee coverage.50. It is critical that employers segment their covered populations into appropriate cost/risk categories and design interventions for each segment to control costs. Currently. the company on its part has ensured that a proactive communications plan is in place to share information on changes in medical benefits. Such measures not only helped in curtailing claims but are also being valued favourably by employees After two years of implementation of the revised plan. .10. While most employees realise benefits only when a claim arises. the company observed a more conscious usage of medical benefits and a decline in claim ratio to 94 percent. This µtargeted¶ approach would fundamentally recognise that all health care consumers are not alike and thereby engage more employees with practical solutions and strategies. II: Balancing benefits and costs through healthcare design A leading technology and IT services provider recently introduced three different types of health care programmes to cater to the diverse needs of its employee base.
India About Towers Watson Towers Watson is a leading global professional services company that helps organisations improve performance through effective people. our research highlights that appropriate plan design. India Kanika Chawla is an Economist with Towers Watson. the impact of increasing costs is yet to be fully borne by employers and with projections of substantially higher costs.000 associates around the world. With 14. talent management. About the authors: Anuradha Sriram is a Senior Benefits consultant with Towers Watson. regular communication to employees and efficient administration are critical to deliver a plan which is aligned to the changing health care benefits market. and risk and capital management . risk and financial management. Currently. companies have to address the root cause of the issue.Finally. Employers will have to combine consumer-oriented health care models and health management initiatives with education and financial incentives to help employees become more actively engaged in their own health and make smarter health care decisions. rewards. we offer solutions in the areas of employee benefits.
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