towers watson healthcare survey 2010

8/6/2019 Towers Watson Healthcare Survey 2010

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April 2010

Healthcare Benefits in India

Executive Summary

The financial crisis has changed many a paradigm and has compelled business entities to criticallyassess 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 withhealthcare 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 thegeneral 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.

Key Findings



y More than 55 percent of the respondents have reported higher than 10 percent average premium cost

escalation in the last three years.

y 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.

y The top three concerns of employers are:-

o Higher costs due to new medical technologies

o Poor employee understanding of how to use the plan/seeking excessive care

o Providers recommending too many services

y Nearly 50 percent of the respondents want to increase benefits despite increasing costs

y Employers have expressed the importance of health care benefits to attract and retain talent in the future.

y Great emphasis is placed on increasing communication to employees in order to improve perceived value

of benefits and efficient utilisation.

y The increase in insurance premium for covered health benefits is lower than the increase in claim ratios

over the past three years.

Future developmentsMoving forward, we could expect a joint sharing of health care expenditure between employers and

employees; an initiative which is known to have brought substantial improvement in the coverage and

quality in many countries, notably China. 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.

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, Singapore and South Africa. Health saving

accounts is accepted as a viable form of financing long-term health care expenses.

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. As suggested by a research report published in

September 2007 by a leading think tank, the Indian Council for Research on International Economic

Relations, a well-designed employee wellness programme can lead to a 25 percent reduction in health

plan costs, sick leave, disability pay and worker¶s compensation. The report quoted that 98 percent of

employees who have undergone preventive health check ups, found them beneficial in terms of higher

productivity at work and better quality of life. Buoyed by favourable regulations, there is the possibility of

having more stand-alone health insurance companies to be licensed in India in the next few years. Such

companies specialising in employee health plans in other countries could develop health insurance as a

viable business proposition in India.

Participant profile

The survey, which was conducted in the second half of 2009, covered 125 large employers in India. The

respondents represent a cross section of industries, mainly from the private sector, reporting average

revenues of more than Rs.400 crores.



Source: Purchasing value in Health Care Survey 2009

Towers Watson

Industry Groups Percentage of companies

Business & professional services 7

Construction, real estate and engineering 3

Information, mass media & communications 8

Manufacturing 22

Pharmaceutical 4

IT and ITES 13

Financial 8

Wholesale & retail trade 3

Education, healthcare and medical services 9



Transport, storage and logistics 1

Others 22

Current health care provision

With signs of economic recovery, companies need to closely evaluate their talent management policies to

ensure they can attract and retain key talent. Not surprisingly, a majority of the surveyed companies

report the use of their health care plans as a talent management tool (Figure 1). This clearly substantiates

the view that µbenefits¶ are being avidly deployed as an µemployment value differentiator. It is equally

important that such benefits are relevant and adaptive to changing market conditions.

Figure 1: Objective of providing health care plan


Towers Watson

Further analysis of specific features of health care provision by employers, provides a deeper

understanding of the context.

I: Types of Health Care Provision

Hospitalisation and personal accident cover seem to be the most widely provided health benefits in India.

Almost 96 percent of the surveyed companies provide hospitalisation and 93 percent provide personal



accident cover to their employees. Disability, critical illness and domiciliary cover are also provided by

more than 50 percent of the employers. Moreover, the survey validates that health benefits are a valuable

differentiator, irrespective of the size of the company (Figure 2).

Post retirement medical benefits and other forms of health insurance (other than traditional mediclaim) do

not seem to be prevalent benefits provided by employers. Over 22 percent of companies provide healthinsurance other than traditional mediclaim and nearly 17 percent of companies claim to cover post

retirement medical expenditure. 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. Moreover, this benefit is provided mainly by companies that reported revenue in excess of

Rs.400 crore.

Figure 2: Health care provision by employers

II: Benefit Coverage



Amongst the companies surveyed, it appears that health care benefits are by and large provided to all

employees, with a majority of respondents reporting it to be compulsory for all. The benefit generally

differs in terms of the insured amount based on management level of the employee in the company.

Hence, it is possible that the cover being provided may not be commensurate to individual needs, which

may differ by age, marital status, current health status etc. But with increasing competition for talent and

rising premium levels, employers may consider moving beyond a µone-size fits all¶ traditional approachtowards flexible employee benefits. In Towers Watson¶s view, the solution lies in giving employees the

liberty to choose benefits that they value most and thus would make optimum use of.

However, medical benefits are not restricted only to employees alone. 88 percent provide health care

floater to employees¶ family members as well. Figure 3 shows that most of the surveyed companies

provide medical cover to the employees¶ spouse, children as well as dependant parents. Almost 38

percent companies provide life time coverage to employees¶ parents. Some liberal plans provide

coverage to other dependents like parents in law, unmarried sisters and unemployed brothers below 25

years of age. A floater hospitalisation cover is generally provided to all employees irrespective of their

management level. Therefore, it will not be surprising if a high number of claims arise from treatment of

family members covered under the µfamily floater¶. This could be one of the strong factors leading to

higher premia charged by the insurance company which is discussed in the subsequent section.

Figure 3: Family coverage under healthcare


Towers Watson

III: Benefit Plan Governance

The cost of providing health care services can also be sensitive to the efficiency of plan administration.

Figure 4 shows that most plans offered by employers are covered by insurance companies except



domiciliary cover, which largely seems to be self-managed. 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. Interestingly, in spite of

the health care insurance market being privatised, public insurance companies still seem to dominate.

Amongst the companies surveyed, approximately 52 percent are covered by public insurers.

Figure 4: Health plan insured or self managed


Towers Watson

Insuring most of the health benefits provided may help in better claim administration, 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, looking into the future, employers need to focus on other qualitative

issues and not just administrative aspects alone. These elements range from designing an appropriate

plan which is tailored to the needs of different employee groups to increased communication and

education. Such an approach towards plan governance will ensure operational efficiency while also

helping employers to meet their plan objectives at the same time.

Challenges and strategies

Recently there has been a substantial increase in healthcare premia charged by insurance companies.

Figure 5 shows the average rise in the last three years to be in the range of 10 to 15 percent. 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: Average increase in premium in last three years



Source: Purchasing value in Health Care Survey 2009Towers 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, the average claim to premium ratio was over 110 percent. High level of claims by

policyholders adds to the poor profitability of health insurers. This will necessitate health insurers to

increase their premiums in order to cover claim and expense costs. This increase may be interpreted as a

µcatch up premium¶ as insurers try to manage loss ratios at a more sustainable level.

Figure 6 shows the link between claim ratios and health insurance premium, depicting that companies

who reported a high claim ratio have also reported rise in premium charged by insurance companies. As

can be seen the full impact of the high claims ratio has not translated into equivalently higher premiums in

majority of the instances. This is because of the high competition amongst insurers and their focus on

topline growth to increase the health insurance portfolio. The health insurance market (comprising of both

group and individual covers) is growing at an exponential rate. As per a IRDA journal report for June/July

2008 the health premium, which was about Rs.2,200 crore in 2005-06 rose to Rs.3,200 crore in 2006-07;

and it further rose to Rs.4,800 crore in 2007-08. Health insurance segment is estimated to grow to aboutRs.12,000 crore by 31 March 2011, which roughly translates into 33% per annum growth over these six

years.

Figure 6: Average rise in premium by rise in the claim ratio




Towers Watson

y Rising medical cost

o Changing medical practice patterns and greater availability of new and specialised medical procedures

are also putting pressure on the cost of providing health insurance. 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, Hongkong and ³about the same´ for

countries like Singapore and Philippines. This adds to the insurer¶s concern and they partly share the cost

by increasing the premium charges.

o Increased awareness amongst the employee population will increase their demand for insured health

care services and lead to higher utilisation and increased claim costs.

o Based on recent analysis of data by Towers Watson, it is observed that the inflation in costs of drugs

alone has been 8.1 percent per annum over the past 15 years; higher than the long term general price

inflation. In addition to this, 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. 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.

y Changing regulatory environment

Prior to the de-tariffication policy introduced by IRDA, health coverage was cross subsidised by other

lucrative insurance products like fire, motor etc. But, post de-tarrification, insurance companies cannot

offer cross subsidisation and companies will be required to do independent pricing for each business line.

Consequently, insurers are bound to revise their health premium charges, making it increasingly difficult



for employers to maintain an affordable health cover.

The survey results re-emphasise the concern of improving medical technology leading to higher cost.

Moreover, employers are also concerned about moral hazard issues related to health insurance. 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. There havebeen instances of providers recommending more medical services than required for insured employees.

Such practices by employees and providers leads to higher claim ratios and consequently, a

corresponding rise in premium.

Figure 7: Challenges faced by employers to maintain affordable benefit coverage


Towers Watson

* Companies were asked to rate top three challenges

Despite these challenges, companies do realise the importance of health care and plan to increase their

benefits in the near future. Figure 8 shows that more than half of the companies in the survey plan to

increase their health provision. This trend can be attributed to increasing competition and changing

corporate attitude. Therefore, it is important for companies to implement appropriate solutions to achievethe inherently conflicting objectives of increasing health care benefits while simultaneously controlling

rising costs.

Figures 8: Planned changes in health cover




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,

utilisation rate or policyholder behaviour can help organisations in efficiently managing their costs as well

as achieving other desired objectives. For instance, designing a plan that penalises employees withunhealthy habits such as smoking or tobacco use, spousal waiver and surcharges can help employers in

bringing down claim ratios

y Administration: Monitoring plan administration can also help employers in cutting costs. Periodic vendor

assessment and analysis of claim data will align the plan to strategic objectives.

y Greater levels of customisation:Ensuring that health care plans are tailor-made keeping in mind costs,

utilisation rates and policyholder behaviours. Communication of health care benefits in monetary terms as

a part of the total remuneration package can play an important role.

y Cost sharing with employees: Companies can consider several options in order to share health care

costs with employees. They can offer plans with co-payment or high deductibles. This will not only help

companies reduce their costs but will also increase the accountability on the part of employees.

y Preventive measure/ focus on wellness:Wellness plans promote healthy behaviour and practices.

Companies can offer regular health check ups, offer on-site exercise facilities or health club memberships

to their employees. Such initiatives can make employees¶ healthier and help the organisation in curtailing

premium costs. Moreover, a healthier workforce can also lead to higher employee productivity and high

contribution to company performance.

Currently, there are very few companies that employ these practices and worryingly there are no evident

signs of a changing precedent in this regard. In order to address the issue of rising costs, companies



have traditionally preferred to switch insurers as against redesigning their existing policy. The survey

shows that approximately 51 percent of employers have changed their providers in the last two policy

years. 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.

On a more positive note, companies seem to understand and value the importance of employeeeducation (Table I). They believe that effective and regular communication will help employees become

better health consumers. Moreover, apart from helping employees¶ make informed choices, it will lead to

employees¶ appreciating the health care benefits provided by employers.

Table I: Employer views to help employees be better health consumers.

Critical to help employees become better health consumers Number of respondents

Percentage

Educating employees to be more informed/active consumers of health care

67 74.44

Creating company-specific communication/education on health carecosts and living a healthier lifestyle

49 54.44

Actively managing vendor prepared communication/education onhealth care costs and living a healthier lifestyle

42 46.67

Branding the wellness programme for use in all communicationrelated to wellness

40 44.44

Senior leadership visibly supporting the importance of a healthywork environment

40 44.44

Creating wellness-related activities calendar 32 35.56

Offering healthier food options in cafeteria/vending machines 26 28.89

Communicating to spouses about the company wellness initiatives 13 14.44

Communicating to spouses about the company wellness initiatives 13 14.44

Integrating multiple vendors to improve the delivery of information to

our members (e.g. vendor summit)

11 12.22

Other 2 2.22

* Companies were asked to rate the top three

Case study



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. Till 2006 they experienced high claim ratios, which

reached its peak at around 150 to 160 percent. In order to curtail this increasing cost they developed a

health care strategy with special focus on appropriate benefit design:

y Initially they had no ceiling on their benefit provision but then introduced a limit on maternity expenditure,

hospital room rent expenditure etc.

y Introduced a co-payment system which required the employees to share the treatment cost above

Rs.10,000. This step not only shared the cost with the employees but also prevented them from seeking

excessive services.

y A special emphasis on wellness and preventive health care plans. 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, the company observed a more conscious usage of

medical benefits and a decline in claim ratio to 94 percent. 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.

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. In the recent past the health plan has

undergone changes on a yearly basis:-

y The parental coverage has consciously been capped to Rs.50, 000 so that the resultant savings could be

used for better employee coverage. As a result, the claim ratio has been brought under control.

y 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.

y While most employees realise benefits only when a claim arises, the company on its part has ensured

that a proactive communications plan is in place to share information on changes in medical benefits.

y There are standalone facilities of free regular medical checkups, yoga, aerobics, etc. but these are not

linked to the medical benefits as insurance companies do not offer premium benefits on account of such

initiatives.

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. Currently, the general practice

is to follow the traditional approach with most surveyed companies providing hospitalisation and personalaccident cover to their employees and their families. But, in order to include medical benefits as a

competitive part of the employment package, it is essential to design a plan that meets the differing needs

of a diverse employee profile. It is critical that employers segment their covered populations into

appropriate cost/risk categories and design interventions for each segment to control costs, create plan

efficiencies and change employee behaviour. This µtargeted¶ approach would fundamentally recognise

that all health care consumers are not alike and thereby engage more employees with practical solutions

and strategies.



Finally, our research highlights that appropriate plan design, regular communication to employees and

efficient administration are critical to deliver a plan which is aligned to the changing health care benefits

market. Currently, the impact of increasing costs is yet to be fully borne by employers and with projections

of substantially higher costs, companies have to address the root cause of the issue. 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 makesmarter health care decisions.

About the authors:

Anuradha Sriram is a Senior Benefits consultant with Towers Watson, India

Kanika Chawla is an Economist with Towers Watson, India

About Towers Watson

Towers Watson is a leading global professional services company that helps organisations improve

performance through effective people, risk and f inancial management. With 14,000 associates around the

world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and

capital management

towers watson healthcare survey 2010

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