Employers worried by soaring healthcare costs should not despair – there are ways of cutting your coat to suit your cloth, as Nick Golding reports.
Despite newspaper headlines indicating that the end of the recession may finally be in sight, those who populate the world of employee benefits are still refusing to let themselves get too carried away.
In fact, many companies are still not prepared to part with cash for new benefits, and in the healthcare sector a prudent approach to staff perks is particularly apparent. The 2009 Bothered Britain report on research conducted by healthcare provider Simply Health, concluded that while 60% of employers accept that healthcare benefits have become more important to staff during the past 12 months, more than half (51%) have no plan to invest any more cash on such perks.
For many companies, it is a case of simply bettering what they already have and ensuring that healthcare providers are offering businesses the best products at the lowest price, explains Elliott Hurst, senior consultant in healthcare and risk at HR consultancy Watson Wyatt.
“Stay with your same provider but conduct a market review and find out where the market sits for your type of business,: he advises. “We are finding that, on occasion, there are some considerable savings to be made.” And, once employers know going market rates for PHI and the like, they strengthen their bargaining position.
As companies shrink in the downturn, healthcare providers have become more aggressive with their pricing, and the smaller number of employee heads to fight for has forced down costs. This puts employers back in the driving seat, and now is the best time to be negotiating for better deals, says Hurst.
Aggressive pricing
“We are seeing some particularly aggressive pricing from certain providers in the marketplace, as they seek to protect the heads they have already got in their portfolio and try to grab what they can from other providers at the same time.”
Aside from demanding more from providers, employers can take a more proactive approach to cutting costs while maintaining the same level of benefit, at a time when the cash is not available to go out and buy more. Wellbeing programmes, such as healthy eating at work, no-smoking campaigns and breast cancer awareness sessions, are growing in popularity as employers look for affordable ways to improve the health of their workforce.
Stevan Rolls, UK head of HR at accounting and consulting firm Deloitte, explains: “For organisations, a wellbeing programme like ours, which includes massages, an on-site gym and sports therapy, is a positive thing. These are stressful jobs so to have these things on site is bound to help staff stay healthy.”
Such programmes can be both relatively cheap to run and they can also have an impact on the more expensive core benefits, such as private medical insurance (PMI), because insurers will see less risk among those employees who can access exercise and health-related facilities at work.
Healthy attitudes
Ben Thompson, managing director at Fruitdrop, which provides fruit to workplaces to encourage staff to eat healthy snacks instead of chocolate bars or fizzy drinks, says that insurers definitely take employers with healthy attitudes into account when assessing risk and premium costs. “The more advanced insurance providers will try to assess companies on what line of work they are doing and the healthy initiatives that are on offer for staff.”
And small wins on health for staff, such as healthy eating in the workplace, can come at very little cost, especially considering the overall impact it can have on reducing the costs of more core healthcare perks. “Our service is also cheap. You can do something for £1 per employee per week,” adds Thompson.
Some providers of healthcare insurance products, according to experts, weave different financial incentives into premium costs for companies that are willing to invest in wellbeing practices.
Jessica Colling, product director at wellness specialist Vielife, says: “There are insurance companies that offer substantial incentives for people to get fitter and healthier, and the premium will be based on overall health status [of staff].”
Sceptical
But others are more sceptical, and while they accept that wellbeing programmes are positive steps in terms of keeping staff healthy at work, a direct link to low premiums on risk-based healthcare benefits is still not clear. Hurst says: “Wellbeing should be brought to the underwriter’s attention. Whether they actually translate into cash savings is hard to quantify. But, anything businesses do around health screening, no smoking, breast care etc, should be brought to the fore.”
Keeping staff fit will help companies to maintain low absence rates and reduce the amount spent on sick pay. It also stands to reason that those companies with successful wellbeing programmes will have a team of workers that is less likely to call upon the likes of PMI.
Fewer claims will lead to a cheaper overall premium, though this is far more likely to be a long-term solution to reducing healthcare costs, warns Dudley Lusted, Axa PPP’s head of corporate healthcare and development.
“If I give up smoking as a 25-year-old, it will be another 25 years until it will impact my company’s PMI premium. If we can get people fit, we will reduce the chances of them having heart disease, but that’s a long-term benefit.”
Strategy-based changes can also be made to a healthcare plan to cut and control costs. Moving core healthcare benefits such as critical illness cover and PMI into flexible benefit plans is growing in popularity, as it allows the employer to dictate the amount that is spent on the benefits.
Control costs
So, rather than simply providing a medical benefit and suffering the rising and often inflationary costs of that benefit, the employer offers staff a sum of money to buy the benefit for themselves, explains Richard Morgan, director of consultancy services at provider and consultancy Vebnet.
“The employer can control the future costs of healthcare by deciding how much the company is going to spend on healthcare, instead of funding a benefit, which is likely to have a high inflation rate attached to it. Medical inflation can be up to 20%, whereas salary inflation might be 0%.”
But, where healthcare benefits are provided as part of a contractual agreement when an employee joins a company, changes cannot necessarily be easily made to that contract, and companies would be wise to follow the letter of the law, says Hurst.
“Employers should always take legal advice if they plan to remove healthcare benefits. Look at existing terms of employment contracts and consider how any changes to [healthcare] plan design might be prohibited by employee contracts,” he says.
Companies are still striving to get more for their money when it comes to healthcare benefits, and the clever employers are looking beyond striking a good deal with suppliers. The truly prudent are looking to boost the health of staff through wellness programmes and shift core benefits to the flex package, because small investments and changes to benefit design have the potential to have a significant impact on the price of core healthcare perks in the longer term.
How providers keep costs down
A competitive marketplace has forced providers of healthcare benefits to keep their offerings as attractive yet affordable as possible, and employers are now demanding more than ever before for their money.
Providers are also looking at ways to offer different, more affordable healthcare packages to employers, to help them keep their costs down. Instead of the expensive insurance benefits such as private medical insurance (PMI), some providers are offering cash plans with varying pricing levels as an alternative.
James Glover, head of corporate sales and marketing at Simply Health, says: “If there are affordability issues for the company, we offer different pricing levels on cash plans and we help employers explore the different options.”
Providers are looking to educate employees around wellbeing and health, targeting organisations with different programmes that will reduce the health risk status of staff.
No-smoking campaigns, breast cancer awareness sessions and obesity clinics can all help a company to be less reliant on risk products such as PMI and drive down premium costs.
Case study: KPMG
Value is key when it comes to healthcare benefits at accountancy firm KPMG, and via regular tendering processes and the advice of brokers, the firm’s reward team believes its offering is as cost-effective as it can be.
Ingrid Waterfield, UK head of reward at KPMG, says: “We look to negotiate the best deals through regular tendering from the suppliers we use. We have even used brokering firms in the past to assess the healthcare programmes we have and to see whether we are getting the right level of value for staff.”
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A streamlining process has also been carried out at KPMG, which has identified any healthcare perks that are replicated as free services elsewhere, such as on the NHS. If they are spotted elsewhere as free services, staff are informed and the benefit is removed, says Waterfield.
“We look to see if there are any [healthcare] services we offer that staff can receive as a public service anyway. So, for example, we used to provide a GP telephone helpline, but this is a service that is replicated by the NHS service and is available to everyone anyway,” she adds.
