Insurers look for ways to help employers with rising healthcare costs

Insurers and brokers are working with employers in Asia Pacific to try and reduce the impact of medical inflation on the employee benefits packages that they offer. This has important implications for firms as they compete for talent.

Over 76% of insurers surveyed by WTW expect to see “higher or significantly higher” medical costs over the next three years – the highest among all regions globally. Ageing populations, an increase in chronic diseases and a shortage of healthcare providers in certain markets are contributing to the increase.

This presents a significant challenge for employers, who need to keep costs down while still making sure the benefits package is attractive enough to retain high-quality staff.

Yet insurers report that many employers are not paying enough attention to the issue.

“Rising medical costs are a major risk for human resources and risk managers. However, less than one-third of these roles report having effective cost containment strategies to manage their employee benefit expenses,” says Andrew Teo, Country Lead, Accident and Health, QBE Singapore. “This has significant financial, strategic, and workforce-related implications, especially for multinational employers and those offering comprehensive private medical insurance coverage.”

This presents an opportunity for insurers and brokers to step in to fill this gap.

“Less than one-third of these roles report having effective cost containment strategies to manage their employee benefit expenses.”

Andrew Teo

Country Lead, Accident and Health at QBE Singapore

Talent competition

Better cost management can be achieved through lower reimbursement caps or higher deductibles. However, these options can affect outpatient and specialist coverage, in turn impacting employee satisfaction – something employers are keen to avoid.

“In Singapore’s competitive job market, having a robust healthcare programme remains a key differentiator, especially in white-collar and expat-heavy sectors,” says Teo. “Reducing benefits for the purpose of cost containment may weaken the value proposition offered by employers, especially if their rivals are able to maintain or even enhance their plans.”

But as healthcare costs continue to spiral upwards, it is becoming increasingly difficult to provide cost-effective insurance for workers.

A recent survey from Marsh, suggests that 47% of insurers are looking to reduce plan coverage to better manage costs, which is likely to have significant short-term consequences for the benefits that staff receive.

Steven Yu, Head of Marsh Mercer Benefits Asia, says that employers should consider both “the short-term impact on cost and the long-term impact on health” when implementing cost containment strategies.

“While ‘blunt instrument’ sweeping changes can provide short-term financial relief, this risk increases unmet employee health needs, increasing disparities, and negative impacts on workforce productivity and retention,” says Yu.

“Instead, we suggest designing for ‘surgical cuts’ tied to data where there are plan excesses, and investment in providing preventative care and deploying new plan designs, such as a tiered approach to incentivise virtual-first care or offering tiered co-insurance for panel versus non-panel providers.”

“Taking APAC as a whole, the top two factors that are influencing how employers strategise benefits are, firstly, the consideration of competition for talent and, secondly, rising costs.”

Eva Liu

Head of Strategic Development, Health & Benefits, APAC at WTW

Eva Liu, Head of Strategic Development, Health & Benefits, Asia Pacific at WTW, says that the debate about keeping costs low versus being able to attract and retain talent has been around for some time. However, rising healthcare costs have now brought this into sharper focus.

“Taking APAC as a whole, the top two factors that are influencing how employers strategise benefits are, firstly, the consideration of competition for talent and, secondly, rising costs,” says Liu, quoting from a recent survey. “This is why so many employers have been prioritising providing good healthcare and medical support, but they will have to reallocate or rebalance this spend.”

This is about “being smarter” and spending in the places that will create the most value for employers, says Liu.

Looking for flexibility

Most employee benefit policies sold in Asia are ‘quota share’ policies, where the insurer takes a fixed percentage of every single risk. However, this can lead to costly insurance packages that don’t perfectly align with the needs of individual companies.

Idie Si, Head of Accident and Health for Asia at Berkshire Hathaway Specialty Insurance (BHSI), says a more cost-effective and versatile solution is for employers to self-insure those medical liabilities where claims are very predictable, and only purchase excess of loss insurance to cater for unexpected spikes in claim costs.

“The cost to employers of buying insurance from the first dollar up has convinced us that employer stop loss products have a big role to play in Asia going forward.”

Idie Si

Head of Accident and Health, Asia at Berkshire Hathaway Specialty Insurance

This kind of insurance—known as ‘employer stop loss’ or ‘medical stop loss’—has become very popular in the United States over the past decade, where healthcare costs are also spiralling out of control. BHSI now hopes it will take hold in APAC.

“Employer stop loss insurance is an answer to increasing medical insurance premiums that are becoming unsustainable,” says Si, “The cost to employers of buying insurance from the first dollar up has convinced us that employer stop loss products have a big role to play in Asia going forward.”

BHSI’s employer stop loss products have two components.

One is excess-of-loss cover specific to individual employees, which would take out any spike in individual medical claims. This might include, for example, cover for pregnancy complications or medical conditions that could require gene therapy.

On top of this, employers can purchase aggregate stop loss cover, which sits across the entire portfolio. This guards against unexpected incidents that might affect the entire workforce. The recent Covid-19 pandemic is a good example of how this might come into play. Indeed, Si confirms that Covid-19 helped spark fresh conversations in APAC about medical stop loss insurance.

By splitting the risks in this way, insurance costs for employers can be significantly reduced, allowing them to offer much more flexible staff benefit packages.

“Because we sit on an excess level and we are there to cover volatility in claims, our involvement can be as relaxed or involved as the employers want us to be when it comes to benefit design,” says Si. “This gives employers a greater level of control and flexibility in terms of the benefits they want to offer to the employees.”

Furthermore, employer stop loss does not have to be purchased for all medical benefits offered by the employer.

“Depending on the needs of the employers, we can carve out certain benefits to be covered under employer stop loss. For example, we can do an aggregate excess-of-loss for just inpatient hospitalisation benefit,” says Si. “At BHSI, we are happy to tailor our coverage according to the employers’ expense management concerns.”

While there is a good deal of interest in this type of product, Si admits that it is one of “the more slow-burning products in our portfolio”. As medical inflation continues to rise, and BHSI steps up its outreach programme, Si hopes that more and more employers will come to see the benefit of stop loss insurance.

Data and AI

Beyond employer stop loss cover, there are other ways in which companies can allow staff to choose coverage that better reflects their individual needs, while minimising wastage.

This includes improved cost management and claims analytics, where employers partner with insurers to monitor claim trends, identify chronic condition clusters, negotiate value-based care networks, and bolster workplace wellness. Leading insurance firms are also now adopting health analytics platforms for predictive modelling and high-risk management.

Teo says that artificial intelligence is powering improvements across several areas of healthcare provision, such as improving claims analysis via advanced analytics, detecting cancer types through clinical care and imaging and predicting survival rates by means of predictive analytics.

“To date, the focus of AI has mostly been on process enhancements such as fraud detection, but there is enormous potential for the technology to be deployed elsewhere, such as AI-driven health risk management programmes,” says Teo.

He adds that, as medical inflation continues to outpace both wage inflation and business growth in APAC and globally, employers must start adopting “next-generation cost management strategies” that go beyond the traditional methods of containment.

“The future of employee healthcare management requires a multi-layered, data-informed, and tech-enabled approach,” he says.