During an economic downturn, employees are more understanding of the need to share the cost burden. For employers, this recession presents a narrow window of opportunity to implement tough, long-overdue, but necessary benefit plan changes. At the same time, employers need to ensure the long-term financial sustainability of their benefit programs that support employees in their time of need, especially in light of escalating healthcare costs. Changes in benefit plan design can yield short-term results, resulting in quick savings and improved consumerism but there is a risk in simply shifting costs onto employees since it can result in eroding overall benefit value and the employer's reputation. Thus, less intrusive cost containment tactics should also be considered. Success and sustainability take time to build, so it is never too soon to implement necessary cost containment measures to ensure the sustainability of your pians to emerge even stronger once Asia recovers.

During an economic downturn, employees are more understanding of the need to share the cost burden. For employers, this recession presents a narrow window of opportunity to implement tough, long-overdue, but necessary benefit plan changes. At the same time, employers need to ensure the longterm financial sustainability of their benefit programs that support employees in their time of need, especially in light of escalating healthcare costs.

Mercer estimates that premium costs in Asia will double in the next five years. According to the World Health Organization , private per capita expenditures on health increased by more than 1 5 percent a year between 2000 and 2005 in markets such as New Zealand, Australia, Vietnam, Malaysia, Indonesia, and India. Even in this downturn, we continue to experience the usual drivers of healthcare cost - an aging population, increase in chronic disease driven by lifestyle changes, expensive new drugs and medical technologies, government health reform shifting costs to the private sector, and rising demand and expectations from the expanding middle class.

Why does healthcare costs rise in a downturn?

The recession compounds the challenge of managing cost. The overall cost cycle we experience in recessions takes the form of a sharp peak. At about the time tliat cost is peaking, employers implement cost containment changes which begin to sharply bring down the cost trend. The recession drives higher utilization and costs because of the following reactions:

* Stress levels rise, leading to increases in both behavioural and medical illnesses. Further, some employees fearing a lay-off or change in benefits increase their use of discretionary services - stockpiling drugs, completing long neglected medical procedures.

* Insurers experiencing financial losses and concerned about the potential spike in claims will significantly increase their rates to recoup those losses and cover near term uncertainty.

* Healthcare providers experiencing a rise in bad debt and a drop in patient visits will also want to mitigate losses by increasing rates or providing more profitable services.

Controlling claims is key to cost containment

In Mercer's Hong Kong Health and Welfare Survey 2008, 70% of participating companies expressed concern about the rising costs of health benefit claims yet only 18% had introduced cost control measures. After years of insurance premium rate shopping, companies are finding that it no longer has the same impact while much money is being spent on unnecessary diagnostics, prescription drugs and even specialist visits. Companies must therefore look into cost containment by first controlling employee claims. This can be done by encouraging employees to take personal responsibility for healthcare spending.

First of all, employers can incentivise the use of cost-effective options such as preferred provider networks, government hospitals and generic drugs through different levels of cost sharing. In Singapore and Hong Kong, employers are implementing and better communicating incentives to utilise the region's high-quality public health facilities instead of expensive private hospitals. Some employers in Hong Kong are discouraging the use of doctors outside their preferred provider network by giving only a 70% reimbursement versus 100% for those in network.

Secondly, companies should educate employees on health and cost issues such as the risks and costs of Caesarean births, diseases linked to lifestyle decisions such as smoking and hospital pricings. Employers in Hong Kong for example are asking insurers to provide telephone help lines to provide information on physician pricing and other health care information. Lastly, employers can offer tools such as checklists for talking to doctors about the range of treatment choices and costs to improve dieir understanding and confidence.

But ultimately, the key to long-term healthcare cost management comes down to the efficient management of the primary cost drivers of your claims and the health risks within your employee population. These cost drivers and solutions typically fall into four categories, as shown in Figure 1.

* Benefits Design - benefits plan structure such as a defined contribution or flexible benefits plan; eligibility requirements; determination of coverage and exclusions; and premium and claim cost-sharing arrangements.

* Benefits Delivery - vendor contracts; outsourcing benefits administration to a single regional broker; and claims management to reduce fraud and ensure payment of only reasonable, customary and medically necessary expenses.

* Benefits Financing - negotiating better pricing or terms with insurers or pooling networks if the claims experience has been positive; volume purchasing; and in-house captives to transfer risks or self-funding instead of insurance.

* Health Management - prevention programs to keep employees healthy; at-risk management to identify and manage individuals with health risks; disease management to manage the progression of illness; case management to manage high cost claims; and absence management that includes effective return-towork programs.

Benefits design - best practices and the Flex advantage

Companies throughout the Asia Pacific have developed a number of emerging best practices. These include benchmarking their plans to determine whether their plans are more generous than industry competitors; considering more limits or coinsurance or co-pays for inpatient and outpatient expenses; defined contribution approaches and the removal of coverage that does not lead to better health outcomes such as luxury rooms.

In Hong Kong, employers are reviewing the plan coverage; for instance by implementing a waiting period of 12 months before covering pre-existing conditions in new members, and adding a room and board limit under the Supplementary Major Medical plan - a supplementary hospitalisation plan which some employers provide on top of the basic hospitalization cover.

A specific solution that is especially relevant now is flexible benefits, or Flex, which encompasses a range of benefits and cost-shifting mechanisms. For companies that do not offer Flex, it can involve implementation costs, but can pay off significantly in the long term. Flex allows employees to choose the mix of health insurance and other benefits that suit their life stage, while the costshifting aspect of Flex can reduce employer expenditures as healthcare costs continues to rise.

Flex lives up to its name by being responsive to the individual needs of employees in changing or challenging economic conditions. Additional voluntary benefits can be added as part of the Flex program without incurring extra costs and can include individual insurance programs which can financially protect employees between jobs. Compassionate employers may consider subsidizing coverage over a period of time to ensure employees and their families have adequate cover. In addition, this approach ensures they retain their reputation as a good employer. Flex programs can also include reimbursement of training costs for employees who must retrain for new jobs.

In China, where attracting and retaining talent is a major concern, companies are saying that enhancing the perceived value of benefits to be seen as an employer of choice is as important as containing costs. A few leading multi-nationals (MNCs) or those companies with large and well-educated workforces in China have implemented or plan to implement a full Flex program to contain benefit costs in the long run while building a strong employer brand. Although Flex in effect moves away from a defined benefit structure to a defined contribution plan, employees of these MNCs welcome the change as they are among the few in China to have flexible benefit choices.

Benefits delivery

In Singapore and Hong Kong, large employers are outsourcing their employee benefits and flex administration workload to third party providers. But controlling claims and reaping the benefit of improved claims experience requires proactive steps on the part of organizations, including the audit of insurers, third party administrators and other claims payers. Employers need to know the quality controls their vendors apply to verifying eligibility, paying the right type of benefit, applying cost sharing accurately and ensuring that the provider has submitted an accurate bill. In Hong Kong, some insurers require employees to obtain prior approval before hospital admission to check tliat potential medical expenses are covered under the policy and the quoted rates conform with the preferred rates agreed between the insurer and the hospital.

A best practice to consider is auditing the vendor prior to the "live" date to ensure the plan is set up accurately and thus avoiding errors at a later time. Employers also need to know that they will get credit for any savings that come from audits or recovering funds that another carrier should have paid. It's also vital to assess whether your providers will offer rate guarantees, and if it is possible to consolidate vendors for economies of scale.

Benefits financing

Large MNCs are turning to multinational pooling networks to reduce premium pricing and provide for dividend refunds from favourable claims experience. In Hong Kong, some employers are taking out selected items such as the Chinese Herbalist/Bonesetter treatment from their insurance policy and adding these to their outpatient, preferred provider arrangement as a cost containment measure. This is because innetwork preferred providers can offer a more cost-effective rate while such high-usage items as the Chinese Herbalist/Bonesetter treatment will result in a higher insurance premium.

Some employers are also reducing their HR and benefits costs by consolidating their insurance with a single broker who negotiates all of their regional insurances and provides full outsourcing to handle their employee administration needs. Other financing opportunities include renegotiating vendor and insurance fees and volume purchasing deals with preferred provider networks for large employee populations. In China where employee benefits insurance is very competitive, companies should conduct a re-selection of their vendor and negotiate the costs down once their employee size grows over a hundred.

Health management

Establishing cost-saving health management programs requires some key proactive steps. First, companies must obtain demographic and health data so they can begin to building a health profile for their organization. The data helps employers evaluate what type of high-risk populations and illnesses they have so they can choose appropriate health risk-management interventions that are targeted and not wasteful. In China, for example, where manufacturing is pervasive and construction projects are innumerable, employers are proactively undertaking ergonomic assessments to reduce the costs associated with worker injury.

Companies also must recognise and address the employee stress issues that are exacerbated by the insecurity and uncertainty of the current financial turmoil. And prevention initiatives should be based on the biometrics of specific employee profiles in order to generate ROI.

In addition, such value-added features as Employee Assistance Plans (EAPs), health portals and Health Risk Assessments (HRAs) can differentiate health plans, and serve as attraction/retention tools as well as help to drive wellness and attendance up and costs down. EAPs offer 24-hour telephone advice and in-person counselling while online health portals provide education and information. And HRAs, delivered electronically, telephonically or on paper, allow individuals to assess their level of health risk. In Hong Kong and China, some employers are already providing employees with health portals that offer health risk assessments and EAP helplines.

Multiple strategies for success

Ultimately, the success of these cost-containment strategies lies in their fit with the organisation's healthcare needs and cost drivers and despite the current economic turmoil, longer-term strategic issues should be considered. Sustainable savings and the maintenance of a strong workforce call for a combination of short-, medium- and long-term approaches to health benefit cost-containment.

Changes in benefit plan design can yield shortterm results, resulting in quick savings and improved consumerism but there is a risk in simply shifting costs onto employees since it can result in eroding overall benefit value and the employer's reputation. Thus, less intrusive cost containment tactics should also be considered:

* Enhancing benefits delivery and optimising financing can certainly result in better plan management, funding and governance over the medium term, but long-term savings may be limited.

* Health management strategies may not yield shortterm cost savings, but these strategies offer the strongest long-term solution for a stable productive workforce and results in particularly quick wins in emerging economies.

By adopting a combination of these approaches - and applying such innovations as Flex - organisations can position themselves to thrive, not merely survive, despite economic cycles. Success and sustainability take time to build, so it is never too soon to implement necessary cost containment measures to ensure the sustainability of your plans to emerge even stronger once Asia recovers.