If budgets are tight for companies with expat employees, what options are on the table to ensure that they can get by with the bare minimum? Sam Barrett investigates
Sending employees overseas to explore new business opportunities is one way to buck the economic downturn in the UK. But, with budgets tight, employers are looking at ways to keep the cost of cover to a minimum.
These cost-cutting exercises are something Kevin Melton, sales and marketing director at AXA PPP International, has seen increasingly over the last few years.
“We do still get requests to upgrade cover but we get a lot more asking about how they can reduce the cost of cover,” he explains.
Location, location, location
How much cover an employee needs will depend on where they are going. While some countries stipulate a minimum level of cover as a condition of working there, where there are no requirements in place, it may be possible to cope with a reduced amount of cover.
It is probably easiest to do this for employees who will be based close to home. Debbie Purser, chief executive officer at MediCare International, points to the EU as an example.
“The UK has reciprocal arrangements with other countries in the EU to provide healthcare in the event of an emergency so this may be sufficient,” she says.
As well as cutting back on cover for the EU, it is also possible to chop benefits in some of the developing countries where healthcare facilities are limited or not of a very high standard. In these places a plan could be restricted to inpatient and evacuation benefits so employees are able to access western style healthcare in the event of an emergency. Extras such as dental and maternity are less important as employees would be likely to delay these until back in their home country.
The length of the assignment will also play a part in cover decisions. Where someone is only going on a short assignment, say three to six months, and they intend to return to the UK at the end, Beverly Cook, managing director of Expacare, says you can be a bit more frugal with cover.
“Cover for cancer and chronic conditions won’t be so critical, especially if they’re in good health,” she explains. “You could also leave out the outpatient cover, simply providing inpatient cover in the event of an emergency.”
While this approach may work in some countries, taking out benefits won’t always be an option.
“If someone’s going to somewhere like the US or Hong Kong they’ve got to have medical insurance,” says Purser. “There’s less need for evacuation cover as the healthcare facilities are of such a good standard but the cost of treatment is so high an employer couldn’t expect an employee to fund it themselves.”
But, even where an employee is heading off to one of these high-cost healthcare countries, Sarah Dennis, international healthcare director at employee benefits consultancy Jelf Group, says it is still worth scrutinising the benefits schedule.
“If you offer employees a high level of maternity cover you will get people using it at that level even though cheaper options are available,” she explains. “You need to match it to the cost of appropriate healthcare otherwise claims can escalate.”
Some benefits can be superfluous too. Purser says she would drop maternity where dependants are not accompanying employees, adding that this can reduce the cost by between 10% and 15%. Dental benefits are another area that is commonly extracted, especially where there is no dental plan on offer for employees based in the UK.
But, once you get beyond the biggies stripping out more of these little extras will not necessarily make a big difference.
AXA PPP’s Melton explains: “You can take out cover for some of the smaller items but it probably won’t affect the premium very much, especially if they never generated many claims.”
Dependants’ cover can also be a target for reductions. Expacare’s Cook says that more claims tend to come from dependants so some employers will look to deter this by providing them with a lower level of benefit. However, caution may be required as an overseas assignment can often be seen as a good opportunity to start a family.
Local policies are also an option. These are usually significantly cheaper than an international plan but, while they can work in many situations, Steve Nelson, international sales manager at April Medibroker, advises caution.
“It does depend where you go,” he says. “You might feel confident with a local policy in an English speaking country but what would you do if you were in Zambia and needed to see a doctor? You do miss out on all sorts of extras that can make a big difference.”
Additionally, while a local plan may be sufficient in that country, it won’t allow the employee to be treated in other countries. This may cause problems if they need to travel on business.
Self-insuring some areas of cover can also be an option, especially for larger employers. This may simply mean picking up the bill for these expenses or providing them separately. For instance, Melton says that a large company may look to employ its own doctor, enabling areas such as GP consultations and vaccinations to be removed from the medical insurance.
Sharing the costs
While limiting benefits is one option, some employers prefer to introduce cost control mechanisms that enable them to pass on some of the cost to the employee. Excesses are the most common example. These range from a relatively modest £50 through to £5,000 plus. All will generate savings with Purser sticking a figure of 10% on a £500 excess and 35% on a £5,000 excess.
While the savings may seem slim, Dennis says a small excess can be particularly effective without creating bad feelings with employees.
“Putting in an excess of £100 to £150 will deter people from making small claims such as for prescriptions or visits to the GP,” she says. “As these small ticket items often make up the majority of claims on a policy, this can have a significant effect on costs.”
Another option is co-insurance, which, although not a massive feature in the UK is very popular in Europe. This works on a similar principle as an excess but rather than require the employee to pay a fixed amount, they pay a percentage of each claim. Sharing the bill in this way deters some claims and makes employees more conscious of the cost of treatment.
Rather than load the employee’s contribution in at the claim stage, Dennis is seeing an increase in the number of companies that ask employees to make a contribution towards the cost of cover.
“One employer expects employees to pay 50% of the premium for their international health insurance,” she explains. “This approach can work but it depends on the expectations of the employee but, even at this price, it’s a lot cheaper than if they’d had to arrange cover themselves.”
Larger companies can also look at the structure of their insurance, moving to an arrangement that separates the treatment, administration and insurance costs, much like a trust.
“If a company’s paying more than £1m for its international medical insurance there’s likely to be a huge amount of predictability in its claims patterns,” explains Ron Buchan, chief executive officer at Allianz Worldwide Care. “The company pays the treatment and administration costs and then puts in place a small amount of insurance for anything unexpected. This can be much more cost-effective than a fully insured scheme.”
But while a slimline healthcare package might please the finance director, there are risks to the organisation too. For starters, going without cover can be a false economy. If someone becomes ill and cover is not in place, the employer is very likely to pick up the tab anyway.
Additionally, when employees are overseas they often mix with fellow expats from the organisation’s competitors. Dennis says that where this happens, the benefits package is often part of the conversation.
“If an employee sees they can get better benefits with another company they may look to jump ship,” she says. “Replacing them can be much more expensive than providing comprehensive cover.”
Perhaps because of these risks many of the insurers are finding that although they’re being asked how to reduce the cost of cover, few organisations are actually taking any steps to do this.
“It’s only a small part of the costs of sending someone overseas and it delivers high levels of satisfaction,” says Buchan. “Very few employers do cut it back.”
Indeed, the importance of comprehensive cover is illustrated by some of last year’s product launches including AXA PPP International’s top of the range plan, Prestige Plus, and Allianz Worldwide Care’s Signature, which is aimed at senior management and allows them to receive treatment in the UK as well as overseas.
But, even if these top of the range plans are well outside the budget, Nelson says that an appropriate level of medical insurance should be a key part of the package. “It’s much easier and safer to scrimp on other parts of the expat package such as their accommodation,” he says. “It’s not a good idea to play accountant with employees’ health.”