By Akshay Manwani
5/01/2010
Employee benefit has always been a sensitive subject for HR. It is a reflection of the organization’s attitude towards its employees. It has to constantly evolve not only to reach the perfect mix that excites employees, but also to mirror the latest offerings other companies provide their employees. Very often it is the components and sub components of a benefit program viz. leave policy, policy on leased vehicles, insurance benefits or policy on leased accommodation, that help determine whether a company has ‘average’ or ‘strong’ people policies.

While most components of a benefit program are unique to a particular organization, health insurance is one component whose delivery does not depend on the organization alone. The difference in extending insurance as a benefit to employees, is that while the scope of other benefits are defined by the organization itself, the extent to which health insurance may be offered as a benefit depends essentially on HR’s understanding of the insurance products available in the market. Unlike other benefits, a third party, namely the insurance company, comes in to play in order to administer this benefit on behalf of the organization. Additionally, unlike a club membership, which provides an avenue for leisure activity, the health insurance benefit is exercised by an employee mostly in times of trouble and hence it is a more sensitive area within the benefit spectrum.

What health insurance benefits should companies look to offer?

Lipika Verma, Head – Compensation and Benefits, Nokia India Pvt Ltd, says “Medical security is the key thing while assessing insurance coverage and a seamless benefit on the medical side is something which an employee expects these days”. Vinok Sequeira, Senior Director – Human Resources, i2 Technologies, adds “Employees are one of a company’s greatest assets, and as such, their primary concerns need to be addressed. Those concerns include ‘What happens if I fall ill since I am the sole wage earner in my family?’ and ‘What happens to my family when they fall ill?’  This is especially important if hospitalization is required, because with the rising costs of healthcare, health insurance can be a savior.” Accordingly, the two main areas that a company needs to address if it attempts to offer an exhaustive health insurance benefit to its employees is coverage against death and the cost of hospitalization. This takes us to the most popular insurance benefits that are offered in the Indian market for addressing an employee’s health concerns:

Group Mediclaim: This policy falls within the ambit of the non-life insurance companies and takes care of an individual’s hospitalization expenses up to a pre-defined limit.  The hospitalization may occur due to an illness or an accident, so long as it is for a period more than 24 hours. Hospitalization expenses normally include:
1. Doctors’ fees and nursing expenses
2. Surgical fees, operating theatre expenses
3. Drugs and medicines consumed on the hospital premises
4. Room and boarding – subject to limits

The sum insured or the benefit for each employee can be ascertained by the company and is typically linked to an employee’s grade in the company. For example, the managerial cadre of a company could have a sum insured of Rs. 3 lakhs per employee while the executive cadre could have a sum insured of Rs. 5 lakhs per person. The advantage of a group mediclaim policy is that it can be tailor-made to suit the requirements of the company’s employees. Today a group mediclaim policy can be tweaked to cover:

1. Pre-existing diseases – Policies sold to individuals typically offer no or limited cover for such conditions. As a result an employee will never get coverage for an existing heart ailment if he were to buy a standalone insurance cover, but can get insurance for the same under his company’s Group Mediclaim policy owing to the larger bargaining power of the company.
2. Maternity benefits – Maternity too is never covered in policies sold to individuals.
3. Floater option – Under this option a company may choose to insure an employee along with his dependents (parents and children) under a single cumulative amount. For example, if the floater amount for an employee in an organization is Rs. Three lakhs, then the employee cannot use more than this amount to address the hospitalization needs of his dependent family members, including him.
4. Corporate buffer – Sometimes over and above the sum insured fixed against each employee, an organization may still choose to opt for a corporate buffer, which looks to indemnify an employee in case he/she has already exhausted her insurance benefit for the year. So for example if an individual’s mediclaim benefit was Rs. 3 lakhs and his/her cost of hospitalization comes to Rs. 4 lakhs, then three of the four lakhs is apportioned from the individual’s insurance benefit while the company may choose to pay for the remaining one lakh from the buffer amount that they have fixed with the insurance company.

Group Personal Accident: As the term suggests is a benefit policy and is offered predominantly by the non-life insurance companies. Under this policy an employee is indemnified for disability or loss of the employee’s life owing to an accident. It cannot be extended to cover the employee’s dependents.  The various risks against which an employee is insured under Group Personal Accident Policy are as follows:

1. Death - caused due to an accident. The employee’s receives 100% of sum insured
2. Permanent Total Disablement (PTD) – This is defined as loss of limbs or loss of eyesight or a combination of one of the two. The employee receives 125% of sum insured
3. Permanent Partial Disablement (PPD) – An accident may cause permanent disability, but does not fully impair the employee – for eg. Loss of thumb, loss of toe etc. The employee is compensated as per a pre-defined chart which states a percentage of sum insured to be given for every kind of PPD.
4. Temporary Total disability (TTD) - Here the employee receives compensation for the period that he is unable to attend work owing to an accident, but the nature of handicap is not permanent. For example, a fracture does not permanently disadvantage the affected person, but limits his working during the period of the fracture.  In the case of TTD employees are generally given 1% of the sum insured per week, subject to a maximum of Rs 5000.

The sum insured may again be determined as per the employee’s grade but has to also be linked to the earning capacity of the individual. So, for a basic cover (death only) the sum insured cannot be more than 100 times of the monthly income of the individual, while under wider cover (Death +PTD+PPD) – the sum insured is restricted to 60 times of the monthly income of the individual while in case of comprehensive cover (Death +PTD+PPD+TTD) – the sum insured is limited to a maximum of 24 times the monthly income.

Group Term Life (GTL): This policy is usually extended by life insurance companies and looks to indemnify the employee’s dependent in case the employee should die during the course of his employment with the company as a result of an illness or an accident. The sum assured under a Group Term life policy can be chosen either as a multiple of salary or can be fixed for employees belonging to a certain grade in the organization.

Important note: All the above three insurance covers are exclusive of each other and should not be substituted for the other. A Group Mediclaim policy looks to negate the employee’s burden against the cost of hospitalization owing to either an illness or an accident, while a Group Term Life policy looks to mitigate the impact of an earning member’s demise as a result of an illness or an accident. A Group Personal Accident Policy indemnifies the employee for death or disability (permanent or temporary) only as a result of an accident. The only thread of commonality between the three policies is that if a Group Term Life policy is already covering the employees in an organization against death, then the coverage under a Group Personal Accident policy may be restricted to cover the employees only against PTD+PPD+TTD, as death either due to accident or illness is covered under the GTL policy.

Which insurance company?

Since the insurance sector was privatized in 1999, a host of companies, approximately 22 in Life insurance and 19 in Non Life insurance, operate in both the public and private sector. Since the essence of delivering the benefit rests in the hands of the insurance company, HR must invest in necessary due diligence while selecting the appropriate insurance company.
As B.N. Venkatesh, Principal Officer and Director Operations, Total Insurance Brokers Ltd., says “A good insurance company is one which:
1 Has retained their market share of the health portfolio without a burden on their balance sheet over the past 2-3 years
2 Flexibility in their approach to the requirement of the client
3 Ability to pay high volumes of claims with least delay
4 Has an efficient customer response mechanism
5 Suggest loss containment measures for effective management of the insurance policy, thus retaining price levels at affordable costs.”

Additionally HR must ensure the following while entrusting delivery of health insurance benefit to an insurance company:
1. Do a referral check on the particular insurance company’s clientele.
2. Go through the fine print (exclusions under the various policies) in detail.
3. Organise an FAQ session for the employees with the insurance company so that employees are trained first hand on policy coverage and its operating procedures.
Since HR may generally not be well versed with the nuances of insurance programs, a good idea is to solicit the services of a consultant while determining the insurance company or defining the extent of health insurance benefit. A consultant is separate from an insurance agent, with the latter authorized to solicit business on behalf of insurance company, while the former represents the customer.
A consultant is required to advise the client on:
1. Coverage that is required to be in place considering the mix of members in the group
2. Extent of cover to be availed
3. Pricing appropriate for the coverage being obtained
4. Insurance company that is equipped to handle the policy
5. Prevailing market conditions
6. The type of claims, frequency, the average claims size, the hospitals /nursing homes utilised

The financial burden

While this is not of direct relevance to HR, it is important to note that health insurance policies offer little or no margins to insurance companies. The greater the benefits opted under a Group Mediclaim policy the greater the outflow of claims disbursement by the insurance company which only means a greater incidence of premium payment by the organization to the insurance company. Vijay Kumar Govada, Principal Officer & CEO, Toyota Tsusho Insurance Broker India Pvt Ltd, accordingly adds a note of caution, “The coverage should be ‘need based’, rather than moving towards adding ‘comfort bordering on luxury’. Is it necessary to visit a tertiary hospital for a simple fever or case of dehydration? The Insurance programme should be sustainable in the long term, while not compromising on the quality of medical treatment.”

However, as B.N. Venkatesh points out “Employee benefit insurance, has become an irreversible and integral part of a company’s business outgo over the past 5-6 years. HR looks at it an employee retention process.” The idea is to walk the tightrope between offering adequate coverage to employees without significantly increasing the company’s outflow on this count.

Given that there is no theoretical training on insurance in management school, it is imperative that HR practitioners handling compensation and benefit take a hands-on approach in understanding the nuances in this area. Health insurance may come to use in times of strife, but its successful delivery creates happier employees which is in everybody’s best interest.
 

Manwani is a freelance writer.