As the recession takes its toll, what are organizations in Europe doing to manage cost while supporting their employees in looking after their own most important asset – their health?

Europe is a politically, culturally and economically diverse region, making trend spotting as much an art as a science. In Europe, private health care plans tend to exist alongside a predominantly publicly financed and organized health system. The state is the main provider of health care to the population. Individuals, often aided by their employers, will supplement the care provided by the public system through purchasing private health plans. The mechanisms for interaction with the public system and the precise nature of these plans vary by country and are beyond the scope of this article, but typically, private health plans are purchased by individuals (or on their behalf by employers) for one or more of the following reasons:

Less cost containment in Europe vs. the US …

Given that private health plans are not the sole, or even the primary, source of health funding for the general residents of European countries, one might expect that they would come under severe pressure to survive untouched in a cost-cutting environment. Certainly, this is true to an extent, but perhaps to a lesser extent than one might anticipate, and certainly less so than may be the case in the US, for example. Indeed, in this year’s global survey by Mercer, Managing in Unprecedented Times, more than half (51%) of respondents in Europe stated that they were not likely to take any actions in the coming year to contain cost, compared with just 23% of US respondents. In a separate pan-Europe survey, Employer Health-Related Benefit Issues (conducted in 2008), 41% of respondents stated that they were unlikely to take any actions to manage health plan costs, even if such costs continued to rise at the current rate (averaging 5% per annum across Europe, according to the same survey).

We can explore several possible explanations for this. First, the magnitude of cost to employers is significantly less than would be experienced in the US. Respondents to Mercer’s 2008 pan-European health survey were spending an average of 5.3% of their payroll on health benefits, and about one-third of what the respondents of a similar survey in the US stated they were spending (15.4%). However, while the employer spend in Europe is considerably less than that in the US, it is still significant and rising at a rate several times that of wage inflation. So this is unlikely to be the dominant reason for a less aggressive approach to cost management.

The second reason is that, with employee morale already low, employers are reluctant to cut back on a benefit that is so highly valued by employees. Even with a temporary cooling of the war for talent, in general terms, there is still significant focus on keeping top performers engaged at most organizations. Attraction and retention of key talent was stated as the primary objective by the majority (62%) of respondents in the Mercer pan-European health survey, and 69% stated that they would struggle to retain top performers without the current health benefits offered by the company. This view was held particularly strongly in Eastern Europe, which experienced a migration of skilled labor and where perception of the available care through the public health system is often negative. Even in the UK, the private health sector is proving resilient in the face of the recession, with the demand for both individual and private health insurance policies remaining stable.

As with most regions of the globe, health care system reforms are a key feature in Europe. In Eastern Europe, these reforms may be driven by the EU or other bodies in return for general economic financial support. However, even in the more mature economies of Western Europe, health and welfare reforms are taking place and typically heading in the direction of a more stakeholder-centered approach with individuals. In turn, their employers are increasingly responsible for supporting the funding of health care alongside the state, resulting in a third factor that is suppressing cost containment.

Finally, in some countries in Europe – for example, Italy – a fourth factor, collective agreements negotiated with unions and other employee representative groups, means that it is extremely difficult for employers to cut back on benefits even if they wanted to.

While many leading organizations are taking a sensible approach and not making knee-jerk reactions to cost-cutting in a way that would severely devalue a prized feature of their benefits packages, they are acutely aware of the need to find both short- and longer-term solutions to cost management. Indeed some 72% of respondents to the pan-European health survey expected the pressure to provide health benefits to grow as a result of social welfare reforms, and 56% of Europe’s respondents to the Unprecedented Times survey expected health care reforms to affect the health and group benefit programs offered in 2010. Further, 60% of respondents to the pan-European survey were concerned that over the next 10 years costs will increase significantly due to the rising average age of the workforce. In the UK, France and Belgium, the number of those concerned was particularly high (over 70%), and many commentators now believe this to be one of the most significant challenges facing health care cost management in the immediate future.

…but actions are being taken

So are any actions being taken to manage cost? Multiple tactics are being employed, in both the short and longer terms, with the mix dependent on the severity of the short-term pressure resulting from the recession. 

Short-term tactics tend to be focused on cost shifting – either to the employee or back to the public system – by restricting entitlement to employer funding or point-of-claim cost sharing. In the pan-European survey, 38% of respondents expected to restrict the scope of coverage (either through specific exclusions or cover limitations/maxima), 34% expected to shift cost to employees (through point-of-claim cost sharing such as co-payments or fixed-value deductibles), and 30% expected to shift cost to employees through restricted eligibility for company funding (for employees and/or dependents). The Unprecedented Times survey backed this up by reporting that respondents in Europe had already this year increased employee contributions for their health plan membership (12%), offered lower cost plans (11%) or increased point-of-claim cost sharing (8%). More draconian steps had been taken by 10% of respondents, who had either eliminated their company-funded health plans completely or replaced them with voluntary benefits. Other tactics being employed include aggressive insurance broking and vendor market reviews, which in some cases are producing substantial savings; more use of preferred provider deals and restricted provider networks; and leveraging scale/ pooling of risk both multinationally and in-country, through bringing disparate divisions of companies together under a single-sourced plan.

For longer-term cost management, however, there are signs that employers are increasingly looking to turn their attention to taking a more holistic and joined-up approach to health risk management. If health benefits are to add value to the organization as well as to the employee, they must be able to produce measurable improvements in the health and productivity of the workforce. Of respondents to the pan-European health survey, 55% stated that one of their key objectives was to manage health risk and 51% cited improvements in health and productivity. But with as many as 74% of directors stating a belief that productivity gains alone could justify the cost of providing health benefits, there is clearly strong support for investing in health where ROI can be demonstrated.

An obvious but essential first step toward enabling employers to take a longer-term view of health risk management is to gain a better understanding of the primary causes of ill health within their workforce and of the extent to which they affect key productivity measures such as healthy attendance. Only then can employers focus on targeted initiatives to effectively mitigate these health risks. There is still much work to be done in capturing meaningful data that will enable these insights to surface. The pan-European survey revealed, for example, that the managers in more than three-quarters (76%) of responding organizations could not quickly access reliable data on the level of absence in their workforce at any given time. Furthermore, only 42% could access the data on the specific causes of absence and a mere 33% were able to access data on cost of absence.  In a recessionary environment, there is additional pressure on employees to attend the workplace, even when they are not in good health, for fear of being let go.  This adds another dimension for employers to understand – lower productivity due to “presenteeism.”

Meanwhile, the Unprecedented Times survey advised that 64% of Europe’s respondents had already intensified, or were likely to intensify, their efforts to understand and take specific actions to target the drivers of organizational health care cost and productivity. Sixty-two percent of respondents to the pan-European survey cited musculoskeletal conditions as one of their top three causes of longer-term absence, and 52% stated stress/mental health conditions. These were followed by cancer (20%), respiratory diseases (17%) and heart conditions (11%).  This did vary somewhat by region.  For example, in Eastern European countries, respiratory diseases were cited by 33% as a main cause of longer-term absence, nearly double the European average.

Painting a picture of more comprehensive health plans in Europe going forward

There is already good evidence of employers implementing or considering targeted wellness initiatives. Of the respondents to the Unprecedented Times survey, 53% stated that they had already added or were likely to add wellness programs to help improve employee engagement and health-related behaviors. Further, nearly one-third (32%) said that they had already introduced or were likely to introduce pilot programs to manage complex illnesses through early, targeted and sustained interventions. More details were evidenced in the pan-European survey, where 54% of respondents claimed to offer an individual health risk assessment/screening to staff, 33% offered a gym or fitness club subsidy, 29% offered a stress helpline/employee assistance program, 26% offered a smoking cessation program, and 14% offered a dietary advice service.

Provision of wellness programs is, however, only part of the solution. The more difficult element is encouraging employees – and, vitally, those most at risk and arguably least inclined to do so – to actively engage in the programs and, as a consequence, modify their behavior and lifestyle to mitigate adverse health risks. This requires a high degree of personalized education, typically backed by some form of incentive/reward. Some creative approaches are beginning to emerge. For example, some insurers in the UK are beginning to adapt ideas from programs operated successfully in other regions, such as the US and South Africa. These are based on rewarding individuals with discounts on health insurance premiums and other lifestyle benefits for managing their personal health risk factors. Such programs are very much in their infancy in Europe, and there is a substantial amount of work to be done to evidence success as, unlike in the US and South Africa, the return on investment is likely to emerge through the management of cost in areas other than purely health insurance premiums. The early adopters, however, believe that these programs might just hold the key to helping them balance the conflicting pressures of providing attractive health benefits while addressing the underlying impact of poor organizational health.

Note

1. Source: The Future and Its Impact on the Private Sector, BUPA, 2007