Wednesday, August 13, 2014

Why do Indian companies take such poor care of their employees’ health ?

Companies all over the word proclaim that their employees are their most precious asset. This should be especially true of Indian IT companies such as TCS , for example , which depend upon the knowledge of their employees in order to be able to provide outsourced services cost effectively .

However , the problem is that even though they pay lip service to the fact that they value their employees, the reality that there is very little they do in real life to demonstrate this , as a result of which most employees treat such statements as window-dressing. These platitudes look good in the Chairman’s speech which is published in the Annual Report , but provide no tangible benefit to them. Thus , while they have a HR department which carries out social activities to promotes bonding; and they can be generous with their financial bonuses, there is precious little they do to promote their employee’s health. Yes, the company does provide employee benefits, and one of these is a health insurance policy, but all this does is provide a financial cushion in case the employee falls ill. In fact, most of these companies actually reduce the life expectancy of their employees, because of the high levels of work-related stress; the sedentary lifestyle they are forced to adopt, because they are chained to their computers; and the unreasonable hours they have to keep, in order to meet critical work-related deadlines.

This is a tragedy . Even though TCS prides itself on its human capital ( which is its magic sauce today), the amount it spends on employee health is a very small proportion of how much they spend on their computer hardware and software.

 While global leaders such as Google spend much more of their revenue on providing  health insurance coverage ( which includes generous wellness benefits as well), TCS spends less than 1% for protecting the health of their employees.

There are many reasons for this glaring anomaly. For one, healthcare in India is much cheaper than it is in the USA. Secondly, when health insurance was a monopoly service provided only by the PSUs ( when it was called Mediclaim), they would treat their health portfolio as a loss leader. This was a very small percentage of their overall revenue, and they could afford to lose money on it, and make this up on their other policies ( such as fire, for example).  This is why the claims loss ratio on corporate healthcare policies has remained extremely high. While they could get away with this unbusinesslike approach in the past , with increasing medical inflation, as medical costs in India rise ( because of advanced medical technology), this is no longer sustainable. Something has to give.

Because corporate healthcare is such a competitive business, which adds a huge chunk of money to the top-line, health insurers vie with each other to offer value-added services to corporates, in order to retain them.  However, many companies are now coming to their senses and realizing that they are actually ending up losing money on this segment. In fact, some companies such as Max Bupa are planning to exit this segment completely, because they cannot afford to continue throwing their money away.

Corporates are squeezing health insurers, and are demanding more for less. In order to keep them happy, the sales team of the insurers ( or their brokers or TPAs) will promise them lots of freebies, such as HRAs ( health risk assessments), an onsite doctor; a second opinion service; and a doctor on call. However, because their profit margins are so slim and because they are getting squeezed, the quality of these “value-added” services is pathetic. This sets up a negative vicious cycle. Because the quality of services are poor, employees do not utilise them, because they provide no tangible benefits to them, Of what use in a health magazine which regurgitates content from Wikipedia ? When the company audits these services, they find they have not been effective, and then want to discontinue them.

Health insurance is an employee benefit, and is considered to be a cost center . If it does not provide any value, they will squeeze the insurer even more , who is then forced to reduce the quality of his offering even further.

As a result of this, everyone is unhappy – the health insurer; the TPA; the HR Dept ; and the employee. In all fairness, if you pay peanuts, you should expect to get a service which is fit only for monkeys !

CEOs of companies like TCS need to understand that they need to spend far more on their employee health than they are doing today, if they want these programs to be successful. Keeping employees healthy is not a cost – it is basic business sense. Health employees are productive and efficient; and if a company contracts with a health insurer which provides VIP care to the employee when they fall ill, this create a lot of positive buzz in the company , which improves company loyalty. People remember what happened to them when they fall ill – and if the health insurer provides them with a patient advocate during their hospitalization, because their company has contracted with the health insurer to provide these health benefits, they will always have a special place in their heart for their employer.

If CEOs invest in the health of their employees, this will provide a return on investment which maybe intangible , but will pay off over a period of time . However, by arm twisting health insurers to provide these services, and then paying them pennies to do so means that these are just doomed to fail.

When companies refuse to pay a fair market rate at today’s rates for healthcare services, everyone suffers. Health insurers lose money, and cannot afford to continue doing so on an ongoing basis. They put pressure on their TPAs, which then start cutting corners when processing claims. While the company highups will still get VIP medical care when they fall ill , the average employee is treated with disrespect Hospitals and doctors are unhappy, because their payments are capped, and they also treat these employees very grudgingly, which means that the poor employee suffers even more during his illness.

If corporate are serious about investing in the health and wellness of their employees , they have to start by being willing to invest much more in their insurance policies. Even if they double their expenditure, this will still only be a very small fraction of their overall turnover. Because this has been a neglected area, the amount of leverage they can get ( in terms of employee goodwill, loyalty and improved productivity) is enormous !

It’s a difficult choice – either they offer competitive benefits and forgo profits, or cut back on benefits and risk losing their best employees. Hitting upon the right formula is growing ever more critical as health care costs continue to escalate.

 Principal Financial’s yearly benefits study in the USA shows that companies that offer attractive benefits packages boast significantly lower turnover rates than companies that don’t. Ballpark cost for a decent package, including health insurance, a retirement plan and a few extra perks: between 30% and 40% of total payroll expenses (including salaries and hourly wages).’

In the USA, health insurance costs vary depending on company size, industry and location. Principal Financial says most small companies allot between 10% and 15% of payroll costs for health care. The average 2010 annual premium for small-group coverage was $3,944 for single coverage and $10,048 for families, according to the American Health Insurance Plans’ 2010 survey.

The Marsh India 7th Annual Employee Health & Benefits Study details benefits prevalence in India.
The study found that 85% of the surveyed organizations have made at least one change to their benefits plan design in the last two years to combat rising medical insurance costs. Nearly 28% of employers still continue with a claims ratio in excess of 100%, and 54% of employers stated that health insurance costs will continue to increase by double digits over the next three years. The claim cost per life has risen by 92% in the past five years, which is an annual average compound medical inflation rate of just over 18%.

Rather than try to save a few more rupees, the CEO should ask the Dept to craft a benefits program which will wow the employees. This does not mean he has to write a blank cheque – just that he has to stop being miserly. Google is famous for being able to retain employees, thanks to the perks it offers at its Googleplex HQ . These cost Google very little -  but increase profitability enormously, because happy employees are much more productivity. Thinking out of the box can create lots of and wow – and make the company which does so the employer of choice, so that it emerges a winner in the ongoing war of talent !

Employees rightly see benefits as being one of the key factors in job satisfaction, but the HR departments in India are solely focused on capping their costs.   Companies need to achieve a balance between using benefits as a retention tool and managing escalating costs. The trouble is that a lot of the money companies invest in providing benefits is being wasted,  because employees don’t understand and appreciate these benefits, and don’t make optimal use of them . Simply increasing benefit spend does not necessarily improve perceived value.

The problem is that HR departments are just asking health insurers, TPAs and insurance brokers for more of the same old stuff. They want what appears to be new wine – but in the same old tired bottles. These penny wise , pound foolish piecemeal efforts will not work, because employees have become jaded and cynical about these “do-good” initiatives. This is a broken model. We need innovative creative solutions to tackle this problem.

This initiative has to be driven by the CEO and not the Head of HR. Sadly, a clever HR head is seen as one who is able to reduce expenses , not one who improves the quality of benefits offered. While paring costs can help to improve the bottom line in the short run , this will harm the company over time, by hurting employee morale.

This is a huge opportunity to create happier employees – but only if it led by the CEO – and not by the HR department ! Ideally, the solution should be one that the CEO’s wife would be happy to use in case someone in her own family falls ill !

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