ESCALATIONG MEDICAL COST AT WORKPLACE

1. Introduction

One of the core and most important employee benefit is the medical insurance coverage. Employee
medical benefits commences with the pre-employment medical checkup. Over the years,
Organisations have increased the medical insurance coverage from not just clinical, hospitalization
and life insurance but extended to cover optical and dental in order to stay attractive and competitive
in recruitment drives. There are still a few Organisations that continue to pay 100% of healthcare
premiums for its employees in the United States such as Kimley-Horn and Associates, Nugget
Market, NuStar Energy, Perkins Cole, The Boston Consulting Group, Ultimate Software and a few
others. However, Company-paid medical insurance is slowly declining due to high insurance
premiums charged by the service providers. Small Medium Entreprises (SME) are struggling
economically due to escalating employee medical insurance premiums amongst other related rising
business costs and sustainability of the current system is of a major concern. Decision making and
problem making are common issues in every organisation. Fundamental part of a managers job
scope is solving problems and making decisions. A good decision process is mandatory in
approaching and solving a problem.

1.1 Company Overview

Mutiara Etnik Sdn Bhd (MESB) was established on 17 th February 2005 as a company specialized in
providing end to-end solution in Dry Bulk Material Handling. MESB scope of work includes design,
engineering, construction, commissioning, operations, maintenance and logistics of dry bulk material.
The incumbents have over 30 years of combined experience in the conveying and storage of bulk
material for the solid fuel power plant, cement, quarry and mining industries.

1.2 Purpose of the Report

The purpose of this report is to identify and analyse the problem and decision taken in mitigating
escalating employee medical health insurance cost and its effects to corporate growth. Various
decisions taken and the problem solving techniques are highlighted and analysed.

There are various methods that can be adopted to identify decisions and solve problems. Many
managers consciously or unconsciously tend to adopt the unconscious process known as heuristics.
Heuristics as described by Kahneman, 2003 is when decisions are taken using short cuts and
simplified methods. However, the heuristics process might not be the right process in certain
scenarios that requires time, more rational thinking and extensive computation of complex
information (Gigerenzer and Brighton 2009).
Amongst the various decision making problem solving tools and methods practiced by organisations
are the De Bono Hats, Delphi Decision Making, Fishbone Diagram, SWOT Analysis, Vroom-Jago
decision model, Rational Decision Making and Work Breakdown Structure. The most suitable tool
and method for MESB would be the Rational Decision Making Model. In rational decision-
making models, decision makers analyze a number of possible alternatives from
different scenarios before selecting a choice.

1.3 Description and Justification of Problem/Decision/Issue

One of the core benefit provided by Malaysian as well as Organisations all over the world is employee
medical health insurance. The employee medical health insurance covers clinical as well as
hospitalization requirement. Its a common practice by majority employers as a way to attract and
retain prospect as well as permanent employees.

In recent years, the employee medical insurance cost is a concern for most employers due to rising
health care costs. In Malaysia the governments policy of allowing private hospitals to profilerate has
resulted in increased of corporate healthcare. Effective January 2016, policyholders have been
notified a increase of 10% to 30% hike in medical insurance premiums. Coupled with the Goods and
Services Tax, employers are burdened with higher medical costs. The Life Insurance Association of
Malaysia stated that healthcare costs were rising and would continue to do so at a rate of 15% yearly.

MESB has been providing its permanent employees totalling to 30 employees the American
International Assuarance (AIA) employee medical insurance coverage since the year 2005. Over the
years the premiums have been increasing approximately 10 -15% per annum. It has been reported
that insurers have either increased their charges and premiums or repriced their medical card by up to
a whopping 30% since January 2016. This the insurers claim is the resultant of the rise in drug costs,
administrative costs, defensive medicine, expensive mix of treatments, wages and work rules as well
as branding every year. In Malaysia, the medical inflation is estimated to increase at a rate of 15%
each year. Healthcare costs as predicted by Life Insurance Association of Malaysia will continue due
to :-

demands for better healthcare services from the affluent

An ageing population and a higher prevalence of chronic and lifestyle diseases like
hypertension, diabetes and obesity.

Technological advances in healthcare

Rising drug and treatment costs due to the weakening ringgit.

1.4 Description and Justification of the Approach (es) Used

Rational decision making model was used in order to derive at a best solution to address problems
faced by the organisation. A few researchers have used this model this model and, attempted to
enhance it by inspecting every single conceivable choice and their expenses. The enhanced model is
called the rational model is known as the comprehensive model (Profiroiu, 2006). The model
identifies step by step process in order for managers decision making objectively as follows:-

Rational Decision Making Model

The first step is to identify the problem that is the escalating employee medical cost. The current
challenges in health care faced by employers outside the organisations control are an unsettled
economy resulting in the government cutting back on health subsidies, a weakening currency, the
goods and service tax, insurance providers increasing premiums, and drastic rise in health care cost.

A study conducted internally shows various reasons such as abuse of medical certificates, employees
being insensitive to their health and wellbeing, obesity, poor eating habits, smoking, overweight,
excessive drinking habits, sedantry lifestyle has resulted in diseases such as heart attack, cancer, high
blood pressure, diabetes amongst others.
Abuse of the employee benefit such as coaxing the medical practitioner to submit false claims such as
treatments that were never conducted, inflate cost, prolong the duration of treatment unnecessarily as
well as manipulating a service as a method of obtaining non-eligibility medical insurance coverage.

Employees are entitled to sick leave according to their year of service. Section 60F of the
Employment Act 1955 indicates that an employee is entitled to paid sick leave in accordance with
their years of service with the Organsiation:-

i) Less than 2 years of service 14 days

ii) More than 2 years, but less than 5 years of service 18 days
iii) More than 5 years of service 22 days
iv) Entitlement of 60 days paid sick leave in the event of hospitalization

Other reasons such as employers still having to provide medical insurance coverage to employees
until retirement age of 65. This has resulted in health insurance becoming more expensive due to age
related health issues and employees remaining in the workforce longer.
Insurance providers are charging higher premiums taking into effect the age of the employee as well
as imposing higher premiums if the employees have health related issues such as heart problems, high
blood pressure, diabetic, etc.

The second step is to gather all information pertaining to the escalating employee medical costs.
Malaysia is affected by high medical inflation rates which in return has impacted the hospital
outpatient costs and in return has increased Organisations medical costs. According to research
conducted by Mercer Marsh Benefits in Asia in 2016, shows that highest medical costs increase is
predicted in countries such as Malaysia (17.3%), Indonesia (11.8%) and Vietnam (19.3%). Overall
the medical costs for Asia is expected to increase by 11.5% against an inflation rate of 2.1%.

As of the beginning of 2016 according to information provided by Countrymeters.info the estimated

population age distribution is as following:

29.6 65.4 5

- percentage of population under 15

 - percentage of population between 15 and 64 years old
- percentage of population 65+

The above clearly indicates that the highest population of workforce which extends to age 65% is the
highest.

MESB has been faced with constantly high employee medical costs for the past four (4) years namely
2013, 2014, 2015, 2016 and the projected premium for 2017 is equally high for a Small Medium
Entreprise.

YEAR PREMIUM(RM) CLAIM(RM) MLR

2013 17,128.67 21,885.85 128%
2014 44,874.60 9,886.97 22%
2015 43,508.82 19,233.93 44%
2016 43,330.81
2017 41,237.10

50,000.00 140%
45,000.00
120%
40,000.00
35,000.00 100%

30,000.00 PREMIUM(RM)
80%
25,000.00 CLAIM(RM)
60% MLR
20,000.00
15,000.00 40%
10,000.00
20%
5,000.00
0.00 0%
1 2 3 2016 2017

As evidenced above the trend for medical premiums payout has been on the rise since 2013. From as
low as RM17,128.67 in the year 2013, MESB is paying an average of approximately RM40,000.00
per year from 2014 onwards. The difference in the Medical Loss Ratio (MLR) is partly due to
employee headcount.

The above issues have greatly impacted the bottomline of MESB. Our findings also revealed several
other reasons for the escalation of employee medical cost for the organisation.
Healthcare cost increases are being driven mostly by noncommunicable diseases (NCDs). These are
diseases that cannot be caught from other people but are frequently caused by an individuals lifestyle
choices. As reported by webstar in smartinvestor, Malaysia healthcare expenditure is expected to rise
as high USD20 billion by 2020 as a result of chronic disease.

Approximately half of employer medical expenditure are from hospital inpatient and outpatient
claims; nevertheless, prescription drugs are becoming expensive. Not all parts of medicinal services
contribute equally to employers costs. Generally 50% of every medicinal cost originate from
hospitals spending : 30% from hospital inpatient and 19% from clinic hospital outpatient. Doctors
represent around 30% and prescribed medications 17%.

The third step involves problem solvers developing as many alternative solutions as possible.
Solutions such as educating the employees the importance of them ensuring adequate insurance
coverage above the benefit provided by the employer, employee involvement in wellness and health
programs, seek alternative employee insurance plan from a few Managed Care Organisations (MCO)
such as AIA, Great Eastern, AIG, Allianze for most suitable and competitive health insurance
coverage, encourage employees to visit the government hospitals which are equipped with the state-
of-the-art medical equipment.

The fourth step requires using some type of SWOT analysis to select the best solution.

STRENGTH (Internal Factors) WEAKNESSES (Internal Factors)

- Able to educate employees on the importance of - Abuse or misuse of medical benefit by
their health Employee
- Reduce overall employee medical costs by - Poor monitoring of medical claims
introducing various methods - High administrative costs and overhead
- Obtain the buy in of employees - Aging workforce
- Organisation to complement Governments - Ability to afford health coverage
medical and health systems and coverage - Premiums rise in response to health care cost
- Employee health awareness programs Increases
- Empower employees to manage their budget - Hospital outpatient and inpatient costs are the
and healthcare cost largest component of health care spending
- Flexible plans to suit organisation - The relationship between health care costs and
Requirement premiums is often misunderstood
-Develop effective structuring and - Employee disregard health matters
management - Employees not aware of their medical insurance

of health financing benefits package

- Employees expectation of high medical
-Negotiate and obtain better health
insurance coverage
insurance
packages with Managed Care
Organisations
(MCO)
- Healthcare is a collective obligation
OPPORTUNITIES (External Factors) THREAT (External Factors)
- Able to have a healthier and happier workforce - No Government interference in regulating
- Better tax rebate schemes for Organsiations insurance premiums
providing medical insurance - Unethical medical practitioners
- Support from the Government in ensuring - Rising incidences of chronic diseases
conformance to medical costs regulatory - Increasing healthcare costs
- Obtain premium rate comparisons from other - Weakening ringgit
insurance providers - limited healthcare budget
- Older workforce to utilise government subsidies - Weak economy
- Public and private healthcare integration - Government removing subsidies
- Tailored solutions for medium-size - Greater demand for services
businesses - New Technology
with flexible funding options - Prescription Drugs

- Utilise the SOCSO and EPF Health - Cost Shift Due to Under-Funded Public

Financing Programs
- Malpractice Liability
Account
- Goods and Services Tax imposed
- Subsidised health care services
provided by
the Ministry of Health

The fifth step involves the conversion of best solution into action.

Consider pooling with partner companies for healthcare

Advantage bigger numbers equates to lower premium and affordable coverage

Obtain sufficient healthcare insurance quotes from as many MCOs

Advantage able to obtain competitive pricing and coverage

Organise employee wellness program from time to time

Advantage create health awareness

Only hire after conducting a thorough employee medical examination

Advantage avoid high risk employees

Share the healthcare insurance cost with the employee

Advantage win-win outcome that is the costs is spread and able to obtain better coverage

The sixth step is the following up on action taken. By using the Rational Decision Making Model
step by step approach the issues were first identified. Subsequently various solutions were identified
and researched to address the escalating employee medical costs. The participative decision making
style was used in order to gauge and obtain concensus in decision making. In terms of approach
logical and ethical approaches were utilised to clarify, formulate, gather, collate, condense and define
the problem. During the whole process the ethical and scenario were used too to complement the
logical and ethical approach.

2.0 ANALYSIS AND DISCUSSION

2.1 Critical Appraisal of the Approach(es) Used

Overall the model choosen has its strengths as it takes the necessary steps in identifying the required
approaches in tackling the escalation employee medical costs. It assist the decision makers in
weighing all aspects that influence the medical costs. The SWOT analysis enables the decision
makers to examine internal and external factors before making rational decisions.

STRENGTH WEAKNESS
1. Steps by step approach taken allows decision 1. Time consuming and unsuitable for quick
makers to arrive at various solutions decision making
after 2. The time equates to cost

taking into consideration the external and 3. Tendency to take short cuts due to time,

internal issues affecting the escalating resource and cost contraints

employee medical costs. 4. Differing decisions to solutions

2. Able to analyse and derive at the most suitable 5. Differing intrepretations of problems

method of tackling escalating employee 5. Limited information

medical costs. 5. Potential of information overload

3. The problem in clear and umambiguous 6. Information complexity

3. Understand the issues better 7. Control sensitivity

4. Able to concentrate on actual issue in hand

5. Reduce chance of mistakes
6. Collective decision taken