There are at least two important reasons why companies are sponsoring health insurance for their employees.
Healthy employees reduce absenteeism and reduction of productivity.
Health insurance coverage provided to employees as part of the compensation program increases the willingness of qualified human resources to join and maintain existing employees. That’s why companies include health insurance as part of the compensation package -- an important part of the HR strategy within a company.
With the increasing cost of healthcare, there are also companies that solicit contributions from employees in the form of premium payments taken directly from their salaries.
Companies can sponsor health insurance for employees either through individual insurance or group insurance.
Individual insurance or individual base insurance programs provide protection for employees and their families, in which policies are issued to each employee. This requires medical checkups for underwriting analysis, which measures whether an employee is qualified for insurance protection provisions and limitations.
Insurance companies use mortality tables, which is the probability of mortality by age and sex, and the probability table of illness. This whole process is known as underwriting.
Group insurance is the base for a master policy issued by life insurance companies to provide health insurance benefits for employees and their families. Life insurance companies use the reference “experience rating”, issued by the actuary of the life insurance companies in which premiums are calculated and paid by the company. In group insurance, life insurance companies do not do the underwriting process individually for each employee, but instead calculate premiums based on experience rating as a group.
In Indonesia, there are two forms of health insurance: indemnity plans and manage care plans. Private insurance companies generally issue health insurance through the indemnity plan. Meanwhile, the Social Security Management Agency (BPJS) conducts a health insurance program with the manage care system.
Each of these forms of administration has its advantages and disadvantages, depending on the needs of the company. Each program has an individually targeted market. However, in Indonesia today people are required to follow BPJS programs, and companies are obliged to register their employees.
The indemnity plan for health insurance programs provides insurance protection in the form of compensation in lieu of cash paid by the insurance company to employees or directly to the hospital, clinic or doctor providing the health care. The health insurance plan pays out insurance benefits based on the reimbursement of health care that includes hospitals, doctors and operating costs.
Under the indemnity plan, employees can choose their own doctors and hospitals.
The advantages of the indemnity insurance program include providing freedom to employees to choose their own clinic and hospital or doctors from a list provided by the insurance companies. The insurance company pays the costs, but the employees are required to pay in advance for the treatment and are then reimbursed in accordance with the provisions and insurance benefits to which they are entitled. In another form, the employees do not have to pay in advance, but insurance companies pay the medical expenses in accordance with the provisions and insurance benefits to which they are entitled.
The indemnity insurance plan programs generally offer three health benefits, namely hospital cash plan benefits, surgical expense benefits and doctor benefits.
As for the manage care plan, it is a health insurance program that emphasizes cost control to provide limits to participants in terms of both the insurance benefits and outpatient visits by doctors and hospitals. Here, the organizers of the program will transfer some of the risk of healthcare costs. This system is called capitation.
The implementation of healthcare involves a fixed amount paid for each employee or participant per month. In return, hospitals, clinics and physicians receive assurance on the number of visits or patients during the contract period.
In general, the program in managed care operation activities is focused on management control, especially regarding costs, but is also concentrated on disease prevention and preventive medicine.
All guidelines, mechanisms and management are aimed at maintaining the level of costs within the desired limits of the premiums paid by the company in the managed care programs, which is cheaper when compared with group-based health programs for indemnity.
Eddy K.A. Berutu is a co-founder and CEO of Avatar Global Consult Ltd.
Avatar Global Ltd is a financial and insurance industry consulting firm, providing and implementing game-changing strategic advantages for clients in Indonesia and the Asian region.
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