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Regional update – how flexible benefits is
transforming the packaging of rewards inAsia
Chow Yoke FunRegional Flex Consulting Leader
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2Mercer’s Asia HR Roundtable 2010
Key Discussion Points
What are Flexible Benefits (Flex)
Transforming the rewards package – Flex Trends & Updates AcrossAsia
Flex in Asia
Highlights of Mercer Global Employee Choice Survey 2009 Results
Flex Success Stories
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What are Flexible Benefits
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4Mercer’s Asia HR Roundtable 2010
What are Flexible Benefits?
An innovative way of offering employee benefits
Basic concept is giving employees choice in selection of their benefitson year to year basis to meet their diverse and changing needs
Traditional One SizeFits All Structure
Flexible Benefits
Same benefits for ALL employeesEmployees choose the benefits that
meet their individual needs
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5Mercer’s Asia HR Roundtable 2010
Flex Drivers
Meet diverse employee needs & maximize value of benefit spend
Employer of Choice for competitive differentiation
Control escalating benefit costsHarmonize benefits across different entities or during M&A
Communicate benefits as part of total rewards
Raise employee awareness and appreciation of benefits
Facilitate benefit program changes
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6Mercer’s Asia HR Roundtable 2010
Different generations have different prioritiesOne size does not fit all
Balances workwith familyTechnology-expertsTeam-oriented
Socially-conscious
Distrust institutionsEntrepreneurialRisk takersNeeds work/lifebalance
IndulgedSocially-consciousWorks hard
ValuessecurityCompanyloyaltyInclusive
Characteristics
To live better
Wants company tovalue individualindividualcontributionscontributions
30 to 4230 to 42
Generation X
To live apurposeful life
To build abetter life
To build a lifeDrivers inWork
Wants tovalue ownowncontributionscontributions
Wants hardhardworkwork to bevalued
Wantsexpertiseexpertise andexperienceexperience tobe valued
Value of Work
18 to 2918 to 2943 to 6043 to 6060+60+Age
Generation Y/MillennialsBaby BoomersMatures/
TraditionalistsGroups
Sources: Employee Benefits of the future, Employee Benefit Plan Review, Jan 2007The Next 20 Years: How Customer and Workforce Attitudes will Evolve, N. Howe, W. Strauss 2007Millenials Rising – The Next Great Generation, Howe and Strauss, Vintage Books 2000
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7Mercer’s Asia HR Roundtable 2010
Flex Models- Flexible Benefit Continuum
More FlexibilityLess Flexibility
Traditional
The employerprovides amandatory set ofbenefitsThe employeehas no choiceavailable otherthan opting-out incertaincircumstances
The employerprovides amandatory set ofbenefits
The employee haslimited flexibility byvirtue of having theoption to purchaseadditional lifeinsurance
Employees areprovided with 2or morecompletepackages tochoose fromAppropriate forsmall to mid-sizegroups, or fornew flex plans
The employerutilizes atraditionalapproach forcatastrophicprotection e.g. lifeinsurance,disability, andcatastrophichealth claimsThe employee isprovided with ahealth spendingaccount to utilizefor other eligiblehealth and dentalexpenses
The employerprovides acore level ofcoverage forall benefitsThe employeeis providedwith credits topurchaseprotectionavailablewithin theother optionsincluded in theplan
Employees areprovided with aset amount ofcashThe employerfacilitatescoverage forcertainbenefits, someof which maybe compulsory
Cash Plus
Options
Employees areprovided with aset amount ofcashThe employerhas noinvolvement inthe facilitationof benefits
Traditional
PlusVoluntaryOptions
Modular FSA &
TraditionalCoverage
Core Plus
Options
Cash
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8Mercer’s Asia HR Roundtable 2010
Flex Models- Core Plus Model
Flex is a scheme which provides options for employees to choose thebenefits which best meet their needs
BENEFITENTITLEMENT
COREBENEFITS
FLEX DOLLARALLOCATION
CHOICE OFOPTIONALBENEFITS
FLEXIBLESPENDINGACCOUNT
(FSA)
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9Mercer’s Asia HR Roundtable 2010
Flex Models- Modular Plan
The modular plan design is a set of various packaged plans where employees chose one that bestmeet their needs. A minimum package plan usually applies.
The remaining money is also put into a flexible spending account and used for various self-insuredbenefits. If the total flex dollars spent exceeds the budget given by the company, the excess is
deducted from salary.Example: An employee who picks Choice III would have a GTL sum assured of $200,000, aGPA sum assured of $200,000 and R&B per day limits of $388.
Choice IChoice I(Minimum(Minimum
Plan)Plan) Choice IIChoice II Choice IIIChoice III
50,000
50,000
R&B: 170
800500400Price tags for GTL, GPA and GHS(in Flex dollars p.a.)
500 flex dollarsbudget for each
employee (familyfriendly employersmay give more toemployees with
dependents)
500 flex dollarsbudget for each
employee (familyfriendly employersmay give more toemployees with
dependents)
GPA
GTL
GHS
100,000
100,000
R&B: 250
200,000
200,000
R&B: 388
Unspent flex dollarsare usually diverted toa flex spendingaccount. The flexdollars in a spendingaccount can be usedto claimreimbursement for:• Dental• Holiday Subsidy
• Chinese Physician• Gym Subsidy• Encashment(Converted to cashusing a fixedpercentage)
Unspent flex dollarsare usually diverted toa flex spending
account. The flexdollars in a spendingaccount can be usedto claimreimbursement for:• Dental• Holiday Subsidy• Chinese Physician• Gym Subsidy• Encashment(Converted to cashusing a fixedpercentage)
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Transforming the rewards package
– Flex Trends & Updates
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11Mercer’s Asia HR Roundtable 2010
Flex Updates Across Asia - 2010
Re-defined benefits provision philosophy - one that supports specific
corporate / HR objectives egmaximise value of existing benefits
health & wellness
Employer of choice - innovative
competitivenesskeeping line with new benefit trends
institute culture of responsible use of medical benefits
Provision of benefits w/o
defined HR or corporatephilosophy
Choice & flexibility for employees
EmpowermentDiverse work force / culture & needs
Benefits are decided byorganization
One-size-fits-alldisregarding needs ofdiverse work force
The Trend
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12Mercer’s Asia HR Roundtable 2010
Flex Updates Across Asia - 2010
Cost management / shiftingNo control overescalating cost
Move towards defined contribution with better control over benefitsspend / budget
Benefits offering ondefined benefitsstructure
The Trend
Total rewards strategy / online total rewards statements
More effort & interest to communicate value of benefits especiallythrough flex programs
Help employees better understand insurance & medical benefits – working jointly with providers
Lack of communication
of benefits and valueCompensation separatefrom benefits
Benefits harmonization or alignment across entities within a country or
business groupsRegional alignment across countries spearheaded by regional HR
Benefits harmonization during M&As
No alignment of benefits
across entities /countries
No regional HR co-ordination
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13Mercer’s Asia HR Roundtable 2010
Flex Updates Across Asia - 2010
Source: Text
Lifestyle benefits
More comprehensive local medical coverageInterest in including international medical plans to employees using flexdollars or employee's own cost
Voluntary benefits
Work site products & services
Portability
Incentives for desired behavior eg environment-friendly behaviour,community service & contributions
Plan Design Features
Off-the-shelf solutions for SMEs with lower cost of implementation &administration
Flex Model
The Trend
Potentially integrating flex with pension / retirement program, ifregulation permits and there are tax efficiencies
Pension / retirement
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14Mercer’s Asia HR Roundtable 2010
Flex Updates Across Asia - 2010
Source: Text
Encouraging employee health & wellness, health educationHealth risk profiling, healthy living programs and incentives / rewardsthrough flex
Health & Wellnessprograms
The TrendCurrent or Previous
Move towards FSA to encourage specific behavior as in health &wellness focus vs encashment
Encashment of FlexDollars
Incorporate education to help employees make appropriate plans fortheir future and post-retirement financial and insurance needs
Financial & Insuranceplanning
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Flex in Asia
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16Mercer’s Asia HR Roundtable 2010
Flex in Asia- Countries that have mature flex and choice programs
ok
Mature Flex Markets
Hong Kong
MalaysiaSingapore
Singapore
Between 50 - 200 companies on Flex
programs to-date, mostly MNCs infinancial services, technology and
logistics industry . Also includesnumerous government ministries and
government-linked organizations
Malaysia
Similar to Singapore except less than50 companies on Flex
Hong Kong
Less than 50 mostly in financialservices industry
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17Mercer’s Asia HR Roundtable 2010
Flex in Asia- Countries with moderate levels of choice and flex
ok
Philippines
Less than 50 companies on Flex, mostlypharmaceutical, manufacturing, telco and
BPO industries
Indonesia
Less than 10 companies on Flex, mostly
manufacturing, logistics and pharmaceuticalindustries
Australia / Thailand
Less than 5
IndonesiaPhilippines
Australia
Thailand
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18Mercer’s Asia HR Roundtable 2010
Flex in Asia- Countries that have emerging flex and choice programs
ok
TaiwanIndia
China
China, Taiwan & IndiaLess than 10 companies on flex primarily in
technology industry
Japan & South Korea
Less than 5 companies on typical flex
structures and those that we are aware of arefrom technology industry. However, thereappears to be a prevalence of voluntary top-up
programs in South Korea
Vietnam & New Zealand
No known flex plans to-date
Japan /SouthKorea
NewZealand
Vietnam
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19Mercer’s Asia HR Roundtable 2010
Flex in Asia
okNew markets with noknown fleximplementations
Insurers are unfamiliarwith flex and there areno known flexproviders
For Australia & NewZealand, some of themore commonly flexedbenefits are tied tosuperannuationpackages and hencemay not allow forflexibility.
All
Markets which haveseen interest in flexand there are someplans in place thoughrelatively few. Insurersare relatively new toflex
Japan & Korea
Infrastructure not yetin place to support flexprograms. Lack ofmarket practice, localflex expertise andexperience. Insurersare generally wary offlex programs and notkeen to support
Developing marketswith some flex plans inplace for several yearsand continued growinginterest.
Insurers aresomewhat familiarwith flex and there is agrowing number ofvendors providing flexconsulting andadministrationservices
Mature market withinfrastructure in placein terms of ready poolof insurers, medicalproviders, flexexperience &expertise, marketbest practices,
technology & internetinfrastructure tosupport flexprograms
Infrastructure
New Zealand,Vietnam
China, Taiwan, India,Japan, South Korea
Philippines,Indonesia, Thailand,Australia
Singapore, HongKong, Malaysia
Countries
There is no known regulation that would inhibit introduction of Flex programs in these countriesexcept ‘diminution of benefits’ regulation in Philippines which does not permit auto reduction of
benefits to core level without employee consent
Regulatory
Immature FlexMarketsNew Flex MarketsDeveloping FlexMarketsMature FlexMarkets
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20Mercer’s Asia HR Roundtable 2010
Flex in Asia
okFringe benefit taxapplies on employers
All FSAreimbursement itemsare taxable in handsof employees.
Additionally, fringebenefit tax is levied onemployers in India
Philippines &Thailand
Some tax efficienciesavailable as someFSA reimbursementitems are tax exemptfor employees
Indonesia
All FSAreimbursement itemsare taxable in hands
of employeesAustralia
Fringe Benefit Taxapplies on employers
Singapore &Malaysia
Some tax efficienciesavailable as FSAreimbursements formedical, dental, healthscreening & maternityexpenses foremployee, spouse &children are generallytax exempt foremployees
Hong Kong
All FSAreimbursement itemsare taxable in handsof employees
Tax
New Zealand,Vietnam
China, Taiwan, India,Japan, South Korea
Philippines,Indonesia, Thailand,
Australia
Singapore, HongKong, Malaysia
Countries
Immature FlexMarkets
New Flex MarketsDeveloping FlexMarkets
Mature Flex Markets
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21Mercer’s Asia HR Roundtable 2010
Flex in Asia
ok Talent attraction &retention
Better meet needs ofdiverse employeeprofile
Competitivedifferentiation
Talent attraction & retention
Better meet needs of diverse employee profile
Long term cost containment
3 keyadvantagesof Flex
New Zealand, VietnamChina, Taiwan, India, Japan,South Korea
Philippines,Indonesia,Thailand,Australia
Singapore, HongKong, Malaysia
Countries
Fringe benefit tax
Lack of infrastructuresupport from insurers,local consultants andadministrators
Lack of marketprevalence
Cost especially ongoing flexadmin costs
Lack of infrastructure supportfrom insurers, localconsultants andadministrators
No tax efficiency foremployers & employees inTaiwan, India, Japan & SouthKorea eg fringe benefit tax inIndia
Cost especially ongoing flex admincosts
Employees’ ability to understand flexand make appropriate decisionsduring annual selections
Admin complexities & workload
Australia – Fringe Benefit Tax
3 keybarriers tointroducingflex
Immature Flex MarketsNew Flex MarketsDevelopingFlex Markets
Mature FlexMarkets
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22Mercer’s Asia HR Roundtable 2010
Flex in Asia
ok
Not knownChina, Taiwan & India
Comprehensive CorePlus
Japan & South Korea
Voluntary Top-Up
Flexible Spending
Account Only
Philippines, Indonesia,
ThailandComprehensive CorePlus
Flexible SpendingAccount Only
Australia
Flexible SpendingAccount
Comprehensive Core PlusCommon
Flex Models
New Zealand,Vietnam
China, Taiwan, India,Japan, South Korea
Philippines, Indonesia,Thailand, Australia
Singapore, Hong Kong,Malaysia
Countries
Not knownChina, Taiwan & India
Same as Singapore,Hong Kong & Malaysia
South Korea
Life & Accident Insurance
Allowances
Japan
Not known
Life & Accident Insurance
Medical Outpatient & Inpatient Insurance
Dependant Coverage
Dental Insurance
Maternity Insurance
Health Screening Insurance
Some Allowances
BenefitsCommonlyFlexed
Immature FlexMarkets
New Flex MarketsDeveloping FlexMarkets
Mature Flex Markets
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Highlights of Mercer Global
Employee Choice Survey 2009- Asia Pacific regional overview
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25Mercer’s Asia HR Roundtable 2010
Most important benefit priorities for the next three years
ok
30%
31%
36%
55%
33%
Increase employees’ understanding and appreciation of existing benefits
Integrate health and group benefits into a total rewards approach
Ease the administration of benefits programs
Educate employees about their health risks and how to improve their health
Ensure equitable benefits across employees groups in home country
Mercer 2009 Global Survey on Employee Choice
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26Mercer’s Asia HR Roundtable 2010
View towards offering choiceAmong respondents not currently offering choice
ok
Have not
considered butreceptive, 46%
Not likely to offerchoice, 18%
Interested to
provide choice,29%
Definite plans tointroduce choice,
7%
Mercer 2009 Global Survey on Employee Choice
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27Mercer’s Asia HR Roundtable 2010
ok
Same benefitspackage for all
employees ,81%
Employees havesome choice,
17%
Employees havea great deal of
choice, 2%
Mercer 2009 Global Survey on Employee Choice
Cost, 66%
Not permitted bylegislation, 5%
Our employeeshave not askedfor choice, 30%
No advantage,25%
Do not agree tochoice, 15%
Reasons for not providing choice
Degree of Choice
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28Mercer’s Asia HR Roundtable 2010
Significant challenges perceived in setting up flex
okPhilippines
Thailand
Australia
Indonesia
India
China
Vietnam
Developing MarketsAustralia & Thailand – CostPhilippines – Resource
New MarketsIndonesia & Vietnam – CostIndia & China – Resource
Key challenges perceived• Complexity of administration (59%)• Cost (57%)• Resource constraints (43%)
• Demonstrating returns on investment (38%)• Employee communication (28%)• Legal or tax issues (25%)• Technology (23%)
Mercer 2009 Global Survey on Employee Choice
HongKong
Malaysia
Singapore
Mature MarketsSingapore – CostHong Kong – Admin ComplexityMalaysia - Technology
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29Mercer’s Asia HR Roundtable 2010
Main objectives for offering flex / choice
ok
48%
58%
61%
63%
75%Respond to diverse workforce needs and values
Remain competitive in our marketplace
Improve employee engagement
Maximise value of existing benefit spend
Increase employees’ understanding and appreciation of the value of their benefits
Mercer 2009 Global Survey on Employee Choice
Agree, 70%
Disagree, 4%
StronglyDisagree, 0%
Don't Know /Can't measure,
15%
Strongly agree,11%
Flex Met Original Objectives?
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30Mercer’s Asia HR Roundtable 2010
Employees’ response to choice
okPhilippines
Thailand
Australia
Indonesia
India
China
Vietnam
New MarketsStrongly positive
Employee Responses in APAC• More positive than negative (62%)• Strongly positive (23%)• Evenly mixed between positive & negative (13%)
• More negative than positive (2%)
Mercer 2009 Global Survey on Employee Choice
HongKong
Malaysia
Singapore
Mature MarketsMore positive than negative
Developing MarketsMore positive than negative
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31Mercer’s Asia HR Roundtable 2010
Impact of choice on benefit costBenefit cost today compared to what it would have been without addingchoice
okLargely
unaffected, 26%
Significantly
higher, 19%Somewhat
higher, 28%
Somewhat lower,19%
Significantlylower, 9%
Mercer 2009 Global Survey on Employee Choice
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32Mercer’s Asia HR Roundtable 2010
Benefits most commonly offered in flex or choice program
ok PhilippinesThailand
Australia
Indonesia
India
China
Vietnam
Developing MarketsInsurance
New MarketsAllowances
Common Benefits in flex or choice programsInsurance – Medical, Dependents’ coverage,Accident, Life and DentalAllowances – Mobile phone, Gym club membership,
Housing, Public Transport (commuting) and CarsOthers – Health screening, Retirement (voluntarypension), Holidays
Mercer 2009 Global Survey on Employee Choice
HongKong
Malaysia
Singapore
Mature MarketsInsurance
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33Mercer’s Asia HR Roundtable 2010
Approach to administration
ok
Outsource entireprocess with key
decisionsremaining in-
house, 28%
Primarily in-
house, usingexisting
resources andtechnology, 19%
Co-sourceapproach with a
mixture of in-house and
outsourcedresources, 19%
Exclusively in-house, 34%
Mercer 2009 Global Survey on Employee Choice
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34Mercer’s Asia HR Roundtable 2010
Mercer Global Employee Choice Survey 2009- Key Thoughts
ok
Significant % of employers in Asia Pacific currently do not offerchoice but are receptive with many expressing interest in doing so
50% of respondents are from manufacturing industry – reflecting an
interest in employee choice programs from an industry whichtraditionally does not do so
Some key challenges are perceived but experience of maturemarkets attest to the success of flex and choice programs in meetingcorporate objectives
Success of flex and choice is also evident inemployees’ positive response
the many companies who have provided such and intend tocontinue doing so even during current economic environment
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Flex Success Stories
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36Mercer’s Asia HR Roundtable 2010
Success Story 1Flex redesign and migration (Singapore financial services firm)
ok
S i t u a t i o n Chal lenge
Action
Revised plan design was well supported by US as itencourages consumerism and health & wellness
Revised pricing strategy enabled company to achieve thetargeted % cost savings
Employees, though initially hesitant, liked the revised planas it offers greater flexibility, options and provides incentivefor good consumerism behavior
HR able to redeploy internal resources
The online system is well received as employees have24/7 access to their account to check their benefits, claims
status, flex points balances, etc
Resu l t s
Company needed to review their flex plan design whichwas unchanged for several years; employees were askingfor greater flexibility and more options
Company wanted flex plan to support new focus on health& wellness and consumerism
Flex administration was on a manual basis using legacysystem; employees had to contact HR to obtaininformation on their selected benefits, FSA claims, flexpoints balance, etc.; company wanted to encourage anemployee self-service culture and provide 24/7 access tosuch information
Flex redesign must be on cost-neutral basis or with somecost savings
Transition to self-service culture with need to educateemployees and convince them of merits
Plan design changes and migration to online systemrequired approval and involvement of key stakeholders inUS (e.g., Global Rewards team, Global IT team etc);needed to factor these approval processes within a tighttimeline
Mercer undertook analysis of current utilization,selections & flex costs, and market benchmarking
A plan redesign was established to meet desiredobjectives and impact on company cost and winners / losers were identified
Changes were made in pricing strategy to provide somecost savings to the company
Mercer provided a bundled solution of consulting,broking and online flex administration services andworked closely with client HR and IT to ensuresuccessful migration and launch
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37Mercer’s Asia HR Roundtable 2010
Success Story 2Instituting Cost Sharing Culture – Co-payments
S i t u a t i o n
Decision was taken to introduce flex for two keyobjectives – market differentiator and costcontainment
Co-payment for each doctor visit was introduced
Company funded co-payments for 5 visits peremployee. If not utilized, balance is encashed atyear end
No Sick Leave Incentive was introduced toreward employees with low or no sick leaveusage
Hospitality industry. Had in-house clinic whichwas well-utilized by employees
Industry notorious for high staff turnover. Desired
competitive differentiation to attract & retain staffAlso faced issue of rising medical cost especiallyoutpatient and productivity loss & cost due to highsick leave consumption
Chal lenge
A c t i o n
Immediate result in reduction of doctor visits fromaverage of 22 to 17 per employee each year
In first year, achieved savings of about 5visits or $125 per employee which translatedinto $125,000
Sick leave utilization declined hence increasingproductivity and reducing replacement cost
Company invested some of these savings backinto flex plan by giving employees more flexdollars
Resu l t s
No limit to outpatient utilization. Analysis showedaverage of 22 visits to the doctor per employeeeach year. This is very high in comparison toindustry average of between 5-7
Medical cost-sharing in form of co-payments is notcommon market practice
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38Mercer’s Asia HR Roundtable 2010
Success Story 3Medical Wellness Spending Account
S i t u a t i o n
Introduced Medical Wellness Spending Accountin 2001
Allocation based on average spent byemployees. % unused Spending Accountconverted to Wellness DollarsWellness Dollars used for approved items egTCM, immunization, dental, optical, personalinsurance policies
Financial services industry
Medical outpatient cost increasing 30% p.a.
Moved to managed care program in 1998 – helped contain cost but resulted in employeedissatisfaction & complaints
Change in provider did not help
Chal lenge
A c t i o n
Significant fall in medical outpatient utilizationresulted in S$1m savings over 4 years
Better employee retention
Higher productivity as absenteeism rate declinedfrom average of 3.18 days to 2.4 days over 3 years
Employer branding
Employees take charge of own health & medicalspend
Resu l t s
Needed win-win arrangement for company andemployees
Look for alternative solution than managed care toaddress employees’ dissatisfactions withoutincreasing costs
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Copyright 2010 Mercer LLC. All rights reserved.
This document contains intellectual property of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or
entity without Mercer’s prior written permission.
The information contained in this document has been obtained from a range of sources. While this information is believed to be reliable, Mercer makes no
representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental
damages) for any error, omission or inaccuracy in this document.
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