51 % of companies report increased costs in 2007, average increase of 5 % per employee, says Mercer survey

The cost of providing employee healthcare benefits rose an average of 5 % per employee across Europe in 2007, according to Mercer’s Pan-European health benefits report.

Despite the rising costs, companies plan to maintain their health and benefit programmes - citing the role health benefits play in attracting and maintaining staff as a key objective against a backdrop of welfare reforms and tighter controls in state benefits and health provision.

Mercer surveyed nearly 800 companies across 24 European countries from May to June 2008. The respondents stated that ‘retaining key talent’ was the most important rationale in providing health and benefit services, while ‘managing company health risks’ and ‘improving productivity and performance’ were also rated as important.

According to Steve Clements, principal at Mercer: ‘Over two-thirds of respondents said they would struggle to retain top-performing employees if they did not offer good health benefits. These programmes are particularly valued as a staff attraction tool by companies in emerging Eastern European countries where migration to western economies has produced a scarcity of talent. There is also evidence that health benefits often rank as the most highly valued company benefit in those countries where employees perceive national health provision is relatively poor.’

The popularity of the benefit comes at a cost, however. According to the research, European employers are spending an average of 5.3 % of their total payroll costs on health benefit provision. Employers spend above the median in those countries with a general taxation financing model for their public health system; companies in the UK, for example, spend an average of 7 %. By contrast, in countries with a social insurance financing model, the average spend is less than the median, at 4.6 % of payroll. The European figures still represent good value for money compared to the US where employers spend 15.4 % of payroll on their health benefits.

The research also indicated that over half of employees (57 %) do not pay towards their employer - provided health benefits. Mr Clements said: ‘Compared to the US where employees commonly pay around a quarter of the cost of their health benefits, European employers still have some room to manoeuvre to balance the scope of cost and benefit.’

Cost increases

The cost of health benefits is rising. The average increase in per-employee health benefit costs was reported at 5 % across Europe in 2007. Employers in countries with general taxation models for their public health systems were more likely to report that the cost had risen compared to countries with social insurance models (55 % against 43 %). They also reported a higher increase in costs, at 5.5 % compared to 3.9 %. In comparison, costs in the US rose by 6.1 % in 2007.

Despite this increase, 41 % of employers said they were unlikely to make changes to their current programmes to contain these cost increases. When pressed on which changes they were most likely to make, 38 % said they would restrict the scope of coverage while 34 % would shift the cost to employees. Some respondents also raised the use of implementing flexible benefits programmes to manage costs and better match employee requirements.

‘Company directors are aware of the increasing costs of medical provision,’ commented Mr Clements. ‘They are trying to maintain a balance between the increasing costs and the belief that this benefit not only attracts good staff but provides a return on investment over the longer term. A healthy workforce is, after all, a more productive workforce.’

Fifty-two % of directors stated they were more concerned about the impact of employee health on productivity (52 %) and remaining competitive in the area of health and benefits (46 %) than they were with the cost of their employee health programme (40 %).

Scope of benefits

European companies are providing a broad scope of health-related employee benefits to their staff. The most common benefit is company sick pay, offered by 71 % of companies. Income support for employees with long-term disabilities is provided by 51 % of companies, while dental benefits are offered by just 37 % compared to nearly universal dental coverage in the US.

European employers also offer a variety of programmes designed to improve employee health and productivity, from health screenings (53 %), to gym membership (33 %) and from employee assistant programmes (29 %) to smoking cessation (26 %) and dietary advice (14 %). Flexible holidays and flexible working hours are offered by 50 and 57 % respectively, mainly to support attraction and retention of staff.

Private medical plans are also featured. In the UK, 90 % of employers state that they offer private medical plans compared to Germany where just 15 % do. In the US virtually all employers with over 500 staff offer health coverage.

Emerging trends

With varied social welfare reforms taking place across Europe, 72 % of employers believe that these reforms will increase the pressure on them to provide private healthcare benefits. These sentiments were particularly prevalent in countries with strong social insurance models, such as France, but also strongly felt in those countries with general taxation-financed healthcare. Of the UK companies surveyed, 70 % believe that there would be increased pressure on costs.

The survey also highlighted poor coordination of benefits across countries. Only 50 % of multinationals actively attempted to co-ordinate their activities, and only around a quarter had common regional strategies.

‘The researchreflects the breadth and diversity of healthcare benefit provision across the region,’ said Mr Clements, ‘However, there is scope to implement better regional coordination and cooperation, and to capitalise on scale and efficiencies. Initiatives like risk pooling, which are relatively straight-forward and well established, often result in enhanced terms and conditions as well as reduced costs to balance increases elsewhere. Improving governance by sharing best practice can also help.’

‘Newer initiatives such as cross-border insurance plans* are also set to gain in popularity,’ added Mr Clements. ‘Regional legislation is removing local country barriers and opening up opportunities for insurers to write these policies. Demand could be driven by European Court of Justice rulings which allow patients in any EU country to claim reimbursements up to home country levels,’ he added.