Building the worldwide health network: how U.S. brokers and insurers are managing rising global medical costs.

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Medical care costs will increase for employers worldwide over the next five years, requiring insurers to re-evaluate their clients' health care plans for employees who work outside of the United States.

That's according to industry experts, from consultants to benefits brokers, who foresee huge changes in medical care internationally.

A February poll by global consulting firm Watson Wyatt Worldwide of Washington, D.C., showed that 71% of responding insurers expect "higher or significantly higher medical cost trends" within five years. Poll results are based on a survey of 85 insurance companies that provide medical insurance to employers in Asia, Africa, Europe and the Americas.

Additionally, 81% of respondents said medical costs are "eclipsing the general rate of inflation" in their respective countries.

"That's the staggering fact, the general inflation rate," said Francis Coleman, senior international consultant for Watson Wyatt in Los Angeles and executor of the report. "India and China are expanding at a big rate, but medical inflation is ahead of that in 81% of the countries we surveyed. That to me was a big standout factor."

The poll also showed that health care is rising as the most sought-after employee benefit worldwide, even in countries with state-sponsored health care programs. Driving this trend are the same factors that have caused hikes in the U.S. health care market: increased use, pricey medical technology and an aging population.

For employers worldwide, a newfound focus on health care is just beginning, Coleman said. "The smarter employers, the ones that are more proactive, will be looking at this stuff now rather than trying to react later," he said. "Some of the bigger employers certainly are looking at this because, outside of pensions, this is the next biggest spend for them globally."

Private health care is in demand in emerging markets, Coleman said. "You're starting to see U.S. providers going overseas," he said. Johns Hopkins and Harvard are lending their expertise internationally. It's a global health care market out there."

Benefits Evolution

Employee benefit needs and risks have "absolutely" evolved over the past several years, said Pam Enright, director of international benefit services and vice president for Lockton Benefit Group, a division of Lockton Companies LLC. Lockton is the 10th-largest insurance broker worldwide, according to the Best's Review 2007 ranking of global brokers.

"We've seen a lot of shifting," said Enright. "As globalization is occurring with more and more of our clients--through organic growth, acquisitions or mergers--companies, of course, are looking at the benefits that they're offering m each country as they enter new countries and because of the need for oversight."

A globalized business philosophy has really taken hold over the past five to seven years, Enright said.

"Having a centralized approach toward benefits has been a trend certainly from a risk perspective since 9/11," she said. "Employees are much more aware where their risks are not covered effectively."

One Lockton client with eight expatriates plans to have 200 by the end of next year, but since they are not all U.S. ex-pats, the client is building a philosophy that works from all different countries, she said.

For American expatriates living and working in high-risk areas overseas, there are more formalized plans today for their safe evacuation in case of political unrest or a natural disaster, Coleman said. American employers give their expatriate employees a hardship allowance in addition to their regular salary in some countries, he said.

"In Saudi Arabia, you get a 25% hardship allowance," Coleman said. Employers are using hardship allowances as an incentive to draw hard-to-get talent, or for highly competitive areas of the world, he said.

One reason why medical costs are soaring worldwide is a shift from socialized health and medical plans to private health care plans, Coleman said. Another is employee or patient demand, which is being driven by the marketing efforts of U.S. pharmaceutical companies.

Foreign patients "want to get access to the latest drugs and technology," he said. "They're more aware of the possibilities in the global markets."

Hot Zones

The worldwide shift from government to private providers is increasing interest among insurers, Coleman said.

"You hear about the 'BRIC' countries--Brazil, Russia, India and China--which are driving a tremendous amount of growth worldwide," Coleman said. "Everyone is looking at those markets and saying, 'We have to be in Russia.' It's the same for Brazil to some extent."

Employers, and thus insurers, from around the world are "trying to get into that market potential of a billion people in India, or 1.3 billion people in China," he said.

The No. 1 employee benefit in demand around the world is private medical care, Coleman said. "A lot of the workers are of a younger age, and pensions are not the first thing that comes to the top of their minds. It's health care," he said.

China and India are at the top of the "hot growth" list at Lockton, Enright said. "So many of our clients are moving into those areas for the first time," she said. Europe also continues to show growing interest in U.S. businesses.

"Germany, too, has actually come up quite often in the past six to nine months," she said.

"Those countries are growing so rapidly and becoming so important to the world," she said. "For a lot of companies that are not there now, it will be too late in a few years to try to get into this market," she said.

Companies are starting to look at policies from a global basis where political risk or natural disasters are concerned, Enright said.

"It's not each company by itself trying to take care of those employees in office locations and when they're traveling," she said. "It's making sure business travelers and expatriates have emergency evacuation services and assistance services when things like that might occur, having access to quality medical care around the world."

U.S. Response

"I think insurers are responding slowly," Coleman said. The first thing American insurers are looking at is a change of plan design to more deductible, co-insurance and premium sharing, he said.

"Many insurers are starting to offer alternate plan designs at renewal," he said. "Overall, some of the managed care approaches are being adapted overseas. Take what you think is going to work in a local culture."

There's a much greater push today among the human resources departments of U.S. multinational companies to have oversight in all of those local plans around the world, Enright said.

Some clients' HR departments are developing a global employee-benefit philosophy for the first time and are dealing with how they are going to treat those employees, and some don't yet have that capability.

"Globally, mobile employees, or expatriates, are a big factor in what employers are dealing with now," Enright said. Under globalization, "companies are really starting to cross borders to do business."

Lockton client companies with relatively large employee populations already are globalizing their HR benefits strategies, Enright said. Some are even pooling their resources on a global basis.

"We have noted an upward trend in our clients' interest in multinational pooling, or MNP, as more HR executives are responsible for developing and managing a global benefits strategy," Enright said.

The basic concept of MNP is an aggregate financial agreement that brings various local benefit plans under one umbrella, she said. That allows for global accounting that can result in dividend payouts to the employer "when the overall claims experience is favorable," she said. "The estimated average reduction in premium costs due to effective MNP is 10% to 15%."

MNP allows for better cost containment; more favorable guaranteed issue limits and underwriting requirements; ease of administration for claims reporting needs; and better levels of guarded issue for life and disability coverages, she said. Risk benefits that are typically pooled include life, accident, disability, pension and medical.

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Not Just the Big Guys

"Historically, the Fortune 100s have done that. We're getting into the Fortune 500s," Enright said. "As companies become more aware of what they have globally, that becomes something that's very feasible for somewhat smaller organizations."

Jon Farber, president of global underwriting at Travelers Companies Inc., agreed.

"You don't have to be a Fortune 1000 company to have business around the world," he said. Global concerns are becoming "more and more prevalent" for Travelers as more of its base clients are becoming multinational players, he said.

"As the dollar has been weakening, even small to midsize companies are sending business outside the U.S., selling product outside the U.S., or having manufacturing operations, sales offices or plants outside the U.S.," Farber said.

Travelers Global Companion plan offers property coverage and tie-ins such as Global Executive Support Cover, a protection service bundle for employees traveling outside the United States.

Global Companion offers limited employee benefits through its Foreign Voluntary Workers' Comp policy, a rider that extends workers' comp benefits, Farber said.

"If you send an employee outside the U.S., the policy is extended and turns your policy into a 24/7 policy," he said.

Without the rider, if a U.S.-based employee "gets bitten by a mosquito in India and gets malaria, technically if they didn't get bitten during work hours, they're not covered," Farber said. "When you travel overseas, you're kind of on the job 24/7." Global Companion also partners with travel assistance and international medical insurance group MedEx for physician referrals, prescription refills or even a lost passport.

"If you find yourself in a country with civil unrest and need to get our MedEx in there to help you, we work with our accounts before they get there," said Gary Brown, second vice president of risk control for Travelers.

Brown's group maintains links to state departments, warning lists and up-to-date bulletins about the worldwide travel climate. It also links with driving hazards in other countries, since driving fatalities are the leading cause of death for Americans who travel outside the United States, Brown said. Vehicular fatalities are particularly high for Americans driving in China, he said.

Independent agents also are starting to look at overseas operations and are banding together, forming associations with agents around the world, Farber said.

"More and more, agents that handle small-to-midsize customers are being asked, 'How can you protect me?'" Farber said. "I think the trend is changing. It's no longer the big brokerage houses like Marsh & McLennan, Aon or Willis. It's not just them willing to address this with their customers. Independent agents are now coming to the table to try to cultivate that expertise."

Globex International Group, based in Mountain Lakes, N.J., and Assurex Global of Columbus, Ohio, are two large international agency networks for independent agents and brokers, he said.

Whether a U.S. employee is working in the States or overseas, "a lot of the experiences don't really change," Brown said. "People fall down the same way all over the world. A lot of the controls we have in place are going to be identical."

* The Situation: Globalization and rising medical costs worldwide are driving new trends in employee benefits.

* What's Happening: U.S. insurers are taking a closer look at their benefit plan offerings as more and more clients become interested in emerging markets.

* What It Means: Along with U.S. businesses, American benefit plans also are being exported overseas.

RELATED ARTICLE: International law.

As more small-to-midsized U.S. companies join their Fortune 1000 counterparts in overseas business, keeping up on local country laws is essential to fully cover their employees' overall insurance needs, said Gary Brown, second vice president of risk control for Travelers.

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One such law is the United Kingdom's new Corporate Manslaughter and Corporate Homicide Act, launched April 6. It creates an indictable offense against any U.K. health organization for death resulting from poor health and safety management.

"Those kinds of things are certainly going to create challenges. Think of an American company that has operations in the U.K. and has to be cognizant of that act and how to react to it," Brown said.

"If you're not offering compliance coverage it's a huge thing for companies now," said Pam Enright, director of international benefit services and vice president for Lockton Benefit Group, a division of Lockton Companies LLC. Compliance and legal risk is a huge issue for global clients, she said. "They're becoming more aware."

Several Lockton clients have Defense Base Act coverage as part of their property/casualty policy, she said. The DBA was established in the 1940s by the U.S. federal government to ensure that government contractors working on a defense base have adequate levels of coverage: medical, disability and life insurance.

"Then we make sure a health and welfare product or life policy wraps around that," Enright said.

Learn More

Travelers Insurance Cos.

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Global Medical Cost Trends: Still Rising

A 2008 report by consultancy Watson Wyatt Worldwide shows a rising
trend in medical costs around the globe over the next five years.
Projections are based on a poll of 85 health and medical insurers.
Here's how the polled countries stack up for the most recent three
years.

Asia and Africa

                                        2008
                                 (projected)
                  2006    2007           (%)

China            15.20   21.20         19.60
Hong Kong         6.80    8.80          9.10
Philippines      11.60   11.40         11.50
Russia           13.30   13.70         15.70
Saudi Arabia     13.30   13.30         16.30
Singapore         5.50    6.50          7.50
South Africa      7.40   10.00         12.60

Europe

                                        2008
                                 (projected)
                  2006    2007           (%)

France            5.60    6.60          7.30
Italy             5.50   11.00         11.30
Netherlands       6.00    5.20          6.00
Switzerland       3.80    7.50          6.00
United Kingdom    6.00    8.00          8.00

Americas

                                        2008
                                 (projected)
                  2006    2007           (%)

Brazil            9.20    5.90          7.20
Canada           12.30   11.50         12.00
Chile             5.80    6.50          7.10
Mexico           12.00   12.80         12.60
United States     8.30    8.00         11.00
Venezuela        31.30   25.00         25.00

Source: Watson Wyatt Worldwide