Healthcare benefits squeezed in wake of low oil price and sluggish economy

Author: Kirsty Tuxford | Date: 25 May 2016

Organisations across the GCC are cutting back employee health insurance to the minimum legal requirement

One of the perks of working in the GCC used to be the comprehensive medical insurance policies provided by employers. Now that the economy is feeling the knock-on effect of falling oil revenue, organisations are cutting costs – and downgrading employee medical insurance policies is one way of saving money.
Insurance companies have reported a significant trend in organisations removing optional add-ons, such as dental and optical insurance cover. The cost of healthcare is increasing globally, and according to the Insurance Authority in the UAE, healthcare insurance premiums rose to Dhs11.1 billion in 2014 – a 12 per cent increase from Dhs9.9bn in 2013.
Providing private medical insurance cover for employees is compulsory in Abu Dhabi and Dubai, and in the Jebel Ali and DIFC free zones, although the level of coverage an employer must provide differs in each of these areas. “Within the wider GCC, KSA was the first country to require an employer to provide private medical cover for employees and their dependants. Qatar recently enacted laws to introduce a similar obligation but these have not yet been implemented,” explained Sara Khoja, a partner at law firm Clyde & Co.
“If an employer has offered a certain level of private medical insurance cover in an employment contract or for a number of years under company policy, this benefit cannot be unilaterally reduced or taken away because it would be a revision of an employee's terms and conditions of employment, which requires employee consent,” she added.
“Year on year increases of medical cost has been an ongoing challenging facing almost all organisations in the GCC,” says Thamer Fahmi, senior global benefits specialist at Halliburton. “Reducing benefits was never an option for us, but it has become the elephant in the room that no one wants to address. Benefits is a sensitive topic and with different compliance requirements existing in the same country, changing design levels would offset equity and long-term strategy. However, this breeds a different line of thought in terms of how involved employees should be when it comes to understanding how benefits pricing works. Getting them to understand it is the first step to manage their expectations and start working towards a better strategy to increase wellness and manage behavioural characteristics that impact policy. Aided by regional designs and long-term partnership, there have been positive results and a better foundation to counter high costs.”
Professor Chris Rowley at Cass Business School, Korea University and that University of Nottingham believes that the trend will continue in the short term only. “This is an example of institutional isomorphism, but could result in ‘competitive down-bidding’. This is not a model organisations should aspire to and is not sustainable. Management should ask themselves: do they want to known as being among ‘the worst’ or ‘the best’ employers, with commensurate reputational impacts on both staff motivation, retention and recruitment, as well as customer perceptions of the organisation and its products?
“Also, what percentage of costs do these benefits account for? For many organisations, it would be small. Furthermore, in an era of upcoming shrinking workforces in many economies, alternative employment is increasingly available.
“It also shows a total lack of any HR strategy or even belief in it. A HR strategy would involve investment in the future and for the long term with actions and policies supporting the common rhetoric of people as ‘assets’ not ‘resources’, whose employment terms are discarded at the first hint of economic turbulence. What signal does downgrading of benefits send out to existing staff and possible future employees? The long term damage is obvious,” says Rowley.