Operational perks: the benefits of health insurance

by HCA28 Oct 2013

US employers offer health insurance as part of all employees salary packages. Its the one employee benefit that has become a right, not a privilege. Teresa Russell talks to some Australian companies that have followed suit and discovered a competitive advantage in the current climate of low unemployment

A t the end of June 2003, just over 43 per cent of all Australians had some kind of private health insurance. The rate soared to this level when the Australian Government introduced its 30 per cent rebate initiative in January 1999, followed by Lifetime Health Cover in July 2000.

Lifetime Health Cover is a Government initiative that recognises the length of time a person has had hospital cover with a registered health fund. People who take out hospital cover earlier in life and maintain their hospital cover will pay lower premiums throughout their life compared to someone who joins when they’re older. To lock in the lowest premiums for life under Lifetime Health Cover, a person needs to take out hospital cover with a registered fund before their 31st birthday.

Employees are also penalised via the Medicare Levy Surcharge if they are not privately insured. This is an additional 1 per cent surcharge of taxable income imposed on high income earners ($50,000 pa income or $100,000 combined income), who are eligible for Medicare but who do not have an appropriate level of hospital insurance with a registered health fund. The Medicare Levy Surcharge is in addition to the normal 1.5 per cent Medicare Levy.

Given these legislative changes, the provision of health insurance, especially for employees 30 years and older, may be an attractive benefit and a point of difference in today’s competitive employment market. Both the Four Seasons Hotel Sydney and The Personnel Department believe it is.

Samantha Walder, assistant director of HR at Four Seasons Hotel Sydney, explains that around 50 of the hotel’s 700 staff participate in its scheme. It is available to several layers of management only. “We subsidise anywhere from 50 to 100 per cent of a manager’s health insurance costs, depending on their seniority and the level of cover they have chosen,” she says. The company has been offering the benefit for more than seven years and believes it contributes to staff retention and attracting good people, as it is not a standard benefit in the hotel industry. The other 650 employees are offered the corporate rate for health insurance, giving them a small discount on their annual premiums.

Ann Jardine, manager permanent services at The Personnel Department (a recruitment company providing both temporary and permanent staff) says that the full health cover for all its 50 staff, their partners and families certainly figured in attracting her to the company a few years ago. “It was spelt out in the ad that full health insurance was a benefit I’d receive after a three-month probationary period. It wasn’t the sole reason I sent in my CV, but I knew from the ad that it would be a real bonus on top of my salary,” she says.

The Personnel Department also offers the benefit to its temporary staff, after they reach a specified number of hours working for them. “These employees choose temporary work as a lifestyle decision. Only about 10 per cent of our temporary staff is not interested in the benefit – usually because they are travellers or more transient. Paying their private health insurance has proven an excellent way of retaining and attracting our temporary staff. It’s a competitive edge for us, especially as low unemployment continues,” explains Jardine.

Port of Brisbane Corporation is a government owned corporation that has taken a different tack with the health insurance of its 220 employees. Bill McElwaine, general manager corporate services, explains that its employee benefits program, which started evolving five to seven years ago, now provides all employees with a corporate discounted rate for private health insurance.

However, it also runs a corporate health program. This is a voluntary, annual opportunity for employees to have a confidential medical assessment and discussion with a medical professional on how to improve their well-being. A private health group conducts questionnaires, takes blood tests and provides experts to discuss lifestyle issues with both the individual and the entire staff. “We employ a very diverse group of people from town planners to environmentalists, to economists, to fitters and turners and chefs. It is a male-dominated work force and we males have one thing in common. We don’t look after ourselves very well,” asserts McElwaine. Port of Brisbane Corporation sees the health program as part of its loss control program. “Loss control is not just about lost time injuries, it’s also about preventing absenteeism. We get an overall idea of how people are going. Three people have been diagnosed as diabetics and skin cancer was identified as a real problem in our workforce as a result of the program,” he says.

Measuring ROI

All three companies agree that staff retention rates are one way to measure the return on investment of this benefit. The cost of health insurance is simple to measure, but retention rates reflect many things. Port of Brisbane Corporation’s McElwaine says “our staff turnover is only 6 per cent per annum and our latest employee satisfaction rating was 88 per cent, but everything contributes to that level – how you value your people, by both financially and physically looking after them. I’ve found that if you do the right thing by people, they generally do the right thing by you,” he concluded. Four Seasons’ Walder conducts annual management surveys and exit interviews with all departing managers. “Our health insurance subsidies are not even on managers’ radar screens when it comes to dissatisfaction or reasons for leaving,” she says.

Selecting a provider

There are currently 42 registered private health insurers in Australia, about half of which have no restrictions on memberships. (Some unions and professional groups set up health funds and limit memberships to specific professions.) Both companies that provide full cover for employees, stress the importance of the service level offered by its health insurance provider. Naturally, they looked at the costs of each provider’s cover, but service level was cited by both as critical in the decision to choose and to stay with its health insurer. “Every time an employee qualifies for the health insurance benefit, our provider sends along its account manager to personally sign up the employee and help them fill in all the forms,” says The Personnel Department’s Jardine.

Samantha Walder agrees. “We hire a few expats and it is a condition of their visa that they have health insurance, so the account manager comes on the first day and signs them up,” she says. Walder reviews the hotel’s health insurer every 12 months, renegotiating Four Seasons’ corporate rate. I look at all health insurers’ prices, products on offer, level of personal service, how easy it is to transfer from another fund into ours, as well as our company’s relationship with the current provider,’ she says.

Bill McElwaine took a different approach when looking for a health insurance provider for the Port of Brisbane Corporation. “I asked our major insurer to select a provider for us. I’m not an ex pert in insurance – they are,” he says. That insurance company went to tender and the provider will have to retender every three years.

Ongoing Administration

As with all programs, the more simple the rules, the easier it is to administer. Anyone who has tried to take out health insurance knows that it is not a simple business. Samantha Walder explained that it has taken a few years to fine tune the accounting side of things at Four Seasons, but it is now working well. “Because we offer subsidies of between 50 to 100 per cent of health insurance costs and there are so many levels of cover, there is no standard amount that has to be taken out of every employee’s pay each time. Also, some employees may want to pay upfront annually and get a discount, whereas some want a deduction taken every fortnight,” she says. Walder pays for health insurance for a year in advance, all based on the previous year’s rate, so increases in premiums are effectively delayed 12 months. She also acknowledges that extra work is created when an employee leaves half-way through an insurance year, as a rebate on their prepayment has to be calculated.

Tax implications

Before setting up health insurance as an employee benefit, consideration must be given to the tax implications for both the employee and the company. Employees gain in two ways if the benefit is offered as part of a salary sacrifice scheme. Firstly, the employee pays income tax only on the reduced salary. Secondly, the employee is entitled to the 30 per cent rebate, despite the fact that it was the employer that paid the premiums.

Additional costs and administration (above that already incurred in paying premiums to health insurers) will probably apply. If any fringe benefits tax (FBT) is payable on the benefits received, it is the employer that is liable to pay that tax. The FBT payable is determined at the highest marginal income tax rate – 48.5 cents in the dollar. The employer, however, may ask the employee to contribute the FBT.