Choosing the Best HMO for your SME

By Tom Gotuaco, RFP®

Dear SME Owner, Do you need help choosing the best HMO for your SME? Allow me to help you.

Business World categorizes HMOs as a form of pre-need health insurance, even though HMOs are not members of the Pre-Need Federation. Instead, HMOs belong to a self-regulated association called the AHMO PI. Even though pre-need companies now fall under the jurisdiction of the Insurance Commission, HMOs continue to be regulated by the SEC, despite the similarity of their business operations with insurance companies.

The term HMO stands for Health Maintenance Organization, which is a business that provides customers with access to a full range of medical facilities at their time of need, in exchange for membership fees up front. There are 16 HMOs in the market today; of which 13 produced P14.4 billion in revenues in 2010 (three were unaudited). Guesstimating all 16 raises the revenues to P18 billion, including those three players.

The term HMO also loosely refers to the products of an HMO – HMO plans. Plans typically cover inpatient, outpatient, and emergency room treatment. Members can avail of a host of services from among a nationwide network of accredited doctors, hospitals and clinics, and on a no-cash-out basis. In most cases, members need only flash their health cards to avail of services.

HMO plans control the lion’s share of the healthcare market by a margin of at least 5:1. Of the 34 life and 87 non-life insurers in 2010, less than a handful continue to sell medical insurance at all, mostly as a rider to a life insurance policy (because taxes made non-life medical insurance costs prohibitive). The best guesstimate from industry sources places medical insurance revenues at P3 billion.

Because HMO plans are on the rise (even as the 16 players are consolidating), and medical insurance plans appear to be in a holding pattern or decline, I will not spend any time expounding on the virtues of medical insurance versus HMO – the market has already spoken. Instead, I will review the history of HMO benefits for SME, and make suggestions on what to look for – or to look out for!

SME are small (10-100 employees) or medium-sized (100- 200 employees) enterprises that are required by law to provide the following employee benefits: sick and vacation leave, 13^th month bonus, SSS, PhilHealth, and a retirement plan. However, HMO coverage is not mandatory – even if industry experts claim that PhilHealth only covers 15-30% of an average inpatient bill. So why offer it?

There are 4 reasons why SMEs would want to offer an HMO plan to their staff:

1. For EMPLOYEE S, it provides financial security.
2. For HR, it serves as a recruitment and retention tool.
3. For FINANCE, it serves as a limit to liability (stop those cash advances!)
4. For the CEO, it makes everyone happy, and makes him look ‘pogi!’

SMEs may not be the backbone of our economy, the way big business is, but they are the long tail that supplies new energy and new direction to our economy. That makes SMEs like you and me the ‘future heroes’ of our economy! Unfortunately, many HMO do not treat you like future heroes; instead, they treat you like 2nd class citizens by offering HMO plans with lower benefits and higher costs.

HMOs are now rethinking their old business models that red-lined small (10-100 employees) and micro (< 10 employees) enterprises. With scale, HMOs can treat them just like medium (100-200 employees) or large (>200 employees) companies. Today, a handful of HMOs are doing just that, offering small and micro enterprises new SME plans that contain the superior benefits, if not costs, of a large company.

In light of these developments, here are the latest tips when evaluating an HMO for your SME. Please note that these tips represent current best practices in an evolving healthcare marketplace (whether your HMO keeps up with them or not). They err on the side of medical necessity, not luxury, but with an eye toward constant improvement.

12 Tips to Find a Better HMO for Your SME

1. Look for a good insurance broker who specializes in healthcare and who has a dedicated backroom to handle your servicing. Avoid dealing with agents, as they can only represent the HMO. A good broker can take care of all the other tips below. You can find a directory on the Insurance Commission website (www.insurance.gov.ph).
2. Stick to a top HMO in the hopes that it constantly improves its products every year. Although the biggest HMOs are not necessarily the best in terms of costs and benefits, it is better to go with a branded HMO if you can’t tell what’s hot from what’s not.
3. Look for HMO plans that provide inpatient, outpatient and emergency room benefits; combined inpatient and outpatient limits; and maximum benefit limits per disability, per year: anything less in this day and age would be unacceptable.
4. Look for HMO plans that provide you with dual access to healthcare each time you avail – as an HMO patient for no-cash-out, or as a private patient for reimbursement, even if only at the lower HMO rate (the rate of an accredited doctor).
5. Look for HMO plans that provide direct access to the best hospitals and clinics: Makati Med, both sites of St.
6. Luke’s, Cardinal, Asian, and Medical City, as well as Healthway (these facilities attract the best doctors and the most patients).
7. Look for multiple room and board and maximum benefit limit combinations per rank, as they greatly affect your costs. Look out for HMO that offers little or no choice of combinations for the lowest ranks, where SMEs have the most staff.
8. Look for the latest, greatest healthcare benefits available today: 100% pre-existing conditions coverage; 100% congenital conditions coverage; and 100% special procedures coverage – all up to your maximum benefit limits.
9. Look for HMO benefits that are on top of PhilHealth (vs. integrated with PhilHealth); otherwise, HMO will deduct the PhilHealth portion from their contribution, even if you paid full price for the HMO and PhilHealth.
10. Look to deal directly with dental HMOs and APE providers. A dental HMO does not need a medical HMO to run its business and an APE provider does not need a medical HMO to coordinate a one-time benefit for your staff.
11. Look to see if your SME can join the safety of a pool; otherwise, you will not have a mechanism to soften the blow of a ‘bad’ utilization year on your renewal rates (without a buffer, even the short-term viability of your HMO plan is at risk).
12. Budget no more than 5% of salary for benefits, so that you can maintain the long-term viability of your HMO plan. If an HMO plan cannot offer a ward accommodation to a minimum-wage worker at 5% of salary, you’re paying too much for healthcare.
13. Remember that an HMO contract is only as good as your mode of payment. If you need to pre-terminate your plan, for whatever reason, provide advance notice before the next modal payment, so that the HMO can only terminate your coverage.

For more advanced tips on how you can (re)structure your existing HMO plan to suit your wants, needs or budget, give me a call. Many HMOs have you by the ‘hook’ because of higher limits. And fear of ‘diminution’ stops you from lowering those limits. The fact is that you can (re)structure your HMO plan with very little harm or foul. So take charge of your benefits today, or they will take charge of you tomorrow!

I hope some of these tips can help you select a better HMO for your SME. Choosing an HMO is never easy, even for the most seasoned of HR staff. Employee benefits almost always need to be outsourced to the right insurance experts. Although some of these tips may seem like a dream, the dream comes true at www.purplecow.ph. Call me if you have any questions: I am here to support SMEs.

Tom Gotuaco is a COO (child of owner) of Gotuaco, del Rosario Insurance Brokers, and President of the Notre Dame Club. An RFP, and AIM-ME, he is the Creator of Purple Cow Employee Benefits for SMEs. Tom specializes in matching financial planning concepts with financial services products. In his spare time, he organizes events for the ME and US Alumni Clubs. He can be reached at 0918-808-8888, or at tom@gotuaco.com.