The next front in health care.

• Author: LaSorte, Joseph A.
• Position: Managing international health care costs - Employee Benefits

Local health care costs are usually low on the list of overseas business challenges. But now that governments are getting out of the health care business, you may have to pick up the slack.

For the great majority of American corporations, one of the central challenges of the past two decades has been getting employee health care costs under control. Until recently, however, very few companies have extended their cost control initiatives to the medical benefit plans covering their local national employees outside the United States.

But that attitude is beginning to change. An American International Group survey of several hundred U.S. multinational companies found that 35 percent expect annual increases of 10 percent to 14 percent in the cost of providing health insurance benefits to their overseas employees over the next five years. Sixty-two percent of the surveyed companies plan to develop a more centralized, global approach to managing international health care costs in response to these increasing costs.

Historically, governments in countries outside the United States have paid the lion's share of health care costs, with the private sector (both employer plans and individual plans) providing smaller proportions of the total expenditure. However, the cost of providing health care is now increasing at alarming rates in almost all countries around the world, and it's forcing governments to shift more of the financial burden to the private sector. This has been most evident in Europe.

For example, the French state medical program experienced a deficit of 32.2 billion francs in 1994. An initiative was launched to reduce the deficit by reducing the benefits paid by the program. The effort showed early promise, but recently announced figures indicate the deficit will be 48 billion francs in 1996. Therefore, further reductions in benefits are expected. Most employers, including U.S. multinationals in France, provide supplemental medical benefits that integrate directly with the state program and are likely to bear the burden of the reduction in state benefits.

Plus, most of the employer plans are insured, and 60 percent of these were also in a deficit position before the government benefits cutbacks were announced. That's because in many cases, the plans were underrated, and negative claims experience is now catching up with the insurers.

Recent surveys indicate that during the past 12 months, more than 22 percent of all employers in France...