How Multinationals Can Keep Benefits Costs Low for Foreign Operations

American multinational enterprises employed 28.4 million people abroad, and their majority-owned foreign affiliates employed another 14 million.¹ Those numbers represent a huge amount of opportunity, but also a huge HR and benefits problem.

Any organization expanding abroad needs to consider more than simply setting up shop and grabbing market share in a foreign country. In terms of benefits, it means companies must meet regulatory requirements and customs, not to mention offering them cost efficiently.

For small companies in particular, it can seem cost-prohibitive to offer benefit plans for foreign subsidiaries. But there are ways to cut costs while still offering benefits that help attract and retain talent.

Lower benefits costs through creative strategies

While setting up benefits offerings for a foreign operation or subsidiary is difficult in itself, keeping costs down is an additional challenge. Organizations that leverage the following approaches will be able to deliver benefits with the maximum effect at a lower cost than otherwise.

• Pooled coverages and captives: Individual operations that secure benefits through locally licensed carriers will have high premiums. Pooling coverages, however, leverages economies of scale to drive down costs, especially in countries that do not offer government-sponsored healthcare. Joining the coverages of multiple foreign operations under a contract placed with a single global carrier network lowers risk for underwriters and premiums for sponsors.
  
  Another option for health coverage and benefits is captive insurance: Local policies are reinsured through a global carrier through a business’ captive insurance company. Captive insurance can save as much as 20% of baseline costs, but the client must be in a position to manage the financial risk of large claims.

• Evaluate the brokers: A common practice in multinational expansion is to outsource plan design to local brokers or advisors. It’s often faster and easier to take this approach. But not necessarily optimal: Commission arrangements for brokers can result in expensive, overgenerous programs, given possible conflicts of interest in providing benefit advice and placing contracts.
  
  In addition, local carrier policies can be tricky to navigate. For instance, companies often start small, hiring employees before setting up a legal local entity, but many insurance companies won’t contract benefits without their client having a legal entity. It’s incumbent on organizations to conduct due diligence on brokers, knowing in advance of their commission arrangements, services provided and specific conflicts of interest.

• Plan administration oversight: Performance standards abroad can be less rigorous than in the U.S.; small plans are particularly vulnerable to subpar service that will cause plan costs to skyrocket. Risks include poor needs assessment, suboptimal co-insurance and unwarranted use of expensive medical facilities. The fact operations are being done abroad magnifies these risks.
  
  Plan administration oversight will produce cost savings. For example, monitoring claims patterns for abuse or fraud will help reduce premiums, while close oversight of a retirement plan investment performance will help minimize costs and deliver better benefits. Mandated, third-party benefit audits are important in keeping costs down. Incentives for brokers, plan administrators and carriers to identify and eliminate ineffective management will also help guard against waste and rising costs.

HUB International’s global benefits specialists consult with employers of all sizes and in all industries on every aspect of employee benefits program planning and management.

¹ Bureau of Economic Analysis, “Activities of U.S. Multinational Enterprises, 2020,” November 18, 2022.