The PMI risks of Dubai’s shifting sands

Dubai’s introduction compulsory health insurance this year will have implications beyond its own boarders says Kudos Independent Financial Services head of healthcare Ed Watling

Upturns in economic fortunes and forecasts can have interesting “side effects” in the world of employee benefits. For example in this country George Osborne recently confirmed his backing for inflation-busting increases in UK minimum wage to £7 per hour, on the back of improvements in UK’s prospects.

Further afield, in December 2013, the Dubai Health Authority (DHA) announced that the long awaited health insurance law will be implemented in 2014. The law had been postponed on numerous occasions and was originally mooted to swiftly follow regulations put in place by neighbouring Abu Dhabi over 8 years ago. The delays in fulfilling the promise of universal, compulsory health insurance have been widely attributed to the impact of the global financial crisis on Dubai.

Unlike “big brother” Abu Dhabi, Dubai has little oil or gas and has built its vibrant economy on being a destination of choice for business. During the boom years, before 2008, local companies massively over-extended in a bid to accommodate ever-increasing inflows of businesses and expats. These “incomers” were looking to use the relatively friendly commercial environment in Dubai to access markets throughout the wider region.

The downturn was sudden and deep. Developers quickly ran out of money, loans were called in and prestigious projects halted, leading to dramatic reductions in work-forces as businesses downsized to survive. Against this scene of economic disaster there was no way that the Dubai Government was going to impose the cost of healthcare on employers  

Delays in implementing the regulations caused much confusion for companies working in the UAE; particularly if they operate in both Emirates. Staff in Abu Dhabi were subject to mandatory, company paid health insurance, while colleagues only 80 miles up Sheik Zayed Road could be left to rely on limited state provision or their own resources. 

“All markets are cyclical” is generally accepted wisdom and the Dubai economy has emerged from the depths of recession to show a 4 the rise in GDP in 2013. The financial improvement allows the Government to act on healthcare and the DHA has chosen to model its scheme on Abu Dhabi so there should be less “inequality” between the Emirates in future.

The new law introduces compulsory, company paid health insurance throughout Dubai, including the Free Zones and development areas, such as Jebel Ali Free Zone and Internet City, and is designed to cover all residents except Emiratis.

Employers will be required to insure all employees and sponsored dependents providing minimum, mandatory healthcare benefits which will be regulated under the law. Employers will be able to upgrade cover at their discretion. The scheme will come into effect during 2014 and will “roll out” over two years until 2016. Businesses that fail to meet their obligations will face penalties of up to AED500,000 (£85,000).

So what does this mean for businesses operating in Dubai? In the majority of cases companies will already have insurance in place for their senior expat staff; the new regulations will require them to ensure that schemes comply with the benefits mandated by the law and that the insurance provider is licensed by the DHA. In some cases this may require them to upgrade coverage/switch provider.

However there are further implications for businesses.

Firstly, in the UAE many businesses employ staff simply to act as drivers and/or provide office services, even making tea. These members of staff are on very low pay levels but in future, employers will have to provide full health benefits often at a cost that will be double or even treble their monthly pay.

Secondly, if the processes used in Abu Dhabi are anything to go by there will be considerable administration to ensure compliance – often surrounding getting insurance certificates and work permits/residency visas stamped and approved by Government departments.

Therefore, although improvements and clarity in respect of health insurance is to be welcomed, there are serious impacts in terms of cost and compliance.

The changes in Dubai are part of a growing global trend – shifting the financial cost of healthcare from the State to insured solutions.

Company funded healthcare is now compulsory in Saudi Arabia and the UAE. There are expectations that Bahrain, Oman and Qatar will follow suit shortly. In Europe, the Netherlands introduced compulsory health insurance in 2006 and recently redefined the limit; even low-paid workers are required to purchase cover. Whilst the Dutch model places the burden on individuals rather than companies, the opposite approach has been selected by the Republic of Ireland as its model for health reform.

Since the cost of care continues to outstrip State health budgets, who’s to say which country will be next to shift to compulsory insurance.