(Bloomberg) — Starbucks Corp. will provide Chinese workers with health insurance that extends coverage to their parents, a unique offering by the coffeehouse chain that may be used by more than 10,000 people to treat cancer, heart disease and Alzheimer’s.
The plan is a response to traditional values in China, the company said, as children often care for their parents and grandparents in a society that doesn’t have a comprehensive safety net for the elderly. The plan, covering 30 critical illnesses and some surgeries, will be available starting in June, Executive Chairman Howard Schultz said.
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“This is the first time we’ve done anything like this, and the reason for that is that it was clear there was an emotionally driven concern among partners about their ability to take care of their parents,” Schultz said in an interview in Beijing. “I heard first-hand very emotionally driven, tragic stories about what’s taking place with the parents who got sick, and many passed away. ”
The program addresses a critical need for an aging population that’s contending with increasing rates of major diseases from cancer to heart ailments. It’s also a strategic move to retain employees, many of them recent college graduates in low-skill jobs, and create goodwill toward the company at a time of increasing political tensions between the U.S and China.
“This insurance move is about recruiting and retaining talent but also about creating an image of Starbucks that is pro-China, pro-Chinese,” said Shaun Rein, managing director of the China Market Research Group in Shanghai. “If there are bilateral tensions and Starbucks doesn’t have good public relations and a good image in China, they become a target for protests.”
The swelling burden to pay for illnesses is stressing China’s government-run health insurance programs, which provide basic coverage for 95% of its 1.4 billion people. Families in China can still face catastrophic medical bills for costly treatments not covered by public insurance, and the government has long sought private companies to fill that gap.
When Starbucks approached the country’s insurers on the plan, they were often met with surprise, said Belinda Wong, chief executive officer for Starbucks’ China business. There wasn’t such a program in place and one had to be customized for Starbucks, according to the company.
The Starbucks plan complements the existing China Social Medical Insurance Program. Families are given a lump sum upon diagnosis of a covered illness, and the patient will receive subsidies for treatments for as many as three years. The program will cover a “significant percentage of total medical costs,” according to the company.
Parents must be younger than 75 and reside in mainland China to qualify, the company said. Starbucks will pay the full premiums for eligible workers — those who’ve been employed by the company for at least two years. The company has about 40,000 employees in China, Schultz said.
The plan was devised after employee surveys found that 70% of workers were concerned about the health of their elderly parents, according to the company. The company also noticed an increasing number of requests for financial assistance from employees to help cover parents’ health costs.
“Once we sit down and listen to those stories, we could not be a bystander,” Schultz said.
The private health-insurance sector in China is expanding rapidly: premium income for commercial health insurers jumped by almost 68% in 2016. Policies offering a one-time payment in case of specified major illnesses, such as when the customer is diagnosed with specific types of cancer, currently dominate China’s commercial health-insurance market, according to an August report by the Boston Consulting Group Inc. and Munich RE.
The plan is a “multimillion-dollar investment” annually, the company said. Starbucks said it was designed by one of China’s biggest insurance companies, though it didn’t name the insurer.
The move is a strategic one for Starbucks as many multinational companies in China are planning how to contain the fallout if President Donald Trump implements policies that affect business ties or trade with China. Trump and China President Xi Jinping met last week for the first time in Florida, and the leaders agreed to a “100-day plan” to discuss trade.
Trump previously vowed to close the trade deficit with China that reached $347 billion last year.
Schultz reiterated that China is the most important market for the company ahead. Starbucks generated about 14% of last fiscal year’s revenue in Asia including China, compared with about 6% three years earlier, according to data compiled by Bloomberg.
“We are playing a long game,” Schultz said. “Starbucks is here to stay. We believe that there’s a very significant opportunity to build long-term growth.”
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