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- Pay cuts and freezes place more emphasis on the value staff get from private medical insurance (PMI).
- Younger and lower-paid employees may see the tax they have to pay on their PMI benefit as an extra financial burden.
- Big employers still offer PMI because they value it as a recruitment and retention tool, and a means of managing absence.
- To keep a lid on costs, employers are reducing cover, increasing excesses or removing dependants from cover.
Private medical insurance has remained highly prized in a tough economy, says Sally Hamilton
Employers might be forgiven for thinking that the only way to deal with the escalating costs of private medical insurance (PMI) is to remove the benefit altogether.
But few large employers are taking this drastic step because they see PMI’s value, not only as part of an employee inducement and retention strategy, but also to keep their staff fit and reduce sickness absence bills.
Traditionally, PMI has always been valued by staff. But in these recessionary times, employees are beginning to question whether they can afford the tax they must pay for a benefit they may never use. Because PMI is treated as a benefit-in-kind, employees must pay P11D tax on employer-paid premiums.
Creative solutions required
Gareth Ashley-Jones, head of flexible benefits at Aon Consulting, says: “Clients are asking for more creative solutions, with some structuring PMI with different excess levels. Employees who choose a high excess can reduce the premium and therefore the tax. Many employees do not need the ‘full monty’ plan. It is a big expense for someone on a low salary. Employers can also reduce costs by using options such as six-week plans, where private treatment is paid for only if the NHS cannot carry it out within six weeks.”
Cheaper options, such as outpatient consultations-only policies, are particularly popular with younger staff who might suffer sporting injuries and want them sorted out quickly with physiotherapy. A typical comprehensive plan costs £550, a middle plan £450 and a low-cost plan £250 a year per employee.
Ashley-Jones says large employers that have always offered PMI will try to keep it in some form. “They want employees to be fit, healthy and back on the treadmill as fast as possible. They will use a higher excess or reduce the benefits to keep costs down.”
Flex schemes give choice
Flexible benefits schemes are a good way of giving employees choice when it comes to PMI, says Ashley-Jones. “Someone who is not going to get a pay rise this year might decide they can reduce what tax they pay by reducing the levels of their PMI cover.”
Charlie MacEwan, corporate communications director at WPA, says employers still value PMI highly in the current climate because it acts as a safeguard against sickness absence. “Ultimately, it costs employers £600-£700 a day if anyone is away from their desk, so offering healthcare benefits like PMI is part of the insurance against that. To give it up in the face of the recession is a knee-jerk reaction,” he says.
Sharing the cost of treatment also lowers the premium and, in theory, encourages policyholders to value the perk more. WPA offers a plan in which policyholders must contribute a percentage of the cost of treatment up to a limit. A patient paying a £100 excess is less likely to appreciate the value of what they receive than if they have to make a 25% contribution to the cost of treatment.
Cut out cancer cover
Another option is to cut out cancer cover to reduce premiums, with providers citing the strength of the NHS in this field to sweeten the pill. Others cap the amount paid out or limit the choice of hospitals.
Another way of reducing cost is to offer a hybrid arrangement, providing staff with a mixture of cash plan and PMI-style benefits. Some products may provide private care worth up to £10,000 for medical procedures such as hip, knee or hernia treatments.
Employers can also offer a combined savings plan and health insurance policy. This shares the cost between employer and employee, with the employer contributing towards the cost of private treatment for staff and any dependants up to a set level, with the insurance covering any costs above this.
Chris Rofe, head of client relationships at Axa PPP Healthcare, says the current economic woes can make PMI more highly prized than in boom times. “Employees start to look at their total package and work out the value of what they have got.”