- The introduction of new drugs and procedures means that medical inflation is running at around 8.5% a year
- Around 80% of costs are driven by the 15% to 20% of people with chronic conditions.
- There are a number of ways to keep a cap on private medical insurance costs, from reducing benefits; introducing excesses; using different underwriting terms; removing dependents’ cover; or, moving to a self-insured medical expenses trust.
- Switching providers and checking how an adviser charges can also reduce costs.
- Redundancy programmes can have an adverse effect on the cost of healthcare benefits.
The health of your employees is key to business success, but with medical inflation often in double digits healthcare benefits can be a real drain on budgets. Ensuring spend is cost-effective is essential to keeping a balance between surviving the economic slowdown and keeping employees healthy and productive.
Andrew Grigg, strategic healthcare director of independent consultants Jelf Employee Benefits, agrees that the current economic climate requires a different approach to healthcare benefits. “You need to get cost stability,” he explains. “The introduction of new drugs and procedures means that medical inflation is around 8.5% a year. This level of increase can be hard to swallow in a recession.”
All manner of mechanisms can be introduced on private medical insurance (PMI) policies to keep premium pricing under control. These could include reducing benefits – for example having a lower out-patient benefit or removing psychiatric cover; introducing excesses; using different underwriting terms; removing dependents’ cover; and, for larger employers, moving to a self-insured medical expenses trust arrangement.
Savings will vary but can be anything from a couple of percent, by for example, removing psychiatric cover, to as much as 30% for a company introducing a trust. But, as Marco Bannerman, head of intermediary sales at Bupa, explains, these strategies aren’t purely about the economics. “It’s a question of whether doing these things is worth it. If it’s perceived as a significant reduction in benefits, it can affect employee motivation,” he says.
As well as considering tinkering with an existing policy, it’s essential to shop around for better deals when renewing. But because of all these different cost control mechanisms, it’s not always necessary to switch insurers. “An existing provider will often match the price if they can, so it’s definitely worth approaching them once you’ve reviewed other options,” explains Stuart Gray, managing director of independent corporate advisers Portus Consulting.
How you actually pay for your benefit advice can also affect your spend. Consultants can be remunerated through a fee determined by the service they provide or the number of hours they work for you, or by commission, which is paid by the insurer. Benefits consultants are not obliged to disclose how much they make when they recommend a policy but Dudley Lusted, head of corporate healthcare development at Axa PPP Healthcare, says employers shouldn’t feel they can’t ask for this information. “Ask your broker what they receive for recommending a product and how it compares with what they would receive for recommending other products. Most will tell you, and if they won’t then you shouldn’t be doing business with them.”
He adds that employers are getting much smarter about selecting a broker and will shop around in exactly the same way as they would when choosing an insurer. “There are all sorts of ways to pay for advice, so make sure you’re happy with what you’re paying,” he adds.
Redundancy programmes are another phenomenon that can have an adverse effect on the cost of healthcare benefits. Where employees are made redundant but still have a notice period in which they can use their benefits, it’s not uncommon to see claims rise. “You can get a claims spike as employees make the most of their medical insurance before they lose it. It’s not fraudulent, but an employer can find itself with an increasing premium in spite of reducing membership,” says Grigg.
Although he says there’s little you can do about this, he does recommend talking to employees to ensure they use the plan appropriately. Additionally, he says that by offering them continuation options, possibly at preferential rates, you might be able to reduce the claims spike and future cost implications.
Bupa’s Bannerman is more philosophical about it. “There can be an increase in claims once someone knows they’ve been made redundant, but the threat of redundancy is actually reducing the level of claims at the moment. Employees are electing not to have treatment because of fears about redundancy,” he explains.
Additionally, although the volume of claims could put pressure on future premiums, the size of these claims is usually small as the type of health problem that can be postponed tends to be minor. Typical treatments could be a course of physiotherapy or scans for a knee problem.
More concerning for employers watching their benefit costs are the more unusual claims, for instance for cancer or heart problems, that can run into thousands of pounds. Although these claims are unusual, an employer only needs to experience one or two of them and premiums can rocket.
To help employers reduce the effect on premiums of the large claims, Jelf recently launched a new medical insurance plan, Strategic Healthcare, with Axa PPP healthcare. This is targeted at groups with between 150 and 1,000 members and, although it’s an annual contract, it uses a three year pricing model to smooth premium increases. “A claims cap is set depending on the size of the scheme and any claim that is higher than this isn’t included for pricing purposes,” explains Grigg. “On top of this, there’s a profit share so if claims are below 85% of the premium over the three year period the company will receive some of the difference back.”
Savvy employers can also look to the US for cost control ideas. With healthcare benefits a standard part of an employee package, US insurers are ahead of their UK peers when it comes to keeping a cap on claims’ costs. “Health management and encouraging people to lead healthier lives are central to our approach,” says Kristin Herrera, senior vice president of UnitedHealth International, the international arm of US health and wellbeing company UnitedHealth Group. “Around 80% of costs are driven by the 15% to 20% of people with chronic conditions. This is the area where real opportunities exist.”
For UHI, the first stage of controlling these costs is to identify employees that are at risk of developing potential problems. This can be achieved with an online health risk appraisal, which takes around 15 minutes and asks basic questions in areas such as health, nutrition and exercise. “On average we find that 5% of the employees that take the appraisal will have health issues that require an immediate referral. A further 60% will have high-risk lifestyles but, once identified, we can intervene by educating them and their physicians,” adds Herrera.
This education process involves a variety of methods including outreach nurses, and programmes on areas such as exercise and diet to help change behaviour.
US employers are also more proactive when it comes to monitoring employee health. For instance UnitedHealth Group runs a 24-hour nurse helpline, which enables employees to access health information, but also flags up potential risks. Additionally, it has support services for a wide range of medical conditions including cancer, cardiac problems and pregnancy to ensure that the most appropriate treatment is taken.
These approaches can make a significant difference to cost. For instance, Herrera says employers that adopt health programmes can see cost savings of up to 12%.
Although the UK is a few years behind the US on these types of initiatives, some UK insurers are focusing more on improving employee health.
For example, PruHealth’s medical insurance model is based around rewarding those employees that take steps to lead healthier lives. Other insurers are moving down this route too, with online health assessments and education programmes becoming common add-ons to medical insurance schemes. “These types of initiatives tend to have long-term benefits on health, but employers do see improvements to morale when they promote health in the workplace,” says Lusted.