Buyer’s guide to private medical insurance

PMI Buyers Guide 2016

The facts:

What is private medical insurance?

Private medical insurance (PMI) is a health insurance that covers employees for the treatment of curable, short-term medical conditions or accidents. Cover can include consultations, diagnostic tests, and in-patient and out-patient procedures.

What are its origins?

The roots of PMI can be traced back to the late 19th century, when weekly savings clubs allowed workers to save small amounts towards medical treatment. The corporate PMI market saw considerable growth in the 1970s, when employers sought to offer more employee benefits rather than pay rises due to high inflation.

Where can employers get more information or advice?

More information can be found through the Association of British Insurers at www.abi.org.uk, the Association of Medical Insurance Intermediaries at www.amii.org.uk, and the British Insurance Brokers Association at www.biba.org.uk.

What is the cost?

PMI typically costs an employer between £200 and £1,500 a year per employee depending on a worker’s age, the employer’s claims experience, the scheme size, whether the employer excludes existing medical conditions and any excesses.

What are the legal implications?

PMI is usually a contractual obligation of employment, but it can be withdrawn or altered significantly with due notice or negotiation.

What are the tax issues?

Employer-paid PMI is a benefit in kind, so employees pay tax and national insurance (NI) on premiums. However, it is regarded as an allowable business expense, so employers can get corporation tax relief on premiums.

What is the annual spend?

Employer spend on PMI in 2014 was £2.78bn, according to LaingBuisson’s Health cover UK market report 2015, published in August 2015.

Which providers have the biggest market share?

The five providers with the largest market share in 2014, according to LaingBuisson’s figures, are Bupa, followed by Axa PPP Healthcare, then Aviva, VitalityHealth and Simplyhealth (now acquired by Axa). Combined, they accounted for an estimated 91.5% of UK medical insurance premium. Other providers include, ALC Health, Benenden, and Cigna, among others.

Which providers have increased their market share the most?

Axa PPP Healthcare strengthened its share with various acquisitions, but Bupa still holds the largest share of the market.

Private medical insurance (PMI) has evolved significantly since it was first introduced in the form of weekly savings clubs. The introduction of the National Health Service (NHS) in 1948 caused PMI to develop further into a formalised product. Some smaller associations merged to form organisations such as Bupa, while others operated as standalone organisations, such as the Bristol Contributory Welfare Association (BCWA), which became Simplyhealth in 2009.

Conditions covered by PMI

PMI did not traditionally cover existing medical conditions, and was not designed to cover long-term medical conditions or chronic conditions as such. However, some corporate plans do allow staff to join on a medical-history-disregarded basis to cover pre-existing conditions.

Some of the most common conditions claimed for through PMI are skin disorders, back pain and musculoskeletal conditions.

Controlling the costs

Employers are continuously looking for ways to manage the cost of benefits provision and the ability to limit benefits or manage treatment through select hospitals can help to control the cost of healthcare provision.

As important is that a PMI provision offers the best value to employers to ensure that their workforce is fit and healthy, and that employees return to work as soon as possible following an illness or injury. Therefore, a PMI scheme that provides a range of benefits is a key requirement for employers. Some providers, such as Aviva and Bupa, offer tailored or flexible policies, which allow an employer to change its cover options and excess levels in order to control the cost of providing the benefit.

For example, Aviva offers its Solutions package, which covers between two and 249 staff, and its Optimum package, designed to cover 250 or more employees. The Optimum package allows employers to select which options best suit their employees, or offer different levels of cover sections of their workforce different levels of cover.

Another way of achieving cost efficiency is to only offer employees private medical treatment when the wait for the same treatment on the NHS is at least six weeks.

Open-referral treatment is a another option, whereby the provider offers a choice of two or three consultants rather than allowing the employee to choose their own, or using those offered by their doctor. Open referrals can benefit staff because the insurer has to approve the consultant, and there is no risk of a shortfall with employees having to pay some of the treatment costs themselves.

Additional options

There is now a greater awareness among employers about the importance of workplace wellbeing, including prevention and rehabilitation, as well as the key role PMI has to play in offering more diverse options.

For example, Axa PPP Healthcare covers psychiatric treatment, treatment of conditions relating to alcohol and substance abuse, and out-patient drugs and dressings up to £200 a year.

Meanwhile, Bupa’s Business Fit scheme offers three levels of cover, aiming to tackle mental health and musculoskeletal conditions by offering early intervention to help employees get diagnosis and treatment quickly. It also offers self-referral for mental health conditions.

The impact of IPT rises

The insurance industry has seen two increases to insurance premium tax (IPT) announced in the past 12 months. In his Summer Budget 2015, Chancellor George Osborne announced that IPT would rise from 6% to 9.5% from November 2015. Many insurers said that they would not apply the higher IPT increase rate until a policy came around for renewal after November, rather than automatically increasing the rate.

There has yet to be many notifications from insurers regarding the most recent announcement about an IPT increase after the Chancellor announced a 0.5% rise to 10% in the March 2016 Budget. This is due to take effect from October 2016.

Provider development

Axa PPP Healthcare has made a number of acquisitions over the last year, which has lessened the gap between itself and Bupa in terms of market share. In May 2015, it announced that it would be acquiring Simplyhealth’s PMI business, as well as The Permanent Health Company. It has also made a further acquisition of Universal Provident’s PMI business.

Aviva Health and VitalityHealth announced a joint venture in October 2015 with a view to procure hospital treatment on behalf of their PMI and trust customers. The joint venture, Healthcare Purchasing Alliance (HPA), will purchase health services from UK private and independent hospitals. The competition with the other main players in the market, Axa and Bupa, for the best hospital rates, will no doubt have an impact on the price charged to customers.