A buyer’s guide to medical insurance

With employers increasingly feeling they have to look after staff welfare, providers are responding by redeveloping products, says Stephanie Spicer

Private medical insurance (PMI) has long been an attractive benefit among employees. On-going negative press about the National Health Service (NHS) means that PMI’s popularity is unlikely to wane any time soon. According to Bupa’s Health of the nation survey, published last month, PMI is now the second most sought-after benefit, falling only behind pensions.

But aside from providing an attractive benefit for employees, there is an added dimension to healthcare in that employers are increasingly feeling they have to look after staff welfare. This is just one of a number of factors that can affect the usage and cost of PMI. Thomas van Every, chief medical officer of PatientChoice, says: “Employers are having to consider the lifestyles of their employees rather than just their acute health. For example, obesity, smoking cessation, [and] stress management are areas where employers are starting to provide services.”

A further change in the market is that employers are also becoming increasingly aware of the benefits for their organisation in providing for the health of their staff. This is particularly important when called upon to demonstrate the return on their investment.

David Priestley, sales manager at PruHealth, says: “Employers are increasingly focusing on the broader health implications across their business, not purely about managing the costs of the PMI scheme. It is about managing their workforce to improve performance. There is more focus on sickness absence which costs the UK approximately £13bn a year in lost time and productivity and, as a consequence, employers are investing in the health and wellbeing services for their employees.” Investing in wellbeing services to complement PMI schemes, can help employers to meet duty-of-care obligations towards their workforce. Mandy Blanks, PR manager at Standard Life Healthcare, says: “Employers should be aware of the duty of care to their employees.”

Duty of care
Investing in wellbeing services to complement PMI schemes, can help employers to meet duty-of-care obligations towards their workforce. Mandy Blanks, PR manager at Standard Life Healthcare, says: “Employers should be aware of the duty of care to their employees.”

Related legislative developments such as the workplace smoking ban should also be a welcome tool for employers hoping to encourage employees to quit such bad habits even outside the workplace. It may be a while before the impact of this legislation on employee health can be fully seen, however, there has been speculation that improved staff health and wellbeing could help to reduce employees’ need for benefits such as PMI for any illnesses or conditions relating to employees’ lifestyle choices such as diet or smoking.

Cost is very much at the heart of employers’ decision to provide PMI and, in a competitive market, insurers are clamouring for corporate business. “It is much easier to switch plans these days. There is no need to stay with a product or provider you’re not completely satisfied with, as some companies are now offering easy switching, often on continuous underwriting terms,” says Blanks.

But while it is true that consumers are usually encouraged to shop around when it comes to renewing their car and house insurance, this may not always be the best approach for employers unless they have valid reasons for switching insurers other than a desire to cut the cost of premiums at each move.

Charlie MacEwan, head of communications at WPA, explains: “There are some insurers out there going for great growth and others competing with some seriously competitive premiums in the corporate healthcare trust market, which is fine but it [will] not sustain the market in the long term.”

[Employers] moving on price are always going to move on price. Some companies that left WPA a few years ago have asked to come back and we have had to say no because all they are going to do is move on price. We are looking for sustainable business and clients who are going to work with us in the long run.”

WPA works on a system of shared responsibility through self insurance, which MacEwan acknowledges is taking a while to obtain general acceptance from employers. “It is tough to ask employees to work in partnership with you because they see it as a diminishing benefit. But, on the other hand, it is the employer who is paying the bill and if there is any control on costs that has to be for the better,” he explains.†

Healthcare trusts
This move towards self insurance by employers, where they set up a corporate healthcare trust fund to pay for medical costs, is also having an effect on the market. “It is something employers should look at. Directors want to sleep at night so there is an insurance element to a corporate healthcare trust but it is at a significantly lower cost,” says MacEwan.

To encourage employees to take a greater interest in their own health, insurers are continuing to add to their product propositions. PatientChoice, for example, has introduced its Priority product combining PMI with sickness absence compensation for employers. This works by covering staff for private medical care, but provides cash benefits for employers if the employee uses the NHS instead of opting for private care.

PruHealth, meanwhile, has re-launched its gym membership offering, which is part of its Vitality proposition in which all members are eligible for cheaper gym membership, but now the more they go to the gym, the less they pay for membership. The company has also introduced Vitality Funding, which helps employers to reduce PMI premiums by 15%-20%. This reduction is effectively passed on to employees, because if they engage with the Vitality programme, for example, by exercising, eating well or stopping smoking, PruHealth will give them that 15%-20% back in a cash reimbursement at the end of the year.

In a further move, Bupa has launched a mole checking service, which can be offered as part of its PMI product.

There has also been some growth towards more bespoke tailored PMI products for employers. According to research carried out by Standard Life Healthcare, 57% of employers are looking for packages where modules can be tailored to suit their company. To meet this need, Standard Life Healthcare has launched its Business Healthcare product for the SME market. Through the package, staff can build a scheme to suit their needs from four main modules: core healthcare, dental cover, healthcare cash plan and travel cover.

So while PMI may not be the cheapest of the healthcare benefits on the market, it can be an added bonus on the road to building a healthy workforce.

Focus on facts

What is private medical insurance (PMI)?
Private medical insurance provides access to, and covers the cost of, private medical treatment for curable and short-term conditions. It will not normally cover pre-existing conditions or those arising from circumstance such alcoholism or HIV/Aids. Cheaper plans may exclude outpatient services or restrict the number of conditions covered.

What are the origins of PMI?
PMI first emerged in the 19th century when worker co-operatives and friendly societies were introduced, to be later followed by provident organisations. When the National Health Service was introduced in 1948, PMI grew out of some peoples’ demand for faster treatment.

Where can employers get more information and advice on PMI?
The Association of Medical Insurance Intermediaries (www.amii.org.uk) can advise employers on the PMI market. The ABI produces a generic factsheet on PMI: http://www.abi.org.uk/Bookshop/default.asp#Private_Medical_Insurance

In practice

What is the annual spend on PMI?
According to Laing & Buisson, the total amount of money spent on private medical insurance for both organisations and individuals in 2006 was £3.26bn. For group cover alone, the total corporate spend was £1.7bn.

Which PMI providers have the biggest market share?
Bupa now leads the market overall with a 42.5% share in terms of overall premium income, according to Laing & Buisson. They are followed by Axa PPP Healthcare with a 24% share, Norwich Union Healthcare which has a 9.5% share followed by Standard Life Healthcare with 7.5%. Cigna and WPA are level pegging with a 3% share, while PruHealth has a 1% share of the market, but it should be remembered it has only been around since 2006.

Which PMI providers increased their share the most over the past year?
According to Laing & Buisson, Axa PPP Healthcare and Standard Life Healthcare both increased their market share between 2005 and 2006 by 1%. Norwich Union increased its share by 0.5% on 2005, while Bupa, Cigna and WPA maintained their positions.

Nuts and bolts

What are the costs involved?
According to Laing & Buisson, the average company-paid premium per individual in 2006 was £682. Premiums will vary depending on the size of the employer, the risk profile of staff and whether employers take an excess, take an NHS six-week wait option, use certain hospitals or pay premiums annually.

What are the legal implications?
There are no specific legal requirements to offer PMI as it is up to the employer to decide whether they want to offer this benefit. Conventional insurance policies create a legal relationship between the insurer and the policyholder. For self-insurance, the relationship is between employee and trust.

What are the tax issues?
PMI is an allowable business expense for employers so they may be able to get corporation tax relief. For employees, PMI premiums will be taxed as a benefit in kind. Directors within a firm should check their status with their tax office/accountant.

For more buyer’s guides visit: http://www.employeebenefits.co.uk/item/1959