FOCUS ON FACTS
What is private medical insurance?
A group PMI policy enables employees to access private medical treatment quickly and at a time that is convenient to them. Policy benefits vary greatly, but plans will usually cover consultations, diagnostic tests and treatment, whether as an inpatient or an outpatient. They may also include psychiatric cover, NHS cashback – where the employee receives a cash payment if they are treated by the NHS – and cover for private ambulances. Some plans also have additional benefits such as medical and GP helplines, health information and online health risk assessments.
As well as benefiting the employee, PMI can also be an advantage for employers. Because treatment may be available more quickly than on the NHS, it can reduce the amount of time an employee is off work.
What are the origins of PMI?
PMI can trace its roots back to the 19th century, when schemes were set up to provide workers with financial assistance for medical treatment. Typically, employees paid a penny, or less, a week to be members of these schemes. As employment laws changed and the NHS was born, today’s medical insurers evolved. For example, Bupa was formed in 1947 when 17 provident associations merged and Axa PPP Healthcare, then known as the London Association for Hospital Services, started life in 1938 to provide health insurance for London’s middle earners.
Where can employers get more information and advice on PMI?
Organisations can get more information and advice from the Association of Medical Insurance Intermediaries (Amii) a trade association for specialist independent advisers.
More articles on PMI are available here.
NUTS AND BOLTS
What are the costs involved?
Premiums vary greatly depending on the size of the organisation, the benefits required and the claims experience but, according to Laing and Buisson, the average PMI premium was £826 per employee in 2010.
What are the legal implications?
Providing employers comply with employment law, there are no legal implications associated with offering PMI.
What are the tax issues?
Employer-paid PMI is treated as a benefit in kind, so employees will pay tax and national insurance on premiums. Employers should be able to get corporation tax relief on their premiums because it is usually regarded as an allowable business expense.
What is the annual spend on PMI?
According to Laing and Buisson, £2,476 million was spent on medical cover by employers in 2010. Of this, £1,975 million was spent on medical insurance and the remaining £501 million on self-insured medical expenses schemes.
Which PMI providers have the biggest market share?
According to Laing and Buisson, Bupa has the largest market share, with its sales accounting for 41% of the market. Axa PPP Healthcare is in second place, with 25% of the market, and Aviva and PruHealth are the next largest, with 11% and 10.5%, respectively. Other providers include Cigna, SimplyHealth and WPA.
Which PMI providers increased their share the most over the past year?
Analysis by Laing and Buisson shows there was very little movement of market share in 2010, with the only insurers to increase their share being Aviva, by half a percentage point, and PruHealth, which boosted its market share from 2.5% to 10.5%. However, the bulk of this was as a result of PruHealth’s acquisition of Standard Life Healthcare, which had accounted for 7.5% of the market.
The expense of providing private medical insurance has been soaring, but there are steps employers can take to keep the cost burden under control, says Sam Barrett
A reduction in funding for the NHS is driving up hospital waiting lists, with the latest government figures revealing that almost 10% of patients waited longer than the target 18 weeks from referral to treatment. For employers looking to keep their staff off the waiting lists and productive in the workplace, private medical insurance (PMI) is an option.
Although benefit design varies greatly, PMI is intended to enable policyholders to access private medical treatment promptly, so that there is as little disruption to their life, and work, as possible.
But PMI can be an expensive commitment. The average annual premium is about £826 per employee, according to Laing and Buisson, and with medical inflation at around 10%, it is not the easiest purchase. Dr Doug Wright, head of clinical development at Aviva UK Health, says: “The trend for premiums is upward. Treatment costs rise but on top of this, the range of treatment available is also increasing. In the current economic climate, it is not sustainable and we are seeing more and more employers questioning what they provide employees.”
This reassessment of cover has resulted in renewed interest in various cost-saving mechanisms. Excesses, where the employee pays the first part of a claim, are becoming more prevalent and more chunky. Sandra Dalchow, senior consultant at Lorica Employee Benefits, says: “Excesses used to be £50 a few years ago, but they have risen to £100 or £150 now. This is in line with increases in the cost of seeing a specialist, making employees think twice about whether they want to make a claim.”
Because excesses can deter an employee from making a claim, they do reduce the cost of cover. For instance, Dalchow says increasing an excess to £150 would produce savings of about 3%, and an excess of £200 would increase the saving to 5.5%. “We have also seen employers change the benefits they provide for dependants, including increasing their excesses, reducing benefits and changing their underwriting,” she adds. “These steps can all save money.”
Benefits can also be adjusted to reduce the cost of cover. Groups with 250-plus employees can have bespoke cover, but there are also options for smaller groups. Lindsey Joseph, divisional director, group risk at LEBC Corporate Healthcare Solutions, says: “Most insurers have either launched modular plans or will do so soon. These allow SMEs [small and medium-sized enterprises] to pick benefits that suit their needs and their budgets.”
One area where there is room for cost-cutting is cancer cover. A cancer claim can run into tens, and potentially hundreds, of thousands of pounds, which can push up premiums significantly. To address this, insurers offer different levels of cancer cover. For example, PruHealth offers full cover, which picks up the tab for all treatment, including drugs and palliative care; and core cancer cover, which does not include palliative care and has a 12-month limit on cancer drugs.
Dave Priestley, sales director at PruHealth, says he has seen little interest in ditching cancer cover altogether.
“There was a lot of speculation that cancer claims would push the cost of PMI up, but this has not happened yet,” he says. “Most of our clients go for full cover because it is only a couple of per cent more expensive than core cover.”
With the appetite for cancer cover remaining, some insurers have looked at other ways to control costs in this area. For example, for its large group schemes, Axa PPP Healthcare provides a nurse-led service for policyholders diagnosed with cancer.
Elliot Hurst, director of health consulting at Axa PPP Healthcare, says: “Our nurse will work with the policyholder to find the best cancer care for them using both private and NHS resources. If there are any savings because they use the NHS, we can offer them further support, such as homecare or help with transport.”
This managed care approach is becoming more common in other areas. LEBC’s Joseph adds: “Some insurers, for example Cigna, will manage large claims while others, for example Bupa, are establishing centres of excellence to deal with some high-volume claims such as varicose veins and cataracts. It is good news as long as it is done on quality, not quantity.”
As well as using these methods to keep costs under control, insurers are taking a more proactive approach by adding in health and wellbeing benefits to encourage healthier lifestyles for employees and fewer claims. PruHealth was the first to do this when it launched its Vitality programme in 2004 and many other insurers now include an element of health and wellbeing in their PMI policies.
Damian Lenihan, head of client management at Bupa, believes this type of approach will become more common. “We are looking more at the prevention side,” he says. “By integrating other services, for example occupational health and health information, you can improve employees’ health and reduce the need to claim on PMI.”
Also, as these health and wellbeing initiatives mature, more data is being produced to demonstrate the financial savings that can be achieved. For example, in January 2011, PruHealth, with its parent company Discovery Health, published the results of independent research, Longitudinal study, into the relationship between incentivised wellness programmes and healthcare costs. It looked at data from more than 300,000 individuals over a five-year period and found that those who were active had a lower probability of hospital admission and lower hospital admission costs if admitted than those who were inactive. Even two extra gym visits a week reduced the chance of admission by 13%.
PruHealth’s Priestley adds: “At a time when budgets are under scrutiny, this study demonstrates that creating and incentivising healthy habits can deliver real value for employers.”
The PMI market does see providers withdraw products, change services or leave altogether, as well as new organisations enter. Recent months have seen National Friendly withdraw some products from the PMI market, followed by the temporary closure of its health cash plans to new clients. National Friendly said all existing PMI and health cash plan policies would be fully serviced.
In a more extreme development, two financial advisers who ran Your Health Insurance and Your Health Plus were handed prison sentences in July 2011 for dishonestly obtaining money from the medical insurance firms. Policyholders faced an unsure future, but they received support from the Financial Services Compensation Scheme and intermediaries.
Employers need to be aware that things can change quickly, and they can work with intermediaries to ensure robust checks are carried out and due diligence is in place.
Read more buyer’s guides