The profitability of British companies has fallen by half over the past four years, according to Experian. So it is surprising the degree to which firms have maintained their employee benefit programmes in the period. Bupa’s head of business and intermediary sales, Ann Greenwood, says that corporate business has been growing at a rate of around 3% a year for the past four to five years. She’s been at Bupa long enough to know what happened in the last recession, and what emerges is that firms tend to hold on to their medical insurance schemes even if they are slashing almost everything else.
Cost-conscious companies are taking the knife to a number of extras that can shave around 5%-10% off their premiums. Bupa is seeing a growth in the number of corporates looking to increase the excess on policies and redefine (ie: restrict) the hospital choice. Most have already switched to managed care/preauthorisation techniques to minimise costs.
Some companies, when they are seeking to control costs, increase the number of staff covered, but at a lower level of benefit. “They would rather keep the benefit but pay slightly less by having fewer benefits or higher excesses,” says Greenwood.
Do you know what you have?
What I find striking is that when limits are put on the corporate medical insurance scheme, it seems to generate little protest from the staff involved. Employees don’t value their medical insurance schemes.
It also suggests that firms are wrong to preserve medical insurance schemes while at the same time cutting contributions into pension schemes. Employee awareness of the company pension scheme has risen in leaps and bounds over the past three years, and given a choice of axing a final salary scheme or axing the medical insurance, my guess is that most employees would choose to dump medical insurance first.
I don’t have anything other than anecdotal evidence to back this up, but here’s an incident in my own workplace last week. A letter arrived from Guardian Media Group, informing me that there would be changes to the company healthcare scheme effective from July. It said the option to join the retiree section would only be made available to staff who are already members of the scheme or who have joined by July. After that the option will not be available to new staff. The note said that it was hoped that the change will help reduce the escalating costs of the scheme in the long run.
I carried out a straw poll of my colleagues. Yes, they had all seen the note. No, they didn’t know what it meant, but thought it was probably unimportant to them because it was about retired people.
Some even asked if they were members of the company medical insurance scheme (operated by Bupa). Were they in it automatically, or did they have to pay something? And this was a selection of comments from colleagues on the City desk. Goodness knows what reaction I would have had if I had asked the Fashion, Food or Travel staff.
I don’t mean the above as any criticism of my colleagues. I would expect the same reaction from staff in any firm. Most have no time or inclination to study their benefits package beyond the bottom line on their pay slip every month. Employees put little value on a benefit until after it has withered away.
Better off than I thought…
To underline the point, I myself was unaware that the company medical insurance scheme offered a retiree section. I had to ring our personnel department to find out what it was. Only then did I become aware what a hugely valuable benefit it is, and how expensive it is for the company to maintain it.
Put simply, it allows someone retiring from my newspaper today to continue Bupa cover for a fee of around £175 a year, which will go up in subsequent years, but roughly only in line with general medical inflation costs – say around 10% a year. If I were outside the scheme buying medical insurance at the age of 65 onwards the cost would be huge. Even if I were of reasonable health, with no preexisting conditions my premium would still cost thousands of pounds a year. So if I live to, say, 80, then I could expect to save upwards of £20,000 by obtaining insurance through the ‘retiree section’ from my former employer.
There would be outrage if my employer lopped £20,000 off our pension income, but the change has barely caused a whisper or ripple of discontent. To be fair to the firm, it is keeping the option open to existing staff, so the dispossessed are only the new entrants, and new workers don’t complain. It will also save the group a small fortune – the retired section make a disproportionate number of claims on the scheme.
Bupa tells me that retiree options in company medical insurance schemes are rare, with fewer than 20% of corporates now offering them. Most were axed in the last recession, and the ones that are still open tend to be at larger, traditional firms.
As for my colleagues – clearly in the dark about the benefits of the retiree option – I shall do as much as possible to highlight it within the company, to make sure employees contract into the scheme if they qualify and sign up for the retiree option when they finally unchain themselves from their desks.
But it is staggering the degree that staff, myself included, were ignorant of such a valuable benefit. How much is this repeated at other corporates across the UK? Sadly, the message for cash-strapped finance directors is clear. Looking to make a cut that staff will barely notice? Then hack away at the medical insurance scheme. No one knows what’s in it anyway.