As increasing numbers of employers say that traditional private medical insurance is now far too costly, Sam Barrett looks at some of the other options on the table
Corporate private medical insurance (PMI) is getting too expensive. It is hardly a surprise, but concerns are growing that, in the current economic climate, the market will implode as the product becomes prohibitively expensive.
The latest research to add to the fears comes from the PMI Health Group, the specialist employee benefits consultancy. It found that although the government is calling on employers to take more responsibility for employee healthcare, there is little appetite for medical insurance. Instead, employers would like to see a insurers develop a lower-cost alternative.
“There’s a growing demand for a revised medical scheme,” says Mike Blake, compliance director at PMI Health Group. “It still needs to meet employee healthcare needs and business goals, such as tackling sickness absence, but it needs to be pitched at a lower price point.”
PMI Health Group’s research found that in order to increase take-up significantly, a product would need to cost less than £300 a year to make it viable. At this price, three-quarters of employers would consider taking out cover for their employees.
Unsurprisingly, this stacks up as considerably less than the average premium on corporate medical insurance.
“Most schemes fall between £600 and £800 a year per employee,” says Paul Moulton, sales and client relationship director at Axa PPP healthcare. “There are corporate schemes out there that cost £300 a year per employee but you’ll need a large group of young people with a low claims profile to achieve this.”
A £300 price tag?
Without size or age on your side, providing a comprehensive plan gets tricky. Cost control mechanisms such as excesses, co-insurance and six week plan options can be included to squeeze the price down but, although these have proved popular in the last few years, they can have unintended consequences.
For instance, to get a decent saving on a PMI scheme you would need to add an excess of £500 or more. But at this level it can act as a claims deterrent, potentially rendering the plan completely ineffective.
Stripping out benefits is another option. Faced with constructing a product that meets the £300 price tag, Kirsty Jagielko, head of product management at Cigna, says that inpatient cover would have to be the obvious casualty.
“It is possible to put together a plan at £300 a year but realistically it would only include consultations, scans and some outpatient cover,” she says. “We’ve seen a couple of clients that have wanted to extend medical insurance to all employees and this model, with an option to flex up to full cover, has enabled them to do this.”
Rather than removing benefits, making the plan more targeted can also help to squash the price down towards £300. For instance, Axa PPP’s Back to Health product is available for between £200 and £300 per employee depending on usage. This provides full cover but only for conditions that are preventing the employee from working. But while this helps to address the £15bn sickness absence bill, Moulton admits it doesn’t work for all employers.
“It’s effective at reducing absence but the targeted nature of the benefits means it works best in large organisations with plenty of blue collar employees,” he explains.
Healthcare trusts could also be used to squeeze more benefits into the £300 proposition. As these allow an employer to make savings on insurance premium tax and can potentially reduce claims as the employee regards the pot as belonging to their employer rather than the insurer, there is a bit more cash to play with.
But, even using a healthcare trust does not let you beef up the benefits a huge amount. Alan Grinnell, managing director of trust provider New Vision Healthcare, says a healthcare trust costing £300 per employee would probably include cover for consultations, diagnostics and between £2,000 and £3,000 worth of benefit for treatment.
“Employers asking for comprehensive cover for £300 per employee are in fantasy land: if you have a specialist consultation you won’t get much change from £300,” he adds.
Further, as trusts only tend to be suitable for large schemes, smaller employers, with their more volatile claims funds, would not be able to access this breadth of benefits. For instance Grinnell says that as a bare minimum a group would need to be spending at least £50,000 a year on claims before it could consider a healthcare trust.
“We could set up a broker trust if an intermediary wanted to pool their clients,” he adds. “But you’d still need to bring together enough people to create the scale.”
With inpatient claims costs making it difficult to design a medical insurance scheme with a £300 price tag, insurers are also turning their attention towards controlling these costs. Stuart Scullion, managing director of the Private Health Partnership (PHP) and a spokesman for the Association of Medical Insurance Intermediaries, says he has seen much more cost cutting activity from insurers over the last couple of years.
“Insurers can save between 15% and 30% on costs due to a combination of their buying power and their proactive negotiations with the hospital groups and consultants,” he adds.
And the insurers are keen to do more. Mark Noble, health and group risk director, Aviva UK Health, says that three things affect the price of medical insurance – the insurer’s expenses, hospital costs and the specialist costs.
“We’ve worked hard to bring down our own expenses so we’re now finding ways to reduce the hospital and specialist costs,” he explains.
For example it has developed a service, Back-Up, to help employees suffering from musculoskeletal problems. With this, rather than going to see a GP and being referred for treatment, employees call the service and are assessed and given a tailored treatment plan. This could involve further appointments with physiotherapists or other specialists depending on the nature of their problem.
This has been running for a couple of years and has significantly reduced the cost of these claims while also improving customer service. For example, physiotherapy sessions have been cut by almost 40% with the average number required falling from eight sessions to four or five.
It’s not the only insurer tackling the costs coming from the hospitals and specialists. While all are exerting more pressure on the suppliers to reduce their costs, Bupa, Axa PPP and Aviva UK Health all offer open referral mechanisms where they provide the individual with the details of a specialist rather than leaving this decision to the GP.
Noble believes this type of initiative will gain traction over the next couple of years.
He explains: “The Competition Commission is looking at the private healthcare market at the moment. We’re hopeful that this will give the insurer more control over the claimant journey.”
Low cost options
But, although insurers may be able to secure greater savings in the future, it is likely that there will still be a price and benefits mismatch.
“You can take benefits out to reduce the cost but there aren’t really any mechanisms to create a new comprehensive product at £300 or less: inpatient cover is always going to be expensive,” says Iain Laws, corporate sales director at Jelf Employee Benefits. “Other healthcare products such as cash plans may be more suitable at this price point, especially compared to a stripped down medical insurance scheme.”
At a £300 price point, a cash plan is pretty generous. For example, on Westfield Health’s Foresight plan, £6 a week (equivalent to £312 a year) would get annual benefits including £700 of specialist consultations; MRI, CT and PET scans; £650 of therapy treatments such as physiotherapy, acupuncture and chiropractic; and £220 each for dental and optical.
While the consultation and diagnostic benefits mimic medical insurance, Westfield Health has taken it a stage further with its Hospital Treatment Insurance. This is available on a standalone basis or as an option on a cash plan and gives employees access to non-urgent surgical and medical procedures such as cataracts and hip and knee operations.
Although there are restrictions – three operations in a 12 month period; £10,000 treatment cover and £100,000 total cover per employee on its level one product – it can be purchased for just £5.37 a month.
Education, education, education
While cutting back on cover can enable an employer to secure medical insurance for £300, however it is done, this approach usually means a significant compromise. Rather than do this, there’s a call for more education to highlight the value that medical insurance offers.
“Joe Public hasn’t a clue how much private treatment costs,” says Scullion. “If you explain to an employer that a consultation will cost £150 plus they do tend to more realistic about what cover is going to cost them. There are lower cost options out there but it’s unrealistic to expect to get comprehensive medical insurance for £300 a year.”