For many employers who provide private medical insurance (PMI) to their staff, covering employees’ spouses and children forms a logical and necessary part of that offering.
But as companies look to cut costs and insurers focus on extending PMI to more of the working population through stripped-down products which focus on absence management, could dependants’ cover soon become a thing of the past?
“Dependants’ cover goes back to when PMI was first developed, because it was in the main a management perk,” says Paul Moulton, sales and client relationships director at AXA PPP healthcare.
High level executives are likely to expect to have their family covered on their policy as standard, while industry experts say offering dependants’ cover also helps boost companies’ attraction and retention credentials, and create a family-friendly ethos.
And although it fails to tick the absence management box, it is a feature that remains popular; over 60% of PruHealth’s policies, and 41% of Bupa’s corporate schemes, cover dependants.
In general, insurers charge 100% of the cost of an employee per spouse, and around 50% per child, usually at the employer’s cost.
But with employers’ focus on cost and absence management as intense as ever, is it sustainable to continue to pay for family members in this way?
Those who regard dependants’ cover as merely a nice-to-have add on will be surprised to see figures from the market’s largest provider showing that dependants account for more than a third of corporate claims, and that spouses on average claim for more than employees.
Data from Bupa shared exclusively with Health Insurance shows that 37% of claims on corporate schemes are from dependants (12% from children and 25% from partners). What’s more, the average spouse on a corporate scheme claims for £522 a year – £91 more than the average employee.
Taking dependants as a whole, however, the figure falls to £285, as the average child claims for just £94 a year.
“If children do claim, it can be for quite a large amount, but most of the time they don’t claim at all,” says Mike Blake, director at PMI Health Group, the specialist intermediary.
For this reason, Blake argues that many employers see dependants as “subsidising” the cost of employees rather than an additional expense.
But as the Bupa figures show, it is spouses which have the potential to push up premiums.
Tony Wood, sales and marketing director at Bupa, says it is not clear why partners claim for more, but suggests it may be down to non-working spouses having more time for treatment.
But while he acknowledges that dependants account for “a fairly high proportion” of claims, that in itself is not a problem, he says.
“If the benefit is there as an employee perk rather than to get employees back to work, then even if dependants accounted for 70% of claims, it probably would not matter to the employer because that is part of the benefit,” says Wood.
But, he adds, if high dependant claims led to rising costs, employers may grow concerned.
NO QUESTIONS ASKED
And that is where some intermediaries are becoming worried.
“PMI premiums are going up and up and we are having to justify premiums at renewal,” says Claire Stock of Capita Employee Benefits. “For SME clients, insurers often do not provide a lot of claims information so justifying price rises can be difficult.”
A lack of transparent information seems to be particularly problematic for SMEs.
Howard Hughes, head of employer marketing at cash plan and PMI provider Simplyhealth, says the insurer does not know for SME clients whether dependants are paid for by the company or by employees.
He says there are “almost no questions asked” with SME groups: “If they say they want to cover dependants we don’t know whether they are company paid or if behind closed doors it is actually a voluntary scheme.”
This could lead to higher claims because, as AXA PPP’s Moulton explains, when employees pay for dependants’ cover themselves, a degree of selection is introduced to the risk pool.
“As part of the cost containment drive, companies are starting to give employees the option of paying for their dependants, but in those situations we see dependant claim rates rising, because the risk is increasing,” says Moulton. “If they have to pay for themselves, people are more likely to take out the cover if they feel they are likely to use it – if they are older, for instance.”
Others agree that there is a trend towards companies offering dependants’ cover on a flex basis only.
But Blake says that employers’ instinctive move towards increasing employees’ contributions when they want to reduce costs will often merely prompt non-claimers to drop out, thereby restricting the scheme population to those who are likely to claim.
“You have to be very careful”, he says.
Where intermediaries can help employers in this regard, continues Blake, is to advise them to introduce measures such as underwriting those who do not join at the first opportunity, or to only let dependants join at the renewal date.
Capita’s Stock, meanwhile, says she advises clients to underwrite dependants differently to employees in order to protect against high premium rises.
Children’s cover can also be problematic, despite the fact that children’s claims are generally low.
Insurers cover children up to varying ages – Bupa’s standard is up to 18, although it says some employers choose to cover children while they are at university, while AXA PPP healthcare covers children up to 21 as standard, or 25 for those in full time education.
PMI is certainly unusual in classifying adults as old as 25 as children, while Stock says some insurers do not even ask for proof that claimants are in full time education.
AXA PPP’s Moulton, for instance, says the insurer does spot checks but takes it “in good faith most of the time”.
“It would be wrong of us to automatically assume someone was lying,” he says. “If someone says they are in full time education that is enough proof for us.”
PruHealth, meanwhile, says that as children are living at home for longer, often returning to live with their parents after university, PMI policies need to adapt to reflect this.
Dave Priestley, PruHealth’s sales director, says the provider has seen a trend in parents wanting to include adult children on their policy, and as a result introduced adult pricing for children aged 21 or over in 2011.
“This allows parents to continue cover for their children into adulthood but ensures the additional premium adequately reflects the risk,” he explains.
But despite these issues, many believe that dependants’ cover will continue to have a place in the market.
“The organisations that provide dependants cover do so as a conscious decision,” says Bupa’s Wood.
“For large corporates it is very much seen as part of their employee benefits cover, so it is less about employee productivity and more about engagement and attraction and retention. A lot of the people covered in SMEs, meanwhile, will be owner operators who are buying the product for their family specifically.”
However, most acknowledge that new PMI schemes are weighted far more towards an employer, rather than an employee benefit, and as such company-funded dependants cover could soon be phased out.
“Some companies will keep it because they see it as an important part of their culture and ethos, but many more will say that if employees want to keep it they can pay for it themselves on a flex basis,” adds Moulton.