The ever-present issue of cost has been the dominant force behind much of the recent change in the corporate healthcare market. With private medical insurance (PMI) sales struggling, against a backdrop of continued premium rises and squeezed employee benefit budgets, the industry has been forced to look to other avenues for growth.
Hence, more affordable options which have the potential to extend healthcare to a greater number of employees, rather than restricting it to upper tiers of management, have been lauded as the saviour of the market. Cash plans continue to do well, while several insurers have developed ‘middle ground’ products which lie between cash plans and PMI; for instance, those which provide cover for treatment alone without diagnostics, or cover for certain conditions only.
But while this developing segment of the market certainly holds much potential for growth, the battle is far from won. Making these new products a success will require plenty of work on behalf of both intermediaries and insurers, while providers’ efforts to make fully-blown PMI sustainable also continue apace.
Open referral – whereby patients are offered a limited choice of consultants by their insurer, rather than a named consultant of their and their GP’s choosing – was first introduced by Bupa and has since been implemented by other insurers. It is regarded by some as a necessary means of controlling cost and quality, while others argue it takes away patient choice; it has also been called ‘direct referral’ by those who thinks it undermines choice.
This is perhaps the most controversial of a number of changes which mark a shift away from PMI as a member-led benefit and towards a product in which insurers are becoming increasingly involved in patient care and clinical decisions. This of course helps to manage costs, but many providers say it improves outcomes too – although they still have a job to do to convince everyone of that.
What’s more, the Competition Commission is currently examining this issue and more in its ongoing review of the private healthcare market – which is sure to shake up the market further when it reports back next year.
OPENING UP NEW MARKETS
So how can the industry best navigate the challenges and opportunities of the next five to 10 years?
“If flexible, menu-driven products marked the last decade, the next will be dominated by more, cheaper products, as we all seek to increase penetration into uninsured and younger markets,” says Ronjit Bose, commercial director at Jelf Employee Benefits.
This means more cash plans and ‘bridge’ products that fill the gap between cash plans and PMI, he explains.
Plenty of providers have innovated in this space over the past year; Westfield Health launched its Hospital Treatment Insurance in May 2012, which gives access to a range of surgical and medical procedures (without private consultation) from £16 a month, and Bupa introduced a range of cheaper options for SMEs and corporates in September.
But Tony Wood, sales and marketing director at Bupa, says that while he believes products of this nature are the way forward, embracing them will mean many companies need to reassess their business models.
Most insurers and intermediaries have “built their business model around high cost products”, he claims. With new, cheaper products, organisations need to think carefully about lead generation costs and marketing spend returns, he says, noting that: “Good businesses are doing this already.”
But while the PMI sector is stripping back products in order to drive growth, the cash plan market is in many ways doing the reverse.
CASH PLAN EXPANSION
The ‘£1-a-week’ mantra has been a key marketing message for cash plans in the past, but in recent years providers have been developing the product to add further benefits.
In many ways, this is closing the gap between cash plans and PMI – cash plans can now provide access to physiotherapy sessions and specialist consultations, for example – but is likely to mean prices have to rise.
This may be no bad thing for the sector as it needs to ensure the value of its products are recognised; but it does face a challenge in that cash plans have become synonymous with a very low cost benefit.
Philip Wood, executive director, sales and marketing, Health Shield, says while it is not true to say price rises are “inevitable”, he believes that: “Ultimately, a quality product and service offering comes at a price.”
Meanwhile, Westfield’s sales and marketing executive director Paul Shires says the provider has expanded its product to become a “more rounded employee benefit”.
For instance, last year it added medical second opinion service Best Doctors and a retail discount scheme to its range of cash plans, as well as a webcam consultation service to its existing GP helpline.
Shires says that in future there will be a greater onus on employers to provide preventative healthcare to their employees, which is where benefits like this can play an important role.
“An employer could set up a web cam in a private room for staff to use and almost have an in-house GP,” he says.
Beate O’Neil, health and wellbeing senior consultant at Punter Southall Health & Protection Consulting, agrees that increasing cost pressures on the NHS and the ageing population will mean greater healthcare responsibility for employers and a higher importance placed on integrated health and wellness solutions.
“Employers need to be encouraged to look at the wider value of health rather than the costs of illness,” she explains.
Many in the industry agree that attitudes towards health and wellbeing are changing; employers are increasingly focusing on prevention and the promotion of overall wellbeing rather than the minimisation of downside risks. And this is thought to be just the start of a trend that looks set to grow over the coming years.
SUSTAINABILITY
O’Neil also believes providers will need to focus on lower cost products to expand the market, while she says cost control initiatives such as open referral could “lead to significant changes [in the market] that support sustainability”.
Dr Doug Wright, medical director at Aviva UK Health, says one of the major challenges facing PMI is how to manage affordability and sustainability – and communicating why that is necessary to employers and their staff.
Engaging employees in what changes such as provider networks and new care pathways mean “will be really important” going forward, he says.
“You have to take them on that journey with you – otherwise it just seems to them like we are reducing benefits,” explains Dr Wright. “This is shifting the paradigm of PMI; moving away from the idea that you can choose your hospital, choose your treatment, and moving towards the idea of the insurer moving you along the care pathway to get you the right outcome.”
INDUSTRY EXPERTS PREDICT THE FUTURE OF THE MARKET
Beate O’Neil, Punter Southall Health & Protection Consulting
“With increased pressure on the NHS, people working longer and employers being asked to take on more responsibility for employees’ health, integrated health and wellness solutions are likely to increase in popularity. Today the majority of employers focus on what absence and illness cost to an organisation in terms of sick pay and insurance, rather than focus on what good health buys in terms of business performance and output. Employers need to be encouraged to look at the wider value of health rather than the costs of illness.”
Mike Blake, PMI Health Group
“With PMI premiums reaching tipping point, insurers will look to control costs by exercising more control over healthcare providers. Bupa made the first move with open referral and other insurers have followed suit or will soon. If this is taken to a natural conclusion we could see the day when certain common conditions are only allowed to be treated in a limited number of clinics as prescribed by the insurer and, ultimately, this could lead to insurers owning the facilities and contracting with the specialists directly. An oversupply of consultants and facilities could also help to drive down prices, facilitating insurers’ attempts to be selective in who is used for treatment and force a levelling of costs.”
Ronjit Bose, Jelf Employee Benefits
“With employers under increased pressure to support employee health engagement, they will seek more effective health management strategies, with a greater focus on return on investment. They will become more demanding around how they manage their staff absence and control costs and the use of better, more accessible information to support this. More will look at alternative funding mechanisms such as self insurance as traditional, fully insured costs continue to increase. If flexible, menu-driven products marked the last decade, the next will be dominated by more, cheaper products, as we all seek to increase penetration into uninsured and younger markets; so we will see more cash plans and more ‘bridge’ products which fill the gap between cash plans and PMI.”
Tony Wood, Bupa
“The main factor holding back market growth is affordability. Customers are seeking value for money, and at the moment they may see full PMI as too expensive. To address this in the short term, we need to give customers more options that they can afford, and to unlock new customer groups by encouraging employers to provide benefits for more of their employees. However, most insurers and intermediaries have built their business model around high cost products. As the market moves towards cheaper products, industry players will need to think carefully about things like cost per lead and getting return on their marketing spend. But while we do need to look at opening up new customer segments and introducing lower cost products, we can’t give up on traditional health insurance.”
Paul Shires, Westfield Health
“Cash plans will continue to boom; the corporate paid market has been rallying for many years but it is still coming from a relatively low base so we believe it has a future of sustainable growth. Growth is being driven by factors such as increasing pressures on the NHS, which will in turn put increased pressure and expectation on employers to take the weight off the health care system. The expectation on employers will be to provide not just reactive health care, but early intervention, prevention and education to their employees. Cash plans have always been about preventative treatment and many benefits have been recently extended to help companies develop health and wellbeing strategies; for instance, GP helplines and online health risk assessments.”
Doug Wright, Aviva
“PMI is geared up around being an employee benefit, whether it is designed as a perk or as part of a company’s benefits package which helps them attract and retain staff. Employees will continue to value it in the same way, but the corporate decision makers need to be a lot clearer about why they have it in place. Employers increasingly want to get a much more tangible measure of return on investment, but to do that they need to think about what their business objective is. Factors such as faster return to work and reduced absence will drive much of the corporate decision making over the next five to 10 years.”
Philip Wood, Health Shield
“It is not true to say that price rises for cash plans are inevitable as the product continues to develop. At Health Shield, we only add or remove benefits as market needs dictate and we aim to offer competitively priced products to all members. However, as increasing numbers of people use cash plan products, pricing will become a factor for review. Ultimately, a quality product and service offering comes at a price. When it comes to future product development, we plan to focus on absence management, catering to health and wellbeing needs, and looking at exactly how members use cash plans and what they want for the future.”
Paul Moulton, AXA PPP healthcare
“Over the next 10 years the performance of the economy and of the NHS will continue to have a significant influence on the market. Providers and clients will look to a broader range of healthcare solutions to reflect changes in healthcare trends and population dynamics; offering choice through directional cover and a range of cost cutting options, such as ‘six week’ and modular-style plans, should help to keep cover within employees’ reach. Managing healthcare costs through preferred provider arrangements will also continue to be a key area of focus. Looking ahead, insurers and intermediaries alike will undoubtedly be exploring how best to engage and harness opportunities within the online and social media environment.”
Howard Hughes, Simplyhealth
“As customers demand more intervention in helping employees get back to work, we are likely to see more development in the space between cash plans and PMI. We might see a future where some of the traditional cash plan benefits like dental cover are removed and access to physiotherapy and counselling is increased to help employers deal with stress and musculoskeletal-related absence. Health and wellbeing will become more important to employers in a strategic sense, with large corporates leading the way and SMEs following suit over the next five to 10 years. As is already happening, insurers will become a lot more active in managing care pathways for customers; this is not just about saving money but about delivering a better customer experience. Cash plans will continue to grow, and while there will always be a place for full fat PMI, it will come at a price.”