General & Medical’s acquisition of Revelation Healthcare, the Coventry-based provider of healthcare trust services, is the latest sign that trusts are increasingly being viewed as a viable alternative to traditional private medical insurance (PMI) schemes.
The acquisition, which was completed in January this year, gives General & Medical a firm foothold in the growing healthcare trust market. Martin Wilcox, marketing and operations manager at General & Medical, said the company, which has traditionally specialised in PMI and cash plans, has been looking for ways to grow its portfolio of trusts for some time.
“The acquisition of Revelation Healthcare adds a new dimension. It significantly expands our customer base and penetration of the healthcare trust market. The deal strengthens both brands and complements General & Medical’s existing product range,” he said.
The deal has resulted in all hospital contract management for Revelation Healthcare being brought in-house and handled by General & Medical. Wilcox said this will increase the throughput to the hospitals used by General & Medical, thereby increasing its negotiating power and improving its ability to control the costs of any claims made under the trusts. The acquisition has also ended the long-running relationship between Revelation Healthcare and the self-pay service Medical Care Direct. The two were sisters companies until three years ago and up to January this year Medical Care Direct still sourced medical treatment for Revelation Healthcare cases.
Malcolm Jones, managing director of Medical Care Direct, said: “When Revelation Healthcare was acquired by General & Medical this relationship ceased and it has stimulated us to operate our own healthcare trust. We provide all the documentation and treatment sourcing as a standalone operator.”
THIRD PARTY ADMINISTRATORS
Another consequence of the deal is that the number of independent third party administrators in the healthcare trust market has reduced even further, following the acquisition of Remedi and Medisure by BCWA (now Simplyhealth) in 2007. Richard Saunders, business development director at Healix Health Services, said Healix is now the only independent specialist healthcare trust provider in the market. However, Sandra Dalchow, senior consultant at Lorica Consulting, suggested the acquisition could help increase the awareness of healthcare trusts among smaller companies.
“Revelation Healthcare is not one of the first names that people think of when choosing a provider and there are probably brokers who don’t think they can offer trusts to small companies. The acquisition by General & Medical will put Revelation Healthcare in a better position because the coverage of the deal alone will raise its profile. This will benefit the whole market,” said Dalchow.
Some healthcare trust providers believe that increased awareness of trusts among smaller companies is happening already. The main driver of this has been the downturn in the economy.
“When the recession hit last year companies were tasked with saving 10% on their employee benefit spend,” said Healix’s Saunders. “Within healthcare they saw costs on PMI going up by 10% to 15% every year because of medical inflation. Healthcare trusts are of interest to those companies because if the funds are not used they roll over into the following year.”
Bupa has also seen strong growth in the number of organisations enquiring about and taking up healthcare trusts and it expects the number of companies with trusts to increase in the next 12 to 18 months. However, there are still a number of factors preventing clients from switching from an insured arrangement.
Carol Porter, senior healthcare adviser at employee benefit consultancy Enrich, said: “The general attitude to healthcare trusts is that they are perceived to be complex and time consuming to put in place and therefore only the larger schemes with significant insurance premium tax (IPT) savings to be made are more likely to take the route towards implementation. In some cases, and particularly in the current market conditions, an attractively priced insured arrangement may still be seen as cost effective, particularly if budgetary constraints necessitate adherence to fixed budgets and known costs.”
RISK LIABILITY
Providers Aviva and CIGNA HealthCare have noticed that some companies with trusts are looking at alternative funding options to bring extra certainty to their risk liability.
Nick Reynolds, head of intermediary sales at Aviva UK Health, said: “We’ve seen in the last few years an increase in awareness of and interest in medical trusts provided by large corporate clients. We used to have six trusts but in the last 18 months this has doubled to 12. This has to be balanced by what we have noticed in the last couple of months, which is that some corporate clients with trusts are looking at alternative funding options. With a trust there is greater liability on the corporate purchaser. With full insurance the client knows the finite extent of their liability. During the credit crunch there has been a desire to look at whether trusts deliver against the economic climate.”
Ann Dougan, marketing director at CIGNA HealthCare, believes the move by some clients to full insurance is a temporary measure while they take advantage of the good terms currently available in the insured market. She said she is confident that clients will return to the trust in the longer term.
The healthcare trust market will be given more impetus if the next government decides to raise IPT, but even if this does not occur, insurers and intermediaries expect the market to remain buoyant into the foreseeable future.
OTHER TRENDS IN THE HEALTHCARE TRUST MARKET
Healthcare trust providers have also noticed an increase in demand for cost sharing over the past year. CIGNA’s Ann Dougan said there are more quotes from larger companies requesting the inclusion of an excess because they feel it is justified during the economic downturn. Companies are also restricting some benefits, for example by reducing the level of psychiatric cover they provide, and they are also looking at cancer as a potential concern. Healix’s Richard Saunders said there has been a move to offsetting the cost of a trust with other products such as cash plans. The company can take cancer out of the trust and the cash plan will pay out if a cancer claim arises.