There are many reasons why someone may leave a large group private medical insurance (PMI) scheme: redundancy, retirement or divorce from a member of the group whose company paid the premium. But on their departure, should they want to continue PMI cover, many people find their options are limited.
The better-informed will know that, although they have enjoyed the benefit of free private healthcare, it was not tax-free for the company. And they will know that group cover is significantly cheaper, because of the larger risk pool, than investing in an individual scheme.
The less well-informed are likely to be dumbfounded at having to fork out for the benefit if they want to continue their PMI cover on an individual basis or face the already over-subscribed National Health Service (NHS).
Individuals may come back down to earth with a crashing thud after being informed of the harsh realities that await them, such as:
• having to pay for the cover themselves • having to be re-underwritten or, indeed, underwritten for the first time • the likelihood that the new individual policy will exclude pre-existing conditions.
Time and again it becomes the job of intermediaries to cushion the blow. What happens if a group leaver is still receiving on-going treatment? Liz Hammond, the customer services director at Cheshire-based Private Medicine Intermediaries, says there is little choice but to stay with the current insurer.
“A new insurer probably won’t cover the pre-existing condition and the individual will see a huge increase in price with an individual policy, depending on the claims experience and how much the premium was,” she says.
Private Medicine Intermediaries offers the individual some choices, asks questions about their circumstances and explains that the premium would depend on their age and medical history. If the price is out of their budget the client may wish to consider reducing some of the benefits in order to make the premium cheaper.
Bupa offers discounts to individuals who have left a large corporate scheme. Actuarial and risk manager Fiona Harris says: “If an individual has claimed in the last two years, no further underwriting is needed at the point of transfer. However, if an individual hasn’t claimed in those two years, a five per cent discount is given. Where an individual wants to be underwritten or re-underwritten at the point of transfer we give a 20 per cent discount. We discuss with them the value they are receiving as an individual.”
In 1999, Bupa reviewed the issue of giving discounts to group leavers to ensure that these were being earned. Harris says: “We were giving bigger discounts but felt it necessary to change our policy because it was reasonable and competitive to do so.
“The premiums are higher in the personal sector because all individuals share in the risk in the personal sector. Discounts have to be funded from somewhere,” she says.
Intermediary Paul Brantingham, the managing director at Birmingham-based Integra Healthcare, says that there has been a “noticeable” trend for insurers to become increasingly stringent in excluding pre-existing conditions when an individual leaves a large group.
He says that intermediaries understand the insurer’s point of view about adverse selection and that the insurer has to consider the leavers who most want to take out the continuation option tend to be higher risk individuals.
He adds: “Intermediaries do feel that, morally, the option of continuing with cover is becoming an increasingly difficult area. Many individuals simply cannot continue to claim on individual policies because the cost of the treatment started while in the group was considerably less.
“At the very least, insurers should make it explicitly clear to intermediaries at the beginning what their position is regarding the medical underwriting parameters for group leavers. Many employers don’t think of the consequences of making people redundant.”
Brantingham suggests that some employers assume that the individual will be able to claim on a higher-priced individual scheme after having left the corporate scheme. Where an intermediary has not checked for any continuation options, the employer can appear “ill-informed” either by not giving the correct information to the leaver or failing to point out the issue of a company agreement of a leaving package.
It is important, especially if a dependent is claiming, to make the issue clear to the individual. A compensation package ought to be given to assist the individual over a couple of years or it could lead to an “embarrassed” employee if they were unaware that that particular condition has been excluded on an individual policy. Additionally, it can be “distressing” if an individual has to be treated on the NHS where they hadn’t been previously.
Groupama’s healthcare underwriter Juliette Court says: “Most large groups are covered under medical history disregarded (MHD) which means that the individual’s medical history will not be looked into. But some are fully medically underwritten to reduce the premium. The benefits have been constant but the rates are reviewed annually.”
BCWA’s commercial manager Richard Esler says the continuation options available for an individual leaving a large group scheme depend on an individual’s circumstances. For example, pensioners may be allowed to remain in the group scheme if this is funded by the employer, as part of its pension arrangements.
Individual terms apply to other group leavers although the rates are slightly below the individual rates that the “man on the street” would have to pay.
He says: “A group leaver would have to complete a medical history declaration. If the individual was receiving on-going treatment, such treatment may be excluded in the individual policy. But if they were coming to the end of the treatment, and depending on their medical history, we might not place any restrictions on that individual business.
“Each case is individually reviewed and is rated in its own company’s claims experience.”
Clinicare’s continuation option is valid for either small or large corporate groups but managing director Derry Andrews boasts that the option has been consistent from the outset. He says: “We require a certain amount of medical information at the point of continuation. But if an individual is claiming, that will impact on the claims position of the company and every company has a different claims experience. The insurer has to protect its loss ratio.”
He explains that a large group is charged a premium which is a direct reflection of the claims experience. Each employee has a premium allocated to them and this is less than what it would be in an individual policy. He says that if an individual wants to continue it is their personal choice to pay for it.
“Human nature comes into play when an individual leaves a group,” he says. “It’s usually the good risk individual who will not take out a policy and the poorer risk who will. This is selection against the insurer and as a result individual rates are nearly always greater than group rates.”
The specialist in continuation options at Manchester-based Manson Warner Healthcare, Diane Thorpe, says that continuation options are more of an issue for retired people and that insurers are “pricing themselves out of the market”.
She says: “The biggest shock to most people is the price of the premium. Those who want to continue with the policy don’t. If they are already claiming and looking at individual options of a corporate scheme, the insurer already knows their claims history and is more likely to charge a higher price.”
The intermediary must shop around for the best continuation options, according to Irene Gallimore, William M Mercer’s business manager for health and group practice. She says the “broader spectrum” needs to be considered because there is “innovation and design” in the market.
She says: “We should put more emphasis on making intermediaries more aware if a continuation option is included, particularly when the corporate client is reviewing whether or not to continue with their current insurer.
“Questions need to be asked such as: ‘Does the proposed underwriter offer a similar package?’ Having considered this, the intermediary must be fully aware of all options available, such as how it will impact on future scheme leavers.”
Fortunately, Gallimore believes there is now enough innovation in the market to help intermediaries find the solutions to assist scheme leavers.
But as the corporate PMI market continues to grow, intermediaries who fail to raise the issue of continuation options with their corporate clients are doing the industry a disservice.