Reports from the frontline of the recession make for grim reading. In the last three months of 2008 alone 259,000 people lost their jobs, resulting in the worst level of redundancies since records began in 1995.
Although many of these job losses will be from blue collar industries where private medical insurance (PMI) is not so commonplace, it will inevitably have an impact on the market as a whole. The majority of people covered by PMI in the UK (around 85%) belong to a company- paid scheme.
Advisers should not underestimate the importance those leaving employment may attach to a health benefit. After a pension, PMI regularly tops workers’ list of preferred perks. Norwich Union Healthcare had 4,000 enquiries from group scheme leavers in February.
“Many group leavers assume that benefit levels and premiums will be similar to their group policies,” explains Brian Walters, individual policies adviser at Oxfordshire-based specialist intermediary Healthcare Quotations Ltd, “so adjusting the client’s expectations is very often the first part of the advisory process.
“Some are confused and overwhelmed having looked at price comparison websites, which are no substitute for a needs analysis and a qualitative market review.”
Stuart Scullion, sales and marketing director at the Private Health Partnership (PHP), another intermediary, believes it is helpful to divide group leavers into three categories: those between jobs, those being made redundant or retiring and those in the process of claiming.
This distinction between the majority who will not have made a claim (between 70- 80% of group scheme members according to PruHealth) and those who have, is an important one for advisers to bear in mind.
This latter group undoubtedly has a real stake in traditional continuation options, whereby group scheme leavers are transferred to an individual policy without being re-underwritten. For those actually mid-claim, this is likely to be the only viable option.
“People on continuation terms are actually not particularly good business,” admits Julian Ross, head of policy communications at Standard Life Healthcare. “They may just continue until they’ve finished their claim and then just cancel. But nevertheless it’s something we feel it’s appropriate to offer.”
Dave Priestley, sales director at PruHealth, which does not offer a continuation option, is forthright about the rationale.
“Our perspective on traditional group leaver options is that over time they become pretty unattractive options for the vast majority of people,” he explains.
Priestley believes that continuation options have resulted in a “pricing and risk spiral” in which premiums must rise in response to the risk posed by those most likely to take up a continuation option, in other words those who have claimed or are claiming,
“For us that isn’t really providing an adequate solution,” he says.
PruHealth unashamedly positions itself as the advocate of the healthy majority. Leavers are offered standard individual pricing with the opportunity to get the first year life-style based discount of up to 25%. They can also continue to benefit from the vitality points collected during their membership of a group.
Of course this risk has to be managed and PruHealth asks a number of “switch questions” which can result in either exclusions or a moratorium.
|OPTIONS FOR GROUP LEAVERS|
TAKE A CONTINUATION OPTION
No further underwriting so any conditions acquired during group membership will continue to be covered
Premiums may be high due to risk created by no further underwriting
Clients in good health with no claims recorded may be able to make significant savings and take advantage of new joiner offers
Terms may be less generous depending on outcome of underwriting, eg: new exclusions or a moratorium
TAKE A ‘SHARED RESPONSIBILITY’ POLICY
Lower premiums. May suit clients only concerned about large medical bills. You see the benefit straightaway, compared to an excess greater than £100 will be part paid for by the provider. With an excess greater than £100 you would not see any benefit. Some insurers have caped limits on how much
Contribution to bills could be high depending on structure of product and nature of claim
you pay so your contribution will not be limitless Lower premiums, with the possibility of fixing them
High-cost treatments may exceed benefit (cancer bills can run into hundreds of thousands)
It is a different story for group leavers with a clean bill of health.
“In our experience, it is very rare that a continuation option with the holding insurer represents the best-value policy for the client,” says Walters. “Independent intermediaries should always conduct a whole-of-market review for group leavers unless the client requires cover for pre- existing conditions.”
“It’s a really good time to look at the market,” says Charlie MacEwan, corporate communications director at WPA, where the preference is for re-underwriting which he claims can result in a 25% discount.
Standard Life, which offers all leavers the opportunity to take out an individual policy with no underwriting, ameliorates the higher premiums with its no claims discount scale and, for those who haven’t claimed in a year, one month’s free cover. Norwich Union Healthcare customers, meanwhile, can receive up to a 45% no claims discount on their individual policy. Bupa has a dedicated team dealing with group leavers, who can tailor cover according to budget. Customers considering re-underwriting can have an interview over the phone, enabling them to compare terms and prices.
Nevertheless, there is no escaping the fact that premiums for individuals will be higher than group scheme costs, given the different actuarial basis of the two products.
PHP’s Scullion is frank about the financial concerns of clients and says that cost is the biggest factor behind people cancelling cover. “In some instances they simply cannot afford to keep it,” he says.
Nevertheless, there are plenty of alternatives to cancellation, which is likely to prove a false economy, particularly for those who quickly find themselves back in employment.
“We start from ‘don’t think about what you’ve had but what would meet your needs in ideal terms’,” says Scullion. “That will determine what level of cover we’re looking at.”
In particular, he suggests looking at putting a cap on outpatient benefit. According to one insurer he spoke to, only 0.3% of customers are likely to claim more than £1,500. By downgrading somebody from fully comprehensive cover to a cap of £1,000 (but trying to ensure that diagnostics remain fully covered) significant savings can be made.
For those unwilling to be re-underwritten, WPA offers ‘Classic 50’, a compulsory shared responsibility scheme, whereby a claimant will pay 50% of the costs up to a limit of £2,500 a year. MacEwan claims that this can at least halve premiums.
Standard Life offers ‘Choices’ with an excess of up to £5,000 which Ross describes as a “safety net” for people willing to take “a bit more of a gamble”.
“In our view, co-payment is one of the most effective and certainly the fairest way to ensure that premiums are competitive,” says Nick Jones, brand and marketing manager at Exeter Friendly, another insurer. “If you opt for a high excess, the question soon becomes ‘how many potential claims are you financially better off not making?’”
A variation on this theme is the offering from new company HealthFund and reviewed in Health Insurance in January. This product combines medical insurance, underwritten at Lloyd’s, with an interest- bearing fund with the Bank of Scotland. C
Members choose an annual excess level from £1,000 to £5,000 and can either undergo full medical underwriting or (the more popular option) choose a moratorium whereby any pre-existing relevant condition in the past five years is automatically excluded until two symptom- free years have passed.
Operations director Gerry Budd says this is the way to avoid the “sharp intake of breath” clients make when quoted continuation terms by the major insurers.
“Because you are taking away small claims, which take up the majority of claims by number, you can dramatically reduce insurance costs,” he says.
Budd is keen to stress that the company’s aim is tackle the “back and forth” that can burden individuals attempting to negotiate private healthcare. Clients contact a medical claims team staffed entirely by nurses and doctors who have access to information that will inform decisions about providers, from car parking facilities to MRSA rates.
HealthFund has singled out AXA PPP healthcare for price comparison, claiming to offer premiums at just over a fifth of the cost. Unsurprisingly, AXA’s McMillan is quick to point out that this calculation does not compare “like for like” and claims that AXA can offer individuals “something broadly comparable” to their group benefits for much less.
National Deposit Friendly Society is another company vying for the group leaver market. It offers a fixed price product (the monthly premium is set at age of entry) in exchange for a maximum benefit starting at £30,000 and rising to £100,000. Every month some of the premium is put into a health fund which the member can access at any time. If a member makes a claim a small percentage will be taken from the fund.
Another company reporting an increase in business from cash-strapped group leavers is PatientChoice, which provides members with a budget to spend on healthcare at most private hospitals. Sales and marketing manager Martyn Field identifies sympathetic underwriting as the company’s key message.
“I’ve just spoken with a man leaving a Bupa group scheme,” he says. “Although he’s been prescribed statins we won’t exclude heart conditions because we recognise them as a preventative measure.”
While employers might be expected to show little concern for the fortunes of leavers, advisers should always discuss continuation when arranging group schemes.
“It won’t be a priority in most cases,” says Walters. “But intermediaries still need to make clear in their advice letter when recommending an insurer that doesn’t offer continuation options for group leavers.”
PruHealth’s Priestley says that a minority of employers will actually pay an extra charge to ensure that people who have claimed can continue with no underwriting, although he admits that this option is not offered as standard.
In fact, Scullion says questions about continuation are “common”, particularly in organisations where the contact works in the HR department and may be scanning “difficult waters” ahead.
His experience is another timely reminder of the real value advisers can offer to those forecasting stormy seas.