Since the Mayflower landed on the US shores nearly 400 years ago, America has developed a cultural identity of its own and of little resemblance to that of its British cousin.
For example, if you are dashing out to do some late night shopping in this country, you may search frantically for your car keys and your credit card, but a loaded gun for protection would be the last thing on your mind. But while the right to bear arms is probably the most obvious cultural difference, not far behind is the attitude to healthcare and protection.
The UK is currently celebrating 50 years of the NHS as one of the greatest triumphs of the 20th Century and the principle of “healthcare free at the point of delivery” is a national pride. But in the States this has never been an expectation, creating an attitude to healthcare provision completely divorced from that seen in the UK.
Americans see private medical insurance as a necessity. In the States if treatment is needed – so is payment. In fact, there is a form of state care to cover urgent healthcare needs, but it is billed for and means tested. Anyone without an insurance policy but with assets will be expected to stump up the cash.
It is a fairly bleak picture so it is no wonder that people sign up in droves for medical insurance – the alternative is not very pleasant.
As a consequence of this, the public in the States is keenly aware of the importance of PMI as part of an employee benefits package. It is not unheard of for someone to refuse a job solely on the grounds that the “medical insurance package wasn’t up to much”.
But what sort of cover is available and how closely does it mirror what is on offer in the UK?
Perhaps one of the best examples is the Managed Care (MC) plan from CIGNA, which is based in the USA. CIGNA has launched the plan on both sides of the pond, but the degree of similarity between the two starts and ends with the name. Ailie Ferrari, marketing product manager at CIGNA (UK), explains: “In the UK it is more patient-oriented, whereas in the US, it is far more to do with cost.
“In the US, the vast majority of medical insurance plans are sold to the employer so they are company schemes. From the mid 1980s onwards, employers saw a huge increase in healthcare costs so we launched our `managed care’ plan in the late 1980s in an attempt to tackle the problem of rising costs.”
One of the main reasons MC plans came on to the US market was because of research carried out by major employers. Big US car manufacturers were the first to identify the problem. The likes of Ford and Chrysler began to look at all the costs right across the company that would inevitably have a knock on effect on car pricing. They found that the employee healthcare costs were enormous and continuing to increase. Clearly the pressure was on to control these escalating costs.
How was it done? Ferrari again: “The provider got more directly involved from the outset. You have to realise that in the US, the hospital you are treated in is owned by the provider and the doctors and consultants are employed by the provider. So to intervene directly in claims management is not a problem since you are all employed by the same company.”
The company’s claims department analyses closely the doctor’s performance and questions whether treatment by drugs could be more beneficial and cost effective than an operation. They ensure patients are not sent for tests that are unnecessary or that if there is a concern over the cost of premiums that peripheral benefits like newspapers, flowers, TV and video, are cut back on.
In the States, group PMI is an enormous business and employers commonly take on the responsibility of providing access for their employees. In 1995 KPMG found that large firms spend between $5,000 and $6,000 per employee on medical insurance, depending on the type of medical plan they operate.
MC plans are now estimated to cover more than 75% of the US medically insured population, and bearing in mind that in 1985 the market share was 20%, it is easy to appreciate how popular this cost effective plan has been.
But analysis of this example reveals the fundamental difference in the packaging of managed care on each side of the Atlantic. In the US, the main concern is with reducing costs and policies are aimed at the broadest possible market – the comfortably off and those on more modest incomes.
Managed care in the UK is also about getting value for money but PMI is still seen as a product predominantly targeted at those in the higher income brackets. This means there is not the same emphasis on cutting things down to the bone.
Research reveals that term assurance is the big seller in the States. It is cheap and often sold at a loss as a means of selling other products on the back of it. Term and PMI are a very common and popular combination in employee packages in the US.
“In the States people will often demand medical insurance as part of their employment package. That is beginning to happen over here – after company pensions the next priority on the list of employee benefits is PMI. We have seen in the US that the costs of healthcare has increased significantly and the same situation exists here; there is no way you can put enough money into the NHS to get rid of waiting fists,” says Ferrari.
“More money for the NHS means more treatments become available which means demand goes up. I do not think we will ever follow the American system since there is always the awareness of the NHS and free healthcare is expected. But I think there will be a steady increase in the number of group schemes sold in the UK and I think the effort to keep costs down will be achieved by an increasing role for third party administrators.”
But there are elements in the Atlantic contrast that bode well for sales in the UK. Mention critical illness (CI) here and there will probably be a good response – it has its appeal and most IFAs will tell you it is a popular sale bolted onto a mortgage or life cover.
But CI in the States is almost a dirty word. Roger Edwards, product marketing manager at Scottish Provident, went on a fact finding tour of the US last year and discovered that the good news of CI in the UK has not travelled well across the Atlantic.
“There are a few CI policies available but the uptake is very low. The main reason for the unpopularity is that there is still a very bad taste in many mouths following the launch of what were called `Cancer Plans’ back in the 1950s/60s. These plans were similar to CI and sold well. But the definitions were very unclear and people were led to believe that they could claim, then were informed they had no cover. There were huge litigation claims and the product lost all credibility.”
The one area of similarity between the two markets comes in the form of income protection insurance. Known as disability income in the US, it has about the same level of popularity as in the UK. Sales have remained relatively static over the last five years and the market does not look like it will take off in the short to medium term However, the distinct difference between income protection products in the States and those in the UK is that the American models see no move towards policies being non-occupation based. In the UK there have been publicised entries into the blue collar market, and even higher risk occupations, so long as any claim is based on the claimant being unable to carry out a set number of physical tests.
In addition, in the UK being unfit for “any occupation” is becoming something of a rarity, as most providers have seen that it is unpopular and arguably unfair. Own occupation definitions are the norm in the UK. In the US policies tend to revert to an any occupation definition at a period defined at the underwriting stage.
Underwriting is another area of difference. For group schemes in the UK, be they CI or PMI, it is normal procedure for employees to be given cover, under pooled risk, without any medical check of any kind or having to supply family history of illness.
In the US this is not the way it works. Americans are used to full underwriting. Any insurance in the States requires customers to undertake a blood test, a fiver check and drugs and HIV testing, as well as providing history of family illness. In most cases a full medical test is part of the conditions of employment. And while this may seem harsh, it does ensure that the provider is in a stronger position to attempt to control premiums since the risk is far more quantifiable.
It is clear that there are pros and cons to the healthcare industry on both sides of the Atlantic. But perhaps the British and American markets can put aside their cultural differences and benefit from each other’s wealth of experience.