Buyer’s guide to private medical insurance

Private medical insurance (PMI) offers employers a means of controlling the cost of healthcare provision for staff.

Buyer's guide to private medical insurance

The facts

What is private medical insurance (PMI)?
PMI is health insurance to cover employees for the treatment of curable short-term medical conditions. Cover can include consultations, diagnostic tests and in-patient and out-patient procedures.

What are the origins of PMI?

The roots of PMI can be traced back to the late 19th century, when weekly savings clubs were set up for workers to save small amounts of money to gain access to medical treatment. The corporate PMI market saw considerable growth in the 1970s, when employers sought to offer employee benefits rather than pay rises.

Where can employers get more information and advice?

More information can be obtained from the Association of British Insurers, the Association of Medical Insurance Intermediaries, and the British Insurance Brokers Association.

What are the costs involved?

PMI typically costs an employer between £200 and £1,500 a year per employee. This depends on an employee’s age, the size of the scheme, an employer’s claims experience, whether the employer excludes existing medical conditions, and any excesses.

What are the legal implications?

Cover is normally a contractual obligation of employment, but it can usually be withdrawn or altered significantly with due notice and negotiation.

What are the tax issues?

Employer-paid PMI is a benefit in kind, so employees pay tax and national insurance on premiums. It is regarded as an allowable business expense, so employers can get corporation tax relief on their premiums.

What is the annual spend?

Employer spend on PMI in 2012 was £2.2 billion, according to Laing and Buisson’s Health cover UK market report 2013, published in July 2013.

Which providers have the biggest market share?

The top insurers in market share order, according to Laing and Buisson’s Health cover UK market report 2013, published in July 2013, are Bupa, Axa PPP Healthcare, Aviva, Cigna HealthCare Benefits, PruHealth and SimplyHealth.

Which have increased their market share the most?

The Health cover UK market report 2013 shows that Axa PPP Healthcare’s share has held firm, Aviva has grown share, and SimplyHealth’s share has increased. 

PMI gives employees access to private healthcare treatment, which, in turn, helps employers to manage their health risk profile and reduce employee absence. The insurance is designed to cover individuals for the treatment of unforeseen, curable, short-term medical conditions.

PMI has evolved a lot since it began. An early form of PMI can be traced back to the late 19th century, when weekly savings clubs were created for workers to save small amounts of money each week to gain access to a doctor or other medical support. This set-up evolved into the early provident associations, which allowed employees to make regular contributions to fund healthcare services.

The arrival of the National Health Service in 1948 saw PMI evolve further to become a more formalised offering. Some of the smaller associations merged to form organisations such as Bupa, while others stood alone, such as the Western Provident Association, BCWA and the original version of Axa PPP Healthcare, known as Private Patients Plan.

Conditions covered

Traditionally, PMI did not cover existing medical conditions, because most insurance contracts do not allow individuals to be insured retrospectively.

PMI is also not designed to cover long-term maintenance of medical conditions, or chronic conditions such as rheumatoid arthritis or diabetes.

However, some plans in the corporate PMI market allow employees to join on a medical history disregarded basis, which will allow pre-existing conditions to be covered.

The most common conditions claimed for through PMI include back pain and musculoskeletal conditions, as well as skin disorders and abdominal pain.

Cost control focus

The cost of providing PMI varies, depending on factors such as the size of a scheme and the employer’s claims experience. Typically, an employer can expect to pay between £200 and £1,500 a year per employee.

Cost control is a key issue for employers, with many seeking cost-efficiencies in their health and wellbeing spend and wanting value for money.

Some providers offer a tailored policy to suit an employer’s workforce, and many policies are flexible, helping employers to manage costs. For example, some will allow employers to change their cover options, excess levels, and choose reduced out-patient cover.

Aviva’s Solutions package is offered for between two and 249 employees, and its Optimum plan is for more than 250 employees. Also, different sections of a workforce can be offered different levels of cover.

Another cost-efficiency is to include six-week options, in which private medical treatment is available only when the NHS wait is at least six weeks.

There has been a general move in the market towards open referral schemes to reduce cost. For example, Cisco Systems said in January 2014 that it had cut its healthcare costs by 8.5% since adding open referral to its health insurance.

Under such schemes, PMI providers offer a choice of two or three consultants to provide the necessary treatment, rather than the employee choosing their own consultant, or that offered by their doctor.

Bupa, Axa PPP Healthcare and Simplyhealth UK are among the providers that offer open referral, and PruHealth can offer it to employees at the point of claim.

Open referral can benefit employees because the consultant has been approved by the insurer, and there is no risk of a shortfall with employees having to pay some of the treatment costs themselves.

Health and wellbeing add-ons

There is now greater awareness among employers to focus on healthcare in its broadest sense: looking at prevention, health and wellbeing, and encouraging staff to take greater responsibility for their own healthy lifestyles, as well as the role PMI can play in this.

Bupa’s Business Fit scheme offers three levels of cover. It aims to help tackle mental health and musculoskeletal conditions by offering early intervention to help employees get diagnosis and treatment as quickly as possible, and self-referral for mental health conditions.

Aviva has developed end-to-end rehabilitation services to help employers manage their spend on musculoskeletal claims.

PruHealth has combined its PMI scheme and its Vitality wellness programme into a new Lifestyle Health Insurance product, which provides employers with a platform to offer staff PruHealth’s products and services, including a free annual Vitality health check to help identify problems at an early stage.

Competition in the market

In August 2013, the Competition Commission published its provisional report on competition in the private healthcare market. It found that a lack of competition in private hospital provision has led to higher PMI premiums.

The Commission’s Provisional findings on privately-funded healthcare services found that private hospital operators have been earning returns substantially in excess of their costs. Some 80% of private patients pay for their treatment through PMI, often employer-provided.  

The Commission said lack of competition in local areas pushes up the price of premiums.

Its proposals, announced in January 2014, include the divestiture of nine private hospitals and the prohibition, or restriction, of clinician incentive schemes provided by private hospitals to clinicians that encourage patient referrals to their facilities or for particular treatments or tests.

Its Private healthcare market investigation final report, which was published in April 2014, announced measures, including a crackdown on benefits and incentive schemes awarded by private healthcare providers referring clinicians for treating patients in their facilities.

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The measures could result in lower PMI premiums and new PMI product design.