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Employers are looking to combat the rising cost of private medical insurance (PMI) by introducing an excess. An excess of £100 can secure a premium saving of 7% to 10%.
A common trend is to plug the PMI excess gap for employees by introducing a health cash plan.
Benefits typically claimed for through PMI, such as a diagnostic consultation or physiotherapy, can also be claimed through a cash plan to offset the cost of the PMI excess.
Some cash plan providers will cover the PMI excess, even if the claim is for something that is not covered by the cash plan.
Case study: Cash plan eases PMI excesses at Gallagher Heath
Gallagher Heath uses a health cash plan to cover some of the excess from its private medical insurance (PMI) scheme.
Only 340 senior employees at the insurance broker and risk management firm are members of its employer-paid PMI scheme, provided by WPA via a healthcare trust. But since October 2008, all 1,200 staff have received employer-paid health cash plan cover, currently provided by BHSF.
The cash plan helps members of the PMI scheme plug a gap caused by an unusually high excess of £750. They can claim back 30% to 50% of this through diagnostic consultations or complementary therapies.
Although such a high excess can greatly reduce the P11D costs of PMI scheme membership for staff, if their employer did not also provide a health cash plan, people may be dissuaded from taking up the PMI. The employer could, therefore, be left with largely older lives in the PMI scheme, which would skew claims costs.
Deborah Wills, reward director at parent company AJ Gallagher, says: “The cash plan was introduced for various reasons, such as to address the costs of eye testing and to avoid paying for a standalone employee assistance programme (EAP) But the ability to cover some of the excess has been a valuable side benefit for PMI scheme members.”
Agreeing to an excess for claims will reduce private medical insurance premiums and cash plans can be used to cover the shortfall, says Edmund Tirbutt
Employers seeking to combat rising private medical insurance (PMI) costs have become increasingly prepared to introduce an excess, requiring employees to pay the first part of the claims bill themselves. Opting for an excess of £100 – the most popular level – can secure a premium saving of 7% to 10% per year, and there is growing interest in the even greater savings available from excesses of £150, £200 or higher levels.
Some specialist intermediaries say 50% to 60% of their PMI schemes now carry an excess, and that proportion can be higher when it comes to new business. For example, every one of IHC’s new PMI schemes now has an excess of at least £100 and, significantly, about a quarter of these are taking part in the new trend of plugging the excess gap for employees by introducing a health cash plan.
This practice, which has been gathering momentum in the past three years, can undoubtedly prove good value because cash plans provide worthwhile levels of healthcare cover very inexpensively. For only £1 per employee per week – the format most commonly used in conjunction with a £100 excess – a cash plan can offer about a dozen different benefits.
These will typically include an employee assistance programme (EAP) to help with stress-related problems, optical and dental treatment up to £50 a year, complementary therapies up to £150 a year, and diagnostic consultations up to £200 a year.
Offset PMI excess
Most employees who claim on PMI are likely to need either a diagnostic consultation or physiotherapy treatment, so their ability to claim for these under a cash plan can offset the cost of the PMI excess, and they will also have access to many other cash plan benefits. In addition, the cost to the employer of offering the cash plan should be covered by the premium saving achieved by taking the excess. Amy Osmond, senior consultant at Lorica Employee Benefits, says: “If the PMI scheme does not include employees’ dependants, the premium saving from a £100 excess can be pretty much exactly £50 a year. This can provide a definite advantage because of the extra cash plan benefits, but it must be communicated properly.”
Some cash plan providers now stipulate that they will cover the PMI excess, typically up to their consultation cover limit, even if the PMI claim is not for something actually covered by the cash plan. Medicash and Health Shield have done this since 2009 and Westfield Health is moving towards doing so, even though it has not yet formally changed its terms and conditions. Some other cash plan providers are also prepared to consider offering the facility on a case-by-case basis.
As well as guaranteeing that PMI excess claims will not fall outside the scope of the cash plan cover and that relevant cash plan claims will count towards using up the PMI excess, this approach removes a lot of administrative hassle.
Mike Izzard, managing director of Premier Choice Healthcare, says: “It can greatly simplify the process of claiming. I know this from personal experience after making a claim for my wife’s bunion operation recently. The paperwork could previously have caused difficulties because, after making a PMI claim, the employee has to pay their consultant, get a receipt and claim the money back from their cash plan provider. Now they simply forward to the likes of Medicash, Health Shield or Westfield Health a statement from the PMI provider saying they have incurred an excess, and it refunds the money.”
Whether a health cash plan provider guarantees to cover the PMI excess or not, the ability to combine the two products has little potential downside to either employers or employees, as long as the chosen cash plan has large enough benefits to cover the excess and a couple of potential pitfalls are noted and understood.
Mike Blake, compliance director at PMI Health Group, says: “Employers just need to make sure there is a clear understanding so that employees claim on the right benefits in the right order. If the claim is likely to cost less than the excess, then it should be made on the cash plan first, but if it is likely to cost more than the excess, then it should be made through the PMI first.
“Watch out also for the age to which dependants are covered on cash plans, because a lot of providers limit it to age 18, whereas with PMI the age limit can be either 21 or 24 if in full-time education.”
But whether offering this product combination is likely to remain attractive to the PMI and health cash plan providers themselves is quite a different matter. A potential problem for PMI providers is that the practice could increase claims because the thought of having to pay an excess has traditionally resulted in some employees opting for treatment on the National Health Service instead.
Cash plan providers may also start to see increased claims because their products have been priced primarily to pay out on optical and dental cover. Providers such as Simplyhealth and Bupa, which provide both PMI and cash plans, therefore appear especially vulnerable to this trend.
Howard Hughes, head of business marketing at Simplyhealth, says: “Combining PMI and cash plans is currently a no-brainer for employers, but I have a concern about the sustainability of the approach in the long term. The PMI provider’s pricing model, which is based on lower usage if there is an excess, is being undermined.
‘We also have to recognise that cash plans are now being used differently. If it was not our original intention to use cash plans to cover the excess, we may have to reappraise the design.”
Wayne Pontin, sales director at Jelf Employee Benefits, reports that some cash plan providers do sometimes specifically cover PMI excesses via cash plans and are therefore faced with a “huge dilemma”.
He feels they may rebel against the practice and, in 12 to 18 months’ time, even some pure health cash plan providers may eventually stop offering to cover the excess when they notice that increased claims are eating into their loss ratios.
• In addition to guaranteeing to cover the private medical insurance (PMI) excess, some cash plan providers are going a stage further and offering to refund the excess amount directly to the consultant or other treatment provider, rather than to the cash plan claimant.
• Medicash has already formally offered such an option for 18 months. Members simply forward their shortfall letter to it after claiming on their PMI in the normal way.
• Westfield Health is also starting to pay treatment providers directly on certain accounts and is intending to make the facility generally available in 2012 once it has completed some fine-tuning.
Read more on health cash plans