New model emerges for private medical insurance

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  • Many conditions that used to require inpatient stays now only require day-case or outpatient treatment.
  • Some experts see insurers providing company-paid cover for outpatient and day-case treatment, but inpatient cover as an employee-paid option.
  • No PMI insurers formally offer this yet, but Cigna HealthCare has tailored four schemes in response to requests.

Improving technology and rising costs are generating a new approach to private medical insurance, says Edmund Tirbutt

Technological advances have resulted in changing claims patterns for private medical insurance (PMI). Many conditions that used to necessitate inpatient stays now require only day-case or outpatient treatment. For example, bunion removals, chemotherapy, wisdom teeth extractions and varicose vein operations can now often be dealt with as outpatient cases, and orthopaedic procedures such as cartilage problems may be handled as day cases.

The previous government significantly improved NHS inpatient treatment without improving outpatient resources, so the importance of PMI outpatient cover has never been greater. Some experts predict that, with the cost of traditional PMI rising by 8% to 10% each year, insurers could soon offer company-paid PMI that covers only outpatient and day-case treatment, and offers inpatient treatment as an optional extra that employees can pay for themselves.

James Kenrick, healthcare practice leader at Aon Hewitt, says: “It would be a different way to offer PMI that would suit some employers because, if costs increase by 10% a year, the costs of a traditional PMI plan double every six and a half years. At the moment, most PMI plans cover most things, and employers are looking to insurers to reduce costs, but it is about telling employers to take control of their plans.

“I feel most employers have lost sight of their objective in offering PMI cover because outpatient and day-case treatment typically accounts for 60% of claims spend compared with 40% for inpatient treatment. Removing the inpatient cover can reduce the overall annual cost by about £150 per employee.”

To date, the nearest any health insurance provider has come to formally offering such a scheme has been Westfield Health, which offers a Surgical Choices bolt-on to corporate-paid health cash plans. This offers immediate access to private treatment for 60 common non-urgent surgical procedures. Its cash plans do not provide the equivalent to PMI outpatient cover, but do pay towards consultations, alternative therapies and scanning.

Inpatient cover optional

When specifically requested, Cigna HealthCare is prepared to tailor large company-paid group PMI to cover outpatient and day-case treatments but offer inpatient cover only as an option that staff can pay for themselves. It has already done so with four schemes with more than 5,000 lives but, significantly, all the employers concerned have merely been looking to extend PMI cost-effectively to employees who did not already have it and have continued to pay for inpatient treatment for existing PMI scheme members.

Ann Dougan, marketing director at Cigna HealthCare, says: “In practice, less than a third of the new scheme members take up the option to buy inpatient cover. The key reasons for sickness absence tend to be mental health and musculoskeletal conditions, which are fairly well catered for under outpatient cover, but so far there is no evidence of employers cutting back on comprehensive PMI to replace it with the new approach.”

Lindsey Joseph, membership secretary for the Association of Medical Insurance Intermediaries, can see the new approach catching on because rising costs have put the PMI industry on “the precipice of change”.

But Geoff Salter, head of product management at Axa PPP Healthcare, says employers value PMI mainly for getting sick employees back to work quickly and as a recruitment and retention tool. “The only condition where there is a clear guideline for prompt treatment on the NHS is cancer, so it would strike me as foolish to take pot luck with other conditions,” he says. “It also does not give a good message telling staff their job and status does not warrant full cover any more.”

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