Buyer’s guide to private medical insurance 2013

A number of options are available to help employers control the cost of private medical insurance.

Private medical insurance (PMI) is a popular benefit, offering employees access to private medical treatment and helping employers to reduce sickness absence. But, with budgets squeezed, employers and insurers are looking for ways to keep the cost of cover down.

This drive to cut costs can be seen in figures from healthcare analyst Laing and Buisson. In its Health Cover UK Market Report 2012, published last year, it found that although the number of employees receiving employer-paid medical insurance had fallen by 1.3%, spending on these policies was down by 2.9%.

This indicates that employers have been shifting to lower-cost medical insurance policies to keep premiums affordable.

As well as reducing the level of benefit by introducing caps, removing more peripheral cover such as psychiatric benefits, or restricting the network of hospitals where treatment can be accessed, employers have other options to control costs.

Excesses more common

Excesses, where the employee pays the first part of a claim up to a set limit, such as £100 or £200, are becoming more commonplace.

As well as reducing the amount an insurer has to pay out, an excess can deter employees from making smaller claims. This can reduce the cost of cover quite significantly. For example, a £150 excess would reduce the premium by around 3% and an excess of £200 would reduce it by 5.5%.

Introducing an excess without staff feeling out of pocket is also an option, with several health cash plan providers introducing cover to pick up the cost of the excess on a medical insurance policy.

For example, Medicash offers up to £200 a year towards excesses on its £1-a-week plan, with the level of benefit increasing to £400 on its £5-a-week plan. Simplyhealth offers similar cover, but as an optional add-on to its Simply Cash Plan. On this, £100 of excess cover costs £1.08 a month, rising to £3.25 a month for £300 of cover.

Premiums could increase

But how effective this will remain is uncertain. Although the cost of the cash plan can be covered by the savings made by introducing the excess on medical insurance, there is a risk that, with the employee no longer needing to contribute, the deterrent is removed and claims, and premiums, could increase again on the medical insurance scheme.

Another option for employers looking to cut costs is co-insurance. Here, rather than paying the excess, the employee pays a set percentage of claims up to an annual total, after which 100% is paid. Through its Shared Responsibility option, WPA pays 75% of all eligible claims up to the annual limit. For example, an employee with a £250 annual limit who has a £200 consultation, followed by a £2000 minor operation, will pay £50 for the consultation, and £200 towards the cost of the operation, while WPA will pay all other eligible treatment costs in a given contract year.

Other mechanisms that can help to keep costs down include six-week options, in which private treatment is available only where the National Health Service (NHS) wait is at least six weeks, and different underwriting styles, which can cut breadth of cover.

Reflecting the tough economic climate, cost control has been a key theme with recent product development. Among product launches in the past 12 months have been Axa PPP Healthcare’s Healthcare Pathway, which includes a package of services to help employees lead more healthy lives, and Bupa’s Business Health Solutions, which offers a range of products, including a lower-cost option to appeal to previously uninsured employees.

Lower-cost option

Cigna UK Healthcare Benefits has also launched a lower-cost option in its Healthcare Choices. As well as providing a diagnostics- only option through its YourHealth product, EssentialHealth covers treatment for musculoskeletal and mental health conditions to help employers tackle the main causes of long-term absence.

Cash plan provider Westfield Health has also launched a medical insurance plan for employers looking for pared-down cover. Its Hospital Treatment Insurance plan, which is described as sitting between medical insurance and cash plans, gives employees cover for non-urgent surgical and medical procedures, such as operations for hernias and varicose veins, hysterectomy, and hip and knee replacements.

Although cover is much more limited than in a private medical insurance policy, prices are keen. For example at its lower level of cover, Surgery Choices 1, premiums start at £5.37 a month and more than 60 procedures are covered. Its more comprehensive cover gives access to more than 1,300 procedures, with premiums starting at £16 a month.

Open-referral schemes

But although insurers are keen to promote lower-cost options, one of the most significant developments in the last couple of years is the introduction of open-referral style schemes. These are offered by several insurers, including Axa PPP Healthcare, Bupa and PruHealth.

With these schemes, rather than leave the employee’s GP to decide which specialist they should see, the insurer provides a choice of two or three suitable consultants who can provide the necessary treatment.

This approach delivers a number of benefits. For the employee, because the consultant has been approved by the insurer, there is no risk of a shortfall with employees having to pay some of the treatment costs themselves.

Significant savings

Also, with insurers able to keep tighter controls over the specialists they use, such schemes can result in significant savings. For example, with its Healthcare Pathway product, Axa PPP Healthcare can offer a premium rebate based on hospital spend at the end of each year, while Bupa is predicting that its corporate clients will see double-digit reductions in premiums by year three to four in comparison with more traditional forms of medical insurance.

But although there are benefits, there has also been some backlash against open-referral style products. In particular, advisers have criticised these for restricting customer choice by pushing employees to see lower-cost specialists.

Insurers deny that this is the case, stressing that specialists are selected because of their ability rather than their fees, but, as with any new development, it will take time before the effects are fully understood. And with other insurers, such as Aviva, keen to introduce a similar option, open referral is set to become part of the medical insurance landscape.

THE FACTS

What is private medical insurance (PMI)?
This is insurance designed to cover the cost of private medical treatment. Cover can include consultations, diagnostic tests and in-patient and out-patient procedures.

What are the origins of private medical insurance?
The first private medical insurance policy was launched a little over 100 years ago, but the corporate market only really started to grow in the 1970s, when employers began offering employee benefits instead of pay rises because of high inflation.

Where can employers get more information and advice?
The Association of Medical Insurance Intermediaries is a trade body for independent medical insurance advisers. It can provide information on products and its site includes a tool to find members in a specific area.

The Association of British Insurers publishes a guide to private medical insurance and the British Insurers Brokers Association also has information to help in the selection of a policy.

What are the costs involved?
Private medical insurance costs from £200 to £1,500 per employee depending on factors such as the level of cover, the employee’s age, location, claims experience and scheme size.

What are the legal implications?
As long as employers comply with employment law, there are no legal implications associated with offering private medical insurance.

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

What is the annual spend?
Figures from Laing and Buisson show that employers spent £2.56 billion on medical cover in 2011.

Which providers have the biggest market share?
Bupa remains the largest medical insurer with a market share of around 40%. Other large providers include Axa PPP Healthcare, Aviva and PruHealth.

Which have increased their market share the most?
Simplyhealth’s acquisition of Groupama, which was completed in April 2012, saw it grow its market share to around 6%.

STATISTICS

5%-7%: average annual premium increase
Source: Laing and Buisson Health Cover UK Market Report 2012

10.9%: the percentage of people in the UK with private medical insurance
Source: Laing and Buisson Health Cover UK Market Report 2012

2.5 million: the number of people on NHS waiting lists in England
Source: NHS Consultant-led referral to treatment waiting times statistics for England, 2012 annual report, Department of Health

8.5 weeks: average wait for admitted treatment in England in 2012
Source: NHS Consultant-led referral to treatment waiting times statistics for England, 2012 annual report, Department of Health

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87%: the percentage of employers with flex schemes that offer private medical insurance
Source: Employee Benefits/Towers Watson Flexible benefits research 2012

28%: the percentage of employers offering private medical insurance as a means to manage long-term absence
Source: CIPD Absence management report 2012