Buyers’ guide to private medical insurance

Private medical insurance (PMI) offers staff access to private healthcare treatment, which can help employers manage their health risk profile, as well as reduce the length of some employees’ absences. It also includes cover for treatment for curable, unforeseen and short-term conditions.

Private Medical Insurance

The facts:

What is private medical insurance (PMI)?

PMI is a health insurance that covers employees for the treatment of curable, short-term medical conditions or accidents. Cover can include consultations, diagnostic tests and in-patient and outpatient procedures.

What are its origins?

The roots of PMI can be traced back to the late 19th century, when weekly savings clubs allowed workers to save small amounts towards medical treatment. The corporate PMI market saw considerable growth in the 1970s, when employers sought to offer more employee benefits rather than pay rises due to high inflation.

Where can employers get more information or advice?

The Association of British Insurers , the Association of Medical Insurance Intermediaries and the British Insurance Brokers Association offer more information.

What is the cost?

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

What are the legal implications?

PMI is usually a contractual obligation of employment, but it can be withdrawn or altered significantly with due notice or negotiation.

What are the tax issues?

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

What is the annual spend?

Employer spend on PMI in 2013 was £2.74bn, according to Laing and Buisson’s Health cover UK market report 2014 , published in July 2014.

Which providers have the biggest market share?

In terms of both employer- and employee-paid PMI, Bupa and Axa PPP Healthcare have the largest shares, accounting for between three-fifths and two-thirds of the market. Aviva and VitalityHealth (previously PruHealth) each have market shares of between 10% and 15%, according to Laing and Buisson’s Health cover UK market report 2014.

Which providers have increased their market share the most?

Laing and Buisson’s Health cover UK market report 2014 shows that Aviva, Simplyhealth, VitalityHealth (previously PruHealth) and Cigna increased market share the most in 2013, whereas Bupa lost market share. Axa PPP Healthcare has strengthened its share with the announcement in May 2015 that it has acquired Simplyhealth’s PMI business.

PMI has evolved significantly since it was first introduced in the form of weekly savings clubs. The introduction of the National Health Service (NHS) in 1948 caused PMI to develop further to become a formalised product. Some smaller associations merged to form organisations such as Bupa, while others operated as standalone organisations, such as the Bristol Contributory Welfare Association (BCWA), which became Simplyhealth in 2009.

Conditions covered by PMI

PMI did not traditionally cover existing medical conditions, and was not designed to cover long-term medical conditions or chronic conditions as such. However, some corporate plans do allow staff to join on a medical-history-disregarded basis to cover pre-existing conditions.  

Some of the most common conditions claimed for through PMI are skin disorders, back pain and musculoskeletal conditions.

Controlling the costs

Some providers, such as Aviva and Bupa, offer tailored or flexible policies, which allow an employer to change its cover options and excess levels and control the cost of providing the benefit.

For example, Aviva offers its Solutions package, which covers between two and 249 staff, and its Optimum package, designed to cover 250 or more employees. The Optimum package allows employers to select which options best suit their employees, or offer different sections of their workforce different levels of cover.

Another method of cost efficiency is to only offer employees private medical treatment when the wait for the same treatment on the NHS is at least six weeks. 

There has also been a shift towards open referral treatment, where the provider offers a choice of two or three consultants rather than allowing the employee to choose their own, or using those offered by their doctor. Open referrals can benefit staff because the insurer has to approve the consultant, and there is no risk of a shortfall with employees having to pay some of the treatment costs themselves.

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

Employers can also educate staff about the importance of good health, and provide the most appropriate treatment.

Additional options

Private Medical Insurance

There is now a greater awareness among employers about the importance of workplace wellbeing, including prevention and rehabilitation, as well as the key role PMI has to play in offering more diverse options.

For example, Axa PPP Healthcare offers psychiatric treatment, treatment of conditions relating to alcohol and substance abuse and outpatient drugs and dressings cover up to ÂŁ200 per year.

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

Transparency in the market

In April 2014, the Competition and Markets Authority published its final report on competition in the private healthcare market. It revealed that it was beneficial for PMI providers to make the market more transparent with patient referrals and treatment, along with the publication of information around data and costs. These measures could result in lower PMI premiums and new PMI products. It also announced a crackdown on benefits schemes awarded by private healthcare providers referring clinicians for treating patients in their facilities.

More competitive pricing may occur if providers pass on savings made to employees.

In addition, measures to increase competition in the market could also drive providers to offer different products to maintain an edge over competitors.

PMI is always likely to remain attractive to employers and staff, especially as NHS resources become increasingly stretched. Employee Benefits ’ The benefit research 2014 , published in May 2014, found that PMI is the most popular benefit offered to workers via a flexible benefits scheme, on par with dental insurance, with 22% offering it.

But the increasing cost has always been a major barrier, meaning that many organisations limit employer-paid cover to senior or long-serving staff. In fact, 42% of more than 1,000 senior decision makers said the main barrier to offering PMI to all employees is that the organisation cannot afford it, according to research by Bupa, published in July 2014.

Recent legislation

New government initiatives may also impact the corporate PMI market. These include the Department for Work and Pensions’ (DWP’s) Fit for Work service , which offers impartial advice for dealing with long-term absence . Launched in December 2014, the service began its rollout in March 2015.

The services offered through Fit for Work, which include an online library and telephone service, email and online support for employers and free cognitive behavioural therapy (CBT) for staff, may provide complementary provision to services provided through PMI.

Statistics:

  • 31% of employers offer PMI to all staff as a core benefit.

(Source: Employee Benefits Benefits research 2014, May 2014)

  • 20% of organisations offer PMI to support staff with acute medical conditions.
  • 16% of organisations offer PMI to all staff and 22% offer it to senior employees.

(Source: Chartered Institute of Personnel and Development Absence management report 2014, October 2014)