Tailoring private medical insurance products

If you read nothing else, read this …

A number of healthcare providers now offer modular private medical insurance products.

Employers must take care not to trim policies too far or staff will perceive they’re losing out.

Employers that are switching plans should clearly communicate the change to staff.

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Large organisations have enjoyed it for years but now smaller ones also benefit from greater flexibility when they select their private medical insurance (PMI).

Modular plans, which allow employers to shape the cover and cost to their requirements, are becoming more commonplace among small and medium-sized employers. Such plans are available from several insurers including Bupa, Cigna Healthcare, Clinicare and Norwich Union. Steve Clements, principal at benefits specialist Mercer HR Consulting, says: "Insurers are being more imaginative in the way they design products. It’s definitely consumer-driven healthcare."

But all these modular plans are not equal. The level of flexibility on the plans varies greatly. With Bupa’s Select product, for example, the core cover can be further tailored by adjusting the out-patient cover, from £250 up to a full refund, adding in additional hospitals, excesses and cash benefits and taking out psychiatric cover. At the other end of the scale, Clinicare’s Couture probably offers the most flexibility. With this, you can mix-and-match the benefits, clone another insurer’s scheme, add in co-insurance and excess options and select the type of underwriting and cost control options you require.

Although the ability to tailor a plan is a bonus, there are potential pitfalls too. For starters, more choice can be confusing and employers could end up buying inappropriate cover. Douglas Rice, head of intermediary sales at Bupa, argues that the sales process will avoid this: "Whether it’s sold through an intermediary or direct, a full fact finding will be conducted so the employer’s needs can be identified and the right cover selected."

But escalating PMI premiums and the ability to remove cover has inevitably prompted many employers to trim their polices. For instance at Cigna Healthcare, the bulk of its customers using its SmartHealth product have flexed down their cover, although this may be to match existing cover. But shrinking cover can be bad and Glen Smith, managing director of intermediaries Health Care Partners, says employers need to be careful they don’t go too low: "You need at least £1,000 of out-patient benefit otherwise staff may have to pay just to be able to use the in-patient benefit on the plan. This isn’t popular."

This was certainly the experience of Standard Life Healthcare. It had offered an in-patient-only plan but found there was very little interest in it.

The other important factor to consider is how you communicate any change in benefit levels to your employees. "Communicating a change and, in particular, a reduction in benefits must be handled very sensitively," says Smith. He suggests promoting the benefits such as the reduction in P11D liability or even throwing in another benefit to compensate. "It can be good to offset a reduction in medical insurance benefits with a dental scheme for instance. This works particularly well where a company has a younger workforce," adds Smith.

Cutting costs and benefits may make healthcare cash plans an attractive alternative to PMI. But Iain Laws, healthcare manager at Gissings, believes this is often a false economy, especially as employers are increasingly using PMI to help tackle absence levels: "While some cash plans now include out-patient benefits, claims under these benefits do not usually result in a reduction in workplace absence." And with the Confederation of British Industry estimating that a day’s absence costs an average of £75, the potential to reduce absence can be too great to give up.