One way of limiting medical insurance costs is to look at the cover and see what you might do without, but opting-out can have dire consequences, says Sam Barrett
If you read nothing else, read this …
- Consider ongoing claims that might not be covered if employers move to a plan with reduced benefits.
- Check underwriting terms on new policies as existing conditions could be excluded.
- Avoid large excesses for employees but consider them for dependants.
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Whether employers are providing private medical insurance (PMI) as a perk or as a management tool to reduce sickness absence, there are several ways to cut premiums. But, before embarking on a cost-cutting exercise, it’s important to consider the implications and take note of what is written in the small print.
Removing, or restricting, benefits is one way to reduce premiums. Psychiatric cover is a common exclusion, for example, which can instantly take up to 10% off an organisation’s premiums.
But Jan Lawson, managing director of provider The Private Health Partnership, recommends caution if employers are considering this: "If your business is in a stressful sector be careful. It’s a benefit that’s not used that frequently but when it is, it really is," she explains.
There’s also the possibility that someone is already receiving the very treatment that is removed and by downgrading they will find themselves without cover. And the chances are it will be the wife or child of the managing director.
Adding an excess can also reduce premiums by between 8% and 10%, without compromising on the range of benefits. Tina Jennings, business manager at Towry Law, says this can help to create new claims behaviour because employees think before they whack in a claim. "Be careful how large an excess you use. £100 is about right as this would cover the cost of a consultation," she explains.
Employers might also want to think about putting in larger excesses for dependants as this is more acceptable and won’t necessarily affect sickness absence issues.
Firms should make sure they check how the excess is applied too. Kevin Dewhurst, head of client development at Axa PPP healthcare, explains: "Most insurers apply an excess once per person per year but sometimes it can be applied for every claim. As this means your staff have to pay to enjoy the employee benefit, it can make your scheme much less attractive."
Another cost-cutting exercise, which is particularly used by direct sales forces, is to move to newly-insured terms. According to Lawson, organisations can save as much as 25% by doing this but, as she explains, it can be a very false economy. "Employees will lose cover for existing conditions, which will mean they won’t be able to claim for many of the things they would have claimed for if you’d kept the original policy."
So checking out the small print before pruning PMI premiums to cut costs is vital. And if it all looks too complex, PMI isn’t necessarily the only product employers could consider when looking to cut costs. Occupational health products, such as employee assistance programmes and managed care, can help to identify potential problems before they result in sickness and absence. Steve Langan, group sales director at PMI Health, says: "Rather than simply reducing your medical insurance premiums, these early intervention mechanisms can help to reduce the level of sickness absence across your workplace, which can save you much more."