Buyer’s guide to private medical insurance (PMI)

Employers are increasingly funding private medical insurance for employees. The number of people covered by employer-paid schemes increased by 2.3% to around 4.7 million in 2007, while the number covered by employer-paid healthcare trusts remained at around one million, according to Laing & Buisson’s Health and care cover – UK market report 2008.

Whether this trend will continue over the next year will depend on the economic climate. A slowdown could affect employer-paid PMI in two ways: as employers look to cut costs and as redundancies, which are inevitably part of an economic downturn, reduce the number of people covered by corporate PMI policies. Julian Ross, head of policy communications at Standard Life Healthcare, says: “Employers are going to be looking carefully at all of their costs, including PMI.”

However, while providers have yet to see the credit crunch hitting employer take-up, the market may see a reduction in the number of employees covered. Mike Blake, group sales manager of PMI Health Group, says: “There have been redundancies and inevitably some of those people would have had PMI cover. There will be a lag-in period as people get through their redundancy period and insurers may keep them on until renewal date, but numbers may fall later this year or next.”

Ann Greenwood, head of business markets for Bupa UK Health Insurance, adds that there are options for employees who are affected by redundancy, around which employers should offer guidance. “Where there are redundancies, [PMI] cover can remain for six months to a year, depending on the redundancy package. If a company doesn’t want [an] individual to stay on the scheme, we will offer them the opportunity to switch to individual cover and we will give them a generous discount to do that,” she says.

With PMI costs increasing because of more musculo-skeletal type claims and new high-priced cancer drugs, employers must also consider how much they want to pay against how much of an employee benefit they want to offer.

Consequently, now, more than ever, employers need to focus on exactly why they offer PMI to staff. “Employers will be well aware that PMI is still a very popular benefit for employees, so not providing it anymore would be a step too far from most employers’ perspective,” says Ross.

Providers are prepared to highlight to employers how they can cut costs and target cover more appropriately. When looking to cut costs, for example, reducing premiums rather than getting rid of the benefit altogether may be the best option if PMI is, or has come to be regarded as, a contractual benefit.

One way of cutting premiums is to increase the excess paid if an employee makes a claim. Standard Life, for example, offers two types of excess: one that calculates an excess for the policy year, so once someone has paid the excess once they don’t have to pay it for any other claims in the year, and an excess per claim. Ross says the discount on a £100 excess, for example, would be 8.5% for a policy year excess, but up to 20% on a per claim basis.

There are a number of other steps employers can use to reduce PMI premiums, while tailoring cover to employees’ needs. Charlie MacEwan, corporate communications director at WPA, says: “Employers need to consider why they are offering [PMI] to staff and focus on that need. So if an employee doesn’t go abroad a lot, do they need worldwide cover?” Other providers now offer products that enable employers to pick and choose levels of cover in order to construct a plan that suits their needs and budget. Standard Life Healthcare, for example, offers a plan aimed at organisations with 100 to 1,000 employees, that enables employers to offer each category of employee a different benefits package built around the following: core healthcare, which provides in-patient and day-patient cover, larger cost out-patient scans, cancer treatments, private ambulance and National Health Service [NHS] cash back; dental cover; health cash options and travel cover.

Axa PPP Healthcare’s Back to Health product, meanwhile, focuses on paying for the treatment of medical conditions that prevent staff from working. Dudley Lusted, head of corporate healthcare development at Axa PPP Healthcare, says: “In clients’ experience, it more than pays for itself in savings on lost working time due to sickness.”

Developments in other areas of the healthcare market have also prompted employers to consider different forms of healthcare provision for staff, such as healthcare cash plans. “Employers can see the advantage in positioning them as a tool to control absence,” says Blake.

Gaps in NHS healthcare are also prompting development in some areas of the PMI market. For example, the government is reviewing whether NHS patients can top up their NHS cancer treatment with privately-funded drugs. Some providers, such as WPA, already cater to this market. Axa’s Lusted adds: “[We] can bring to market a relatively low-cost product to cover this.”

The flip side of cost-cutting in an economic downturn and reducing headcount, is that there is an opportunity to put more money into health, says Greenwood. “If a company is reducing from 10,000 people to 8,000 it is expecting [those] 8,000 to do more. As a responsible employer, it needs to keep those people well and at work,” she explains EB For more buyer’s guides, visit: focus on facts What is private medical insurance (PMI)? PMI provides funds to help people pay for their healthcare. PMI provides cover for acute, curable conditions and short-term illnesses. Those with PMI can be referred for treatment faster than is likely to be the case if they relied on the National Health Service.

What are the origins of PMI? PMI made its first appearance in the 19th century in the form of worker co-operatives and friendly societies. These were later followed by provident organisations. The first provider organisations followed when, in1938, Axa PPP Healthcare was launched as a committee to establish a health insurance scheme for middle-income earners in London. The London Association for Hospital Services was incorporated in 1940, in 1943 launched the Hospital Services Plan and in 1962 changed its name to the Private Patients Plan. In 1947, Bupa was launched as an amalgamation of 17 provident associations.

Where can employers get more information and advice on PMI? The Association of Medical Insurance Intermediaries,, and the British Insurance Brokers Association, The Association of British Insurers also produces a generic factsheet on PMI, visit or call 020 7600 3333 for details.

Nuts and bolts What are the costs involved? The average company-paid premium per employee was £709 in 2007, according to Laing & Buisson. Premiums depend on company size, the nature of the work and whether the employees covered present a high risk.

What are the legal implications? There are no specific legal requirements for employers to offer PMI. If they do so, however, employers should consider issues around age discrimination legislation and be careful not to provide or cease benefits provision in a way that could be considered discriminatory.

What are the tax issues? A company should be able to get corporation tax relief on PMI provision. For employee-paid schemes, PMI premiums will be taxed as a benefit in kind.

in practice What is the annual spend on PMI? The total spend on PMI was £3.43bn in 2007, comprising £1.82bn paid by companies and £1.61bn paid by individuals and employees.

Which PMI providers have the biggest market share? According to Laing & Buisson, Bupa has the biggest share of the PMI market with 42%, followed by Axa PPP Healthcare, with a 24.5% share, and Norwich Union Healthcare (NUH), which has 10%, based on subscription income. Bupa recorded £1,441m of subscription income in 2007, compared with £835m for Axa PPP Healthcare and £348m for NUH.

Which PMI providers increased their share the most over the past year? Pru Health saw its subscription income increase from £36m to £64m from 2006 to 2007. Bupa’s market share fell slightly by 0.5%, while Axa PPP Healthcare and NUH both increased their share by 0.5%, according to Laing & Buisson.