Discovering gaps in group risk schemes can be damaging so steps should be taken by employers to remain on top of issues such as administration, says Edmund Tirbutt
Many employers rely on group risk benefits such as income protection or private medical insurance (PMI) to help deal with the issues associated with long-term absenteeism, in particular in controlling the cost as far as possible.†
Discovering that they have gaps in the coverage of such schemes can be damaging, especially when these arise unexpectedly at the claims stage. So it is important for employers to establish exactly what they are and are not covered for, and for them to address shortfalls that are not in line with their strategic objectives.
Many gaps in cover result from administrative errors, particularly when employers have been through mergers or acquisitions, or have switched between scheme providers. It is therefore essential that employers ensure their insurers are provided with all the information they need.
Administrative errors Graham Clark, director of group risk at Bupa, says: "Some things are covered by some insurers and not by others, but it is mainly about members. For example, long-term absentees could be either covered or not by a new insurer, and because of administrative errors it may not know about them. The insurer is within its rights not to cover these people if it is not informed and this happens occasionally, particularly with group life schemes because employers aren't necessarily focused on absenteeism.
An employer may not know they need to give their provider such information, their own absence management system may not be efficient, or it could be that the intermediary involved is inexperienced."
Employers should also check who is covered by group risk perks, and on what terms, if they introduce a new benefit. For example, if an organisation provides a life assurance scheme with a standard temporary absence clause which states that life cover will continue for three years for employees absent from work, this clause may need to be amended if the employer subsequently introduces a group income protection scheme because incapacitated staff may end up remaining on the payroll for more than three years. Mark McLeod, risk benefits manager at Towry Law Financial Services, says: "Employers also forget to check whether [their] trust deed is still relevant for registered life assurance if a scheme switches insurer as deeds [do not always have a portability clause]."
Another area employers need to be aware of is the total cover limit that insurers may impose on firms based in high-risk postcodes.
Issues can also arise around the basis on which salary is calculated when group life claims are paid, says Glenn Laming, group protection sales director at Legal & General. Schemes can be set up so that the multiple of salary paid on death reflects a salary amount that changes only at a scheme's annual renewal, regardless of whether the employee concerned had subsequently received a pay rise. "Group life cover is driven by rate so it can be tempting to use this as a basis for saving tiny amounts on premiums, but this is not always wise. [Employers] can feel cheated if the pre-pay rise amount is paid out. We have come across situations in which organisations were not aware their cover was arranged on this basis," explains Laming.
Confusion over cover Some employers may also be confused about what a scheme does and does not cover. With PMI, for example, they may overlook the fact that their scheme does not cover optical and dental treatment, primary and preventative care and, with the possible exception of cancer cases, chronic conditions. Those who are aware of these gaps can close them by converting to a healthcare trust, which will give them total control over benefits provision or, in the case of very large schemes, by asking insurers for bespoke cover. But employers must ensure their business case justifies the additional cost.
Alex Bennett, head of health consulting at Aon Consulting, says: "The reason that chronic conditions are excluded is that they do not fit in with the insurance model and, although there is nothing you can't do in a trust, it is a question of whether you want to pay. Most chronic conditions are open-ended in nature and so are likely to be costly but there is no reason why something like type-two diabetes should not be covered in a trust, as employers can put limitations in place."
Employers also frequently fail to realise that many PMI schemes only pay for consultants and anaesthetists' fees up to what are considered reasonable limits, even though the headline cover may be entitled 'full refund'. These shortfalls tend to be highest in London, the South-East and the more expensive regional cities. Steve Clements, principal at Mercer Health and Benefits, says: "Provided claimants stick to the process of engaging with the insurer before treatment the insurer will often flag up if a consultant has a record of charging beyond their limit, but it probably will not know about the anaesthetist's fees as it is not likely to know which one will be used.
"HR could analyse the likely impact of this on cost and, if small shortfalls have little financial impact but are primarily a nuisance, may want to agree to cover them upfront. Or they could go halfway and agree to cover minor shortfalls to save time and hassle but to review significant shortfalls on a case-by-case basis."
Specialist help However, the area of PMI in which the greatest confusion can arise with regard to gaps is cancer cover, because insurers take differing approaches. In particular, employers should ask whether they are covered for all treatments and drugs and whether they are subject to a total claims cap or a restricted time period.
Elliott Hurst, senior consultant in healthcare and risk consulting at Watson Wyatt, says: "It is important to establish whether cover extends to chronic cancer. Employers are increasingly being questioned on a case-by-case basis, particularly when cancer claims are in progress and individuals need to know at what stage cover ceases and they need to switch to the National Health Service (NHS)."
But for group risk schemes overall, the message is that specialist intermediaries can help employers understand what they are buying and identify gaps in cover. The tripwires are often in the finer details of policies, and these can easily be missed by generalist intermediaries and employers that deal directly with insurers n Avoid problems when switching providers More gaps in cover arise from switching providers than from any other event, but organisations that are prepared and take suitable advice should not have a problem.
To guard against potential issues, employers should begin the information-gathering process at least three months before a scheme's renewal.
Rebekah Haymes, risk benefits director at BDO Stoy Hayward Investment Management, says: "The key to a successful switch is to gather all relevant information at an early stage so that there are no surprises for the insurer or the employer involved." To a point, insurers will communicate what information they need but if employers are not dealing with specialist intermediaries, there is the danger that this information could be misinterpreted or even overlooked.
"It is particularly important to ensure the benefit terms offered by the new insurer are clear. For example, escalation terms on income protection can differ between insurers, as can definitions of major illnesses under critical illness cover.
"Employers should also ensure that spouse's and children's pensions under group life schemes are not overlooked," explains Haymes.
Other things that employers should take note of when switching providers include: long-term absentees, employees who are seconded abroad, event limits for group life benefits, employees with non-standard terms, maximum benefit levels and the definitions of disability under group income protection schemes.
Gaps in cancer cover The levels of cancer cover offered by the major private medical insurance providers vary considerably, according to Covering cancer: Survey of corporate healthcare/private medical insurance providers, released by Mercer and charity Cancerbackup in June.
The survey also shows that in some cases there is considerable ambiguity with regard to what is and what is not covered. For example, eligibility rules for chronic conditions can sometimes mean cancer treatments are effectively excluded or cut short, and there are differing stances with regard to funding high-cost drugs such as Herceptin and Avastin.
Most providers say they do not cover palliative care or treatment for terminal cancer, although some are less specific. Rather than ceasing cover when a cancer reaches a certain stage, they apply eligibility rules for some treatments so these fall under chronic rules and are therefore not covered.
But employers with very large schemes may find that some insurers offer them the flexibility to tailor schemes to offer wider cover.
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