Private Medical Insurance – Keeping premiums under control (06/2009)

With medical inflation running at 8.5% and well ahead of RPI in the UK[1], the pressure is on most companies to rein in escalating premiums. But wholesale withdrawal of PMI schemes might just be a step too far – for employer and employee alike. So what steps can be taken to control or reduce the cost? Here’s Aspira’s quick guide to ensuring you minimise cost while maximising the value. 

 

1.     Policy excesses

Introducing a policy excess will reduce premiums and, consequently, reduce the employees’ income tax charge on the benefit in kind. The table below indicates the scale of savings that can be achieved even with only modest excesses. 

Private Medical Insurance (PMI) Policy excesses - premium savings

Excess	2-50 scheme members	>50 scheme members
£100	12% - 17%	8%
£150	20%	11%
£200	23%	14%

Source: Employee Benefits Report for Financial Directors – March 2009 

For a higher-rate taxpayer with an annual premium of £1,000 before taking an excess of £150, the income tax saving would pay for the excess on one claim every two years

Policy excesses can also help to reduce “comfort claiming” by requiring the employee to contribute to the treatment. However, introducing an excess shouldn’t mean you lose the benefit of Employee Assistance Programmes (EAP) since these services are normally free to scheme members. 

2.     Reduce dependents’ cover

Many PMI schemes are of long standing, from times when premiums were significantly lower and business profits rather more substantial. As a result, the benefits were often extended to partners and dependent children and that cover has remained in place ever since. 

While a decision to withdraw such cover should not be taken lightly, it may come as no surprise to employees in the current business climate. And the premium savings can be appreciable. Subject to age groups, PMI premiums are typically:

• Twice the single person’s premium to cover an adult partner
• Two and a half times the single person’s premium for family cover 

And there’s always the option of allowing members to retain their dependents’ cover on a voluntary basis, paying the premiums by payroll deduction. This can still be a significant benefit as the premium cost under a group arrangement is likely to be much lower than an individual can obtain. 

3.     Review the level and scale of cover

The increasingly modular structure of PMI policies provides opportunities for premium savings. For example, with Standard Life’s SME Business Healthcare plan, savings of 20% plus can be achieved by reducing the level of out-patient cover from a full refund to a £500 maximum. 

Another route to cost savings offered by some insurers is called a “Guided Option”. Standard Life Healthcare and BCWA offer a guided option where the insurer will direct the claimant to a local hospital that makes all the treatment arrangements including the selection of a consultant. By dealing with one healthcare provider, the insurer can negotiate better treatment rates. Standard Life quote a 15% premium reduction for those selecting this option. 

In turn, for schemes whose members live outside London, excluding London hospitals from the treatment options will also drive savings from some insurers without any bearing on the member benefits.

4.     Encourage use of the NHS alternative

Most PMI schemes include cash payments for those who choose to use the NHS for treatment or in emergencies – especially for hospital stays. Standard Life’s Business Healthcare policies pay a flat rate of £250 per night for overnight stays and £125 per day for day-patient treatment. Even at this level, the insurers will save compared to the private alternative, resulting in lower claims and better claims records.

Another way to reduce premiums is to choose a “6 Week” option. This is offered by several providers, including AXA PPP and Aviva Health Solutions. Cover is excluded from the policy if treatment is available under the NHS within six weeks.

5.     Improve the claims record

The premiums for small group schemes (under 50 members, say) are usually decided at the outset through “community pricing”, using average claims experience across a range of policies. However, as the scheme claims experience builds, premiums will be adjusted annually. 

But members’ lifestyle improvements can lead to lower premiums and several insurers are becoming active in helping foster lifestyle changes. PruHealth, for example, has launched their Vitality programme whereby enhanced no claims discounts can be achieved in return for lifestyle improvements. Points are awarded for both direct activities such as exercise and gym activities and indirect lifestyle improvements such as the purchase of fresh fruit and vegetables from Sainsburys! The more points earned, the greater the no claims discount. 

Another route to reducing the cost of claims is early diagnosis and treatment and, again, certain providers are helping with this drive. Aviva Health Solutions offers Back-Up – a scheme for dealing with back and neck problems where employees can call a helpline without seeing their GP first and which can then provide direct physiotherapy referrals.

6.     Test the market

According to Datamonitor[2], BUPA, AXA PPP and Aviva (formerly Norwich Union) share over 81% of the UK PMI market. With such a dominant position, there’s always a danger that premiums and policies become uncompetitive. Yet there are a number of other insurers who are very active in the market, including PruHealth, Standard Life Healthcare, WPA and General & Medical. 

As a result, it’s well worth testing the market in the lead up to policy renewal. Indeed, for smaller schemes it may help to eradicate the premium escalation arising from a poor recent claims record. And switching insurers needn’t be too daunting either, although scheme administrators should be careful about how ongoing claims will be dealt with.   

And finally…..

With Datamonitor forecasting that premium rates will continue to increase, it’s vital that companies review their PMI schemes regularly. But don’t throw the baby out with the bathwater. There is a strong case for maintaining or even widening the provision of healthcare benefits. In a recent survey[3], 55% of companies stated that healthcare benefits were successful in improving staff health and welfare and in reducing absence levels.

Derek Miles
Managing Director, Aspira Corporate Solutions LLP
June 2009

[1] According to An Employee Benefits magazine article “In sickness and in wealth” – March 2009.
[2] “UK Private Medical Insurance 2009”, published by Datamonitor, May 2009
[3] Healthcare Research 2009 – Published by Employee Benefits magazine, sponsored by SimplyHealth, June 2009

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