Private medical insurance is popular, but every employer needs to check that they are offering the most cost-effective package, as Sam Barrett explains
Private medical insurance (PMI) is one of the most valued employee benefits, often ranking just behind a company pension in staff surveys. But, while it’s long been seen as a perk for senior management, it’s becoming much more common to provide cover to all employees, with benefits for employers too.
Enabling fast access to medical treatment is a key benefit for both employers and employees says Charles Alberts, senior consultant at Aon Employee Benefits. “The challenges facing the NHS are very much in the public eye,” he explains. “Having to wait for treatment on the NHS can be distressing for employees but can also have a significant impact on the workplace.”
For employees, waiting for treatment can be stressful, affecting their work but also their personal life. It can also mean the condition deteriorates, potentially further restricting their activities and, especially where it results in additional health issues, increasing the amount of treatment required.
Employers also benefit where staff can access treatment quickly. As well as helping to reduce absence and the need to pay for cover or over-time, it can also prevent presenteeism, where employees come into work when they’re unwell.
Offering PMI brings further business benefits too, as Chris Saunders, head of business development at The Health Insurance Group, explains: “Employees really appreciate PMI so it can be a valuable tool for driving up engagement and attracting and retaining the best people.”
But these benefits do come at a price, especially where an employer looks to offer PMI to all employees. The average PMI premium is £1,063 (£1,191 when insurance premium tax (IPT) is added) according to LaingBuisson, but there can be huge variations in cost. “How much you pay will depend on factors such as benefits, location and claims experience,” explains Alberts. “We have one client in London who pays more than £2,000 a year per employee.”
Increases in insurance premium tax (IPT) over the last few years have done little to improve this. The rate, currently 12%, has doubled since 2015 and with it still lower than in much of the EU, many expect it could hit 20% in the next few years.
Premiums increase rapidly too. “The rising cost of treatment means medical inflation is between 7% and 10% a year,” says Mark Ramsook, head of sales and marketing at Willis Towers Watson. “Cover can become very expensive, very quickly.”
Employees can baulk at the cost of cover too, even where the employer is picking up the tab. As a benefit in kind, employees pay tax on the value of any PMI their employer provides. For those who don’t claim, this P11d tax charge can be seen as an unwanted expense, negating some the benefits of providing cover and increasing the risk they cancel it.
There are ways to control these costs. For large employers it’s possible to use a trust to make the provision of healthcare benefits more tax-efficient. As these use a fund to meet costs, there’s no IPT charge.
However, as a trust requires claims certainty, they’re not appropriate for groups with fewer than 500 members. Variations on a full trust are also available for smaller groups, but again 100 members is usually regarded as the minimum size.
A range of cost control mechanisms are available for smaller groups, including excesses, co-insurance and benefit caps but Ramsook says a different approach will deliver longer-lasting savings. “Excesses and other cost control mechanisms will drive down the premium but ultimately these mechanisms are self-defeating,” he says. “Employers need to take a step back and take a more fundamental look at the benefits they provide.”
Kevin Murdoch, senior proposition development manager at Aviva, agrees. He says that employers can achieve a better return on investment by integrating PMI with other health-related services. “Rather than talking about PMI, employers should think about what’s needed in the workplace to help employees stay healthy and in work,” he says. “This could be a mixture of benefits that evolves as the business and its employees’ needs evolve.”
A broader strategy
There are a wide range of products available to meet this objective. As well as benefits such as health cash plans, dental insurance, income protection and critical illness insurance, services such as occupational health, employee assistance programmes (EAPs) and health assessments can also help to keep employees fit and well.
Added value benefits included free on many products are also worth exploring. These can include health information, discounted gym membership and second opinion medical services. Saunders explains: “These extras provide value for everyone and can be really useful for employees who don’t claim but want to look after their health.”
Prevention should also be part of a holistic strategy, with benefits such as health information, fitness challenges and mental health first aid helping to keep employees fit and healthy. Ramsook says there is still a reluctance to invest in these types of benefit but they can deliver significant returns. “If an employer improves employee health, they’ll see a reduction in claims on the PMI scheme,” he explains. “This can help to control costs but also brings benefits in terms of lower absence rates and improved productivity.”
Innovation in PMI
PMI products are also breaking away from the more traditional perk model, to become much more of a health and wellbeing tool for employers. Paul Moulton, director, SME business at Axa PPP healthcare, explains: “Insurers are focusing much more on proactive intervention with early diagnostics and fast tracking employees into treatment. The sooner an employee receives treatment, the better the outcome for them and their employer.”
Among the latest advances are open referral, where the insurer rather than the GP recommends a specialist and self-referral for musculoskeletal, mental health and some cancers, allowing employees to access support without seeing their GP.
Many of the latest PMI products also target specific issues. This enables an employer to address a workplace health problem at a much lower cost than through a more comprehensive product.
As an example, Aviva offers two targeted products under its Essentials range, Company Cancer Essentials and Company Physio Essentials. These are available for company paid schemes insuring 250 lives or more. The cancer product costs £3-£4 a month per employee and provides a £5,000 cash benefit on diagnosis of cancer plus up to £100,000 of cancer drugs recommended but not funded by the NHS.
Its physiotherapy product, at roughly £6-£7 a month per employee, provides support including a telephone clinical assessment and referral to appropriate treatment for up to five musculoskeletal conditions a year. “Employees get fast access to treatment,” says Murdoch. “They might even be provided with some exercises that they can do in the office following the call.”
Optimising a healthcare strategy
Integrating a range of health-related products will magnify the benefits they deliver but, as there can be confusion about what’s available, it can be worth investing in some form of triage or healthcare navigation service.
These sit across all the products to create a single point of contact for employees who might have a health issue. “There can be benefit duplication across products, especially in areas such as physiotherapy and mental health support,” says Ramsook. “By including a triage service employees will be directed to the most appropriate service.”
This can deliver tax and cost efficiencies too. For example, if an employer offers PMI, a health cash plan and income protection, it’s possible for an employee to access counselling for a mental health problem through any of them. But, as the cost of the claim could push up the price of PMI, it might be more cost-effective to deliver treatment through the EAP on the cash plan or the income protection.
The way PMI and other healthcare benefits are presented to employees can also have a major bearing on the way they are perceived and the value both employees and employers gain from them.
As an example, Alberts points to one of his clients who uses a number of strategies to increase the perceived value of the company’s PMI. These include using benefit design and negotiation to reduce the cost of cover, and therefore the P11d charge; clearly communicating the benefit so everyone understands what it is; and highlighting all the added value health and wellbeing benefits.
The employer also added an incentive to appeal to employees less likely to claim, giving them a health cash plan if they took out PMI cover. “This ensured that even employees who didn’t need medical treatment benefitted from their health cover,” he explains. “The value was further highlighted by creating a table listing the savings that could be generated through the PMI and health cash plan versus the P11d costs. This showed that employees could actually gain financially by engaging with their benefits.”
Given the number of options available, advice is another important ingredient that enables employers to get the most out of their healthcare spend. As well as ensuring the most appropriate benefits and funding mechanisms are selected, a consultant can also negotiate better terms with insurers.
While PMI may have shaken off its executive perk image and become a benefit for all employees, by taking a strategic approach to how it’s positioned it can be a valuable tool for employers too.