Carl Chapman, Barnett Waddingham, asks if the return on investment of PMI justifies the cost – and what the alternatives might be
I’ll start by saying that private medical insurance (PMI) is an extremely valuable benefit and can support your business by assisting attraction and retention of staff and importantly cutting incidence and duration of absence. However; for the vast majority of employers we are reaching a point where the cost of providing such cover puts into question whether the benefits outweigh the cost. I believe we have reached a critical point where in a lot of cases the juice is no longer worth the squeeze.
The insurance market will tell you these increases are ‘medical inflation’ and are as a result of more efficient and therefore more expensive treatments being available. Whilst the latter is true and welcome, it does not represent the full picture. I believe there are two main reasons the cost of PMI is increasing at such high levels:
- Lack of employer sponsored prevention strategies.
- Lack of employer sponsored holistic intervention strategies.
We are all familiar with the old adage which states that “prevention is better than cure” yet most employers fail to put in place a prevention strategy for their employees.
By looking into absence data and claims data from PMI and other insurances, it is possible to identify health risks that are specific to your business. Once those risks have been identified then a pertinent prevention strategy can be established.
You will not capture everyone and of course an intervention strategy is still required but for the relatively small cost of prevention solutions, it is very easy to identify and achieve a tangible return on investment.
Using PMI as the sole intervention solution is the reason we find ourselves in the situation we do. PMI is not the only intervention solution you have at your disposal; many employers offer a group income protection (GIP) policy to their employees, almost all will provide an employee assistance program (EAP) and everyone has access to the NHS.
These days GIP is as much a rehabilitation solution as it is long term salary replacement insurance, EAP’s can offer good levels of psychological support and the NHS is still a world leader in a lot of areas of medicine and treatment times in some more serious areas of medicine are as quick as the private sector. Let’s remember that PMI was intended to complement the NHS not replace it – I feel we have lost sight of that.
If structured correctly, a holistic intervention strategy can lift burden from PMI by utilising other options already available to most employers right now.
The issue is the employee! We cannot expect an employee to decide which of PMI, GIP, EAP or the NHS is the most appropriate to them at any given time. Most employees have an understanding of how PMI works, they will see it as their sole intervention pathway and therefore they will simply follow that route. Who can blame them; they pay for it one way or another!!
Proper Medical Intervention
Employees will not navigate themselves down the appropriate treatment pathway; therefore we must put in place a process that steers them automatically into the right intervention solution. What does that process look like? Some will use occupational health as a triage function but in my experience very few get this right and even if it is done well occupational health would only capture those that they have been notified of. How many employees do you think actually use PMI where HR and occupational health would never even know about it? I guarantee it is a lot!
What’s needed is a different way of employees engaging with the intervention strategy as one rather than its silo components. I do have the answer to this conundrum and we have been trialling a solution within Barnett Waddingham for the past 9 months with some great data that I hope to share very soon at the same time as making this solution available to our clients and the wider market.
Every company with a claims fund in excess of £200,000 should at the very least explore healthcare trusts as an alternative to fully insured PMI. Healthcare trusts used to be seen as exclusive to the large corporate market but that attitude is slowly changing.
With the savings available on IPT, P11d for employees and the freedom to build a plan which is truly aligned to the needs of the company and its employees while fitting into a wider intervention framework, we believe that trusts should be a consideration for all over a certain size.
It would be naughty of me to leave it there without saying that we would expect a solid prevention and intervention strategy coupled with utilisation of medical trusts where appropriate should see savings of 25% from PMI spend in year 1 but can be as high as 40%.
Watch this space!