Employers need to use PMI strategically, says Carl Chapman, head of workplace health at Barnett Waddingham
I’m about to say something some people might not like to hear. But say it I must: PMI is fundamentally broken. It’s broken for a host of important reasons. Firstly, lack of clinical management in the claims process means staff will often be diagnosed, but it’s highly unlikely they will actually speak to anyone who is clinically trained. Claims are decided on by people following a process. We feel this leads to treatment suggestions where there are no real checks about whether it’s the correct one to get people back to the workplace quickest.
On its own this a cause of overconsumption of scarce medical services, but the second main reason is that the very nature of PMI – typically it’s an employer provided perk – means it habitually causes added over-consumption. Unlike in car insurance, where if your vehicle has a small knock, you’d think twice about claiming for it, medical insurance encourages over-claiming from people who want to feel they’re ‘getting their money’s worth’. And it’s both of these issues combined that undoubtedly contributes to the third reason PMI is broken – high annual cost inflation.
Yet despite being broken, good, effective cover doesn’t have to be this way. There are other ways of providing cover that I believe are better and more cost effective. Foremost amongst these is trust-based cover. Until now, it’s been seen as something that’s only the preserve of big businesses, but I think this view is slowly (and helpfully) starting to change, and we believe it’s an option more organisations should at least start to consider.
For starters, buying trust-based cover doesn’t attract insurance premium tax (like PMI does). Currently, this is set at 6%, but from this month (November), it jumps to a whopping 9.5% [as per the chancellor’s recent Budget announcement]. A second reason these schemes should be thought about is because they provide better value – in surplus (profitable) years, where income is greater than claims, money built up can be carried forward to the following year, protecting SMEs from rising costs. And, even if claims do exceed funds, firms can put in stop-losses in place to protect themselves.
For some, even these good reasons may still not convince people. Many still perceive trust-based schemes as being too difficult to set up, and they are afraid of taking on trustee-type roles in-house (or appointing someone to do it). But there’s good news here too. Schemes really are becoming far easier for SMEs to be a part of, and third party scheme administrators can easily be hired to take the process completely out of your hands. A good rule of thumb is that if your claims fund is over £150,000 per year, then a trust-based scheme should be an option for you to evaluate.
FILLING THE GAP
There are other solutions often bandied about for ‘fixing PMI’. Chief amongst these is taking out a lower level of PMI and making up the difference with critical illness cover. But I think this is a huge red-herring. Just think about it. Critical illness cover only supports really serious medical problems – the sort of stuff you go to hospital for. In these cases, the NHS really cannot be bettered. There is no reason to provide extra cover for things employees can already get free. PMI should never be used to replace services the NHS already excels in providing.
Where PMI should strategically feature in benefits plans is in filling the gaps where the NHS hasn’t typically got a good track record in – such as muscular-skeletal and psychological services. However, these can also be removed from medical insurance spend by utilising rehabilitation services offered by an income protection provider. It is not, however, realistic to leave employees to find their own providers. What is needed is a triage support function –where clinical staff act as gatekeepers, to recommend what rehabilitation is actually needed, and who it best placed to fund it. This has to be the best solution, and the one that provides a truer return on investment.
We’ve predicted that this sort of arrangement could save employers [who were previously using PMI], around 40% in year one, and we’ve built a solution that takes people through this. At a time when there are lots of commentators pointing to the unsustainability of private medical insurance, we believe our model reduces SME spend on insurance without affecting the experience and the services that the employee receives.
Finally, we think there’s another win too. SMEs who can earn savings from this can then invest this money into other benefits or wellness schemes to boost the engagement and working lives of their employees in other ways. As I say – PMI is broken, but it doesn’t mean there aren’t other, more sensible, options out there.