Paul Avis of Employ-Mend suggests that there are alternatives to insured schemes as such benefits may now be going the way of final salary schemes: too expensive to maintain.
Private medical insurance (PMI) is an increasingly expensive benefit to maintain. Whilst few within the industry would disagree with this, it is the level of likely increases in future years which is causing much debate. It is estimated that 4.5 million people are covered by employer schemes and therefore, like final salary pension schemes, it has a high profile. Projections of annual cost increases range from to 5% to 20%, other estimates predict the national bill increasing by 70% in the next five years from £1.6 billion to £2.7 billion, a range which is causing concern, if not alarm, for many employers.
Healthcare cost inflation and ageing of populations are global problems. In the UK, given that employees often do not contribute at all to company schemes, spouses/family members may also be covered, and we do have the NHS, it is surprising that this benefit has survived for so long without fundamental change.
This is not to say that the industry has not been innovative and areas such as cash plans are booming in sales terms. Where no cover exists “pay as you go” medical expenses is becoming more popular with a general public who still consider current NHS waiting times unacceptable. The self-pay market, high excess and “shared liability” markets are supported by new services and products which source competitive costs for clinical treatment as prices can vary regionally and seasonally.
Historically, employers have maintained traditionally funded PMI and have absorbed cost increases annually, seeking to contain costs by undertaking annual broking exercises. But perhaps the time is now ripe for a review of why employers buy PMI?
Traditionally the benefit has been sold and bought on two simple bases: either as an executive perk or as a way to ensure that the employee is not on waiting lists, thus speeding a return to work. Family cover too was often provided to ensure that the employee is not absent from work or stressed by concerns about sick relatives. Whilst there is no denying the lure of PMI as an executive perk, the practice is somewhat different from the perception when it comes to the return-to-work focus.
Working with occupational health professionals, we are aware of concerns about the use and status of PMI as a benefit. Quite simply PMI is an employee and not an employer benefit. Employees using PMI will normally arrange to be treated at their convenience, often for conditions that would not mean an absence from work if left untreated. The rules of the PMI scheme may also exclude cover for certain return-to-work focused activities such as back schools and pain management clinics. The emphasis on clinical interventions, rather than work return focused activities at times can appear to be at odds with an occupational health perspective.
So what options are open to employers?
Faced with increasing costs and the use of PMI as an employee benefit, what options are open to organisations? As with many areas of the insurance market, product innovation aims to cater for every need and one quick win is the new breed of return-to-work focused PMI contracts. These operate on the basis that an occupational health physician will judge whether the treatment will prevent an absence or speed the return to work: if not, the treatment does not happen.
A further way to limit costs and the propensity to claim for conditions which do not threaten the ability to stay in work is to use excesses. These range from £100-£5000 and do focus the mind on why treatment is being sought and provide a direct cost relief for the employer. However these could also discourage an employee from utilising private services, and the downside to this may be that waiting lists keep an employee off sick whilst awaiting an NHS appointment. Recent contract launches in this arena include using “stop loss”/limited liability provision as well as medical savings plans which incorporate this insurance. Both are innovative solutions aimed at reducing costs whilst providing catastrophe cover.
Closing a scheme can be fraught with contractual problems and may need an immediate injection of cash to buy out employees’ rights to benefits, especially where TUPE obligations exist. One way in which to do this may be to set up either a voluntary scheme, where each employee contributes personally, or to have some form of employee/employer arrangement. Both instances are much better, cost wise, for the employee over individual cover and where the employee contributes this will assist in reducing the employer’s contribution P11D/benefit-in-kind bill.
But perhaps insurance is not the best solution at all and employers should really question why they are buying the benefit in the first place? If staff attraction and retention, executive perks and “golden hellos” are needed then a plethora of other benefits can be installed at a lower cost. Specifically, death in service/spouses benefits, Group Income Protection (GIP) and Critical Illness can usually be purchased more cheaply. Such benefits can then be backed up by return-to-work focused treatment funded by insurance or directly by the employer – possibly four benefits for the price of one in some cases, with all four having the potential to assist the employee immediately with health issues.
If most executives and highly paid employees realised that, if unable to work, they could be living on Incapacity Benefit as low as £3,700 per annum, with no help with their mortgage for nine months, and having to undergo an extremely stringent medical assessment to qualify for any state benefits, or an ill-health retirement pension which may also be inadequate, then GIP sales would increase massively. Unfortunately without such an education campaign GIP sales remain flat and the product still covers only 6-7% of all employees.
Aside from the staff attraction/retention aspect of PMI, the return-to-work focus of the benefit can clearly be better managed. Specifically an occupational health-led private medical treatment fund, with clear rules guiding both employer and employee and set up under a trust, would be the most desirable solution. A third party administration (TPA) service supported by comprehensive IT would enable an employer to have each employee absence and each clinical event managed.
Whilst TPA services do already exist (and compete favourably against insured costs), they base their management process on the employee benefit premise and hence the difference in this approach is that the occupational health dimension reinforces the employer benefits.
What can employers do now?
So where does all of this leave employers? Quite simply with choices: they can either stick their heads in the sand, continue to pay their PMI cost increases or they can assess what they want from private medical expenditure and configure their own schemes.
First, analyse what claims experience has been and then, subject to there being a clear cost benefit, look to buy out existing PMI contractual obligations. Then adopt an occupational health led “pay as you go” private medical treatment payment facility. This would have to be backed by clear rules as to when payments will be made and would need to be supported by either an in-house or external IT system to monitor all expenditure and provide management reports as to where the problems are happening.
Second, resource this further with sickness absence monitoring software which would not only enforce the organisation’s absence policy, but ensure that for nominated conditions a Day 1 occupational health referral is made. In effect as soon as the employee calls in, the absence is properly managed by professionals who have access to the resources needed to get the employee back to work.
The negative aspects of PMI cost increases provides all employers with an opportunity to review current practice and expenditure. By reviewing their reasons for purchasing PMI many employers will realise that the costs of providing what may be only an executive perk could have much greater impact elsewhere and that the return-to-work focus can be achieved much more effectively by using alternative means.
The negative press surrounding PMI, the increased expenditure, litigation, taxation and bureaucracy in the wider world can be used as the basis for your organisation’s HR department to really become a best practice healthcare manager. And the only thing stopping your organisation from becoming an employer who takes employee health seriously is the lack of a genuine will to become proactive in this complex environment.
For further details please contact Paul Avis, Employ-Mend Limited, employmend@drivehouse.co.uk
