Flex can help control PMI costs

Medical advances and costly new drugs are boosting the cost of PMI, but there are a number of measures employers can take to counter this, says Amanda Wilkinson

If you read nothing else, read this …

  • Costly new drugs and advances in medical technology are putting pressure on the cost of private medical insurance (PMI).
  • Employers can control PMI costs by introducing employee-paid premiums, reducing cover and imposing conditions on access.
  • They can also look at alternative methods of funding PMI by setting up healthcare trust

Costly new drugs such as the cancer treatment Herceptin, advances in medical technology, and continued rises in the number of claims and their value are all conspiring to put pressure on the cost of private medical insurance (PMI).

Steve Clements, principal at Mercer Human Resource Consulting, says: “We see medical inflation across our client portfolio to be of the order of 6%-7% and some of the insurers are using inflationary factors when they are pricing forward for future risks of 10%-11%.”

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But there are many steps employers can take to keep to costs under control. One of the main drivers behind the price of PMI is the claims history of an organisation, which is determined by the frequency of claims and their size, both of which tend to be greater where the demographic of members is older.

As a deterrent to claiming, many employers have incorporated employee-paid excesses or other deductibles into their plan. These should be reviewed periodically so that they continue to have an impact.

Plans can also be designed so that access is prevented unless treatment is unavailable on the NHS within a time scale of say six weeks. Access can also be controlled by a gate keeper with occupational health expertise, who is tasked with pin-pointing the most relevant healthcare perk or treatment.

Other quick wins for employers include reducing the level of cover available to employees or removing cover for dependants of staff. One way of achieving this is by offering a set level of cover as a core benefit and providing the option for staff to increase this through a flexible or voluntary benefits plan. Employers can also choose cheaper health products such as cash plans.

BCWA is developing a range of healthcare modules each with varying levels of cover for employers to select, from in-patient treatment to cash plans. It has also launched a product that directs claimants to a particular hospital close by, rather than allowing them a free choice of venues.

Jack Briggs, sales and marketing director at BCWA, says: “Costs will be lower because we have some control over where and who actually performs the operation.”

Bupa has also introduced directional products setting up treatment networks for procedures such as MRI scans.

Focusing on managing treatment costs is not the only approach providers have adopted. PruHealth has devised a product through which members collect points by taking advantage of health and wellbeing services, such as discounted gym membership, which are then converted into a cashback payment that they can set against their benefit-in-kind tax liability for PMI.

Dave Priestley, sales director at PruHealth, says: “The accumulation of that for the group is that people are doing healthier things and therefore will claim less.” This, in theory, should help reduce premiums.

Another solution is to assess the funding of the PMI plan. Steve Bartlett, consulting director at Jardine Lloyd Thompson Benefit Solutions, says: “A larger firm can look at healthcare trusts which save insurance premium tax. Global companies can also look at putting the benefits in with group life and income protection on a global basis, and either using pooling or captives.”

Although employers may be faced with increases in PMI premiums they can take a variety of steps to control costs including negotiating with providers keen to retain their business in a competitive market.