Medical inflation will always be a problem but employers can take steps to combat it.
What goes up but never comes down? The answer to this well-known teaser has traditionally been “age” but it could just as easily be private medical insurance (PMI) premiums.
Whatever the general inflation rate, you can almost guarantee that the medical inflation rate will outstrip it by a significant margin as a result of the soaring costs of medical technology and the overuse and over-prescribing of services.
Indeed, according to Willis Towers Watson’s 2019 Global Medical Trends Survey Report, employer health costs in the UK are set to rise by 6.3% next year.
But the good news is that employers who conduct regular analysis of their PMI schemes can often introduce effective measures to combat the problem.
As a starting point we recommend carrying out an annual review. By re-broking the market for clients we find we can often trim premiums by switching to more competitive insurers – not to mention improving cover. The PMI market is highly competitive and providers are continually coming out with innovative new solutions or altering their stances towards particular types of risks.
But annual reviews on their own are unlikely to be enough to fully keep pace with the costs of medical inflation. It may also be necessary to undertake a much more radical analysis that gets to grips with what the scheme is seeking to achieve.
Is it, for example, intended primarily as a generous benefit to help employees feel valued and aid recruitment and retention? Or is it mainly an employer benefit to get sick employees back to work as quickly as possible?
If the main motive is to reduce absenteeism and presenteeism costs then paying out for dependants’ cover may seem something of a luxury because the health of an employee’s partner or children will have far less direct impact on an employee’s attendance and productivity than their own health will.
Dependants’ cover is particularly open to abuse because family members who know they are insured can feel tempted to claim more than is strictly necessary. For example, those who are not working may go for a dozen physiotherapy sessions when a couple could have sufficed. A busy employee, on the other hand, is unlikely to want to waste time in this way.
So, in some cases cutting back on dependants’ cover – or even stripping it out altogether – can be an appropriate way of keeping premiums under control.
A detailed analysis of claims for both employees and dependants could also pay dividends. Whilst large schemes typically provide detailed feedback on claims as part of the overall proposition, smaller schemes don’t tend to offer such a service. Many smaller business owners therefore don’t have a clue where most of their claims are coming from.
Such a review could highlight that dependants are responsible for a disproportionate percentage of overall claims costs or that employees are most commonly claiming for conditions for which the employer could introduce measures to help prevent.
If, for example, the main source of employee claims is mental health conditions it may be advisable to implement and promote an employee assistance programme (EAP) – which can help address stress-related problems before they result in full-blown absenteeism issues.
As claims costs have a direct bearing on future premium rates, introducing an element of cost-sharing at the claims stage may be worth considering.
Raising the excess level is one way of doing this. Another is to introduce an element of co-payment – whereby employees pay a percentage of their claims on an ongoing basis up to a stated upper limit.
We are also seeing a trend towards employers sharing the actual cost of PMI premiums if they exceed a certain level. For example, they may cap the annual amount they are prepared to spend to £900 per employee, so if premiums rise to £1,000 they may ask employees to pay the extra £100 a year themselves.
Alternatively, they could fully fund cover for employees but ask them to pay premiums above a certain cap for dependants.
The contents of this article are for information purposes only and do not constitute individual advice.