What is private medical insurance (PMI)?
PMI is a type of insurance designed to cover medical expenses incurred during illness or injury, such as operations, consultations, diagnostic investigations and tests. It traditionally involved full medical underwriting or a moratorium, meaning it can cover pre-existing conditions, unlike other types of healthcare plans.
Typically, PMI is used to help when policyholders face major health issues, such as cancer, heart disease or stroke, as well as other concerns that might impact their life, and therefore also their ability to work, such as musculoskeletal issues and mental health concerns.
On a basic level, employers might provide private healthcare to staff as a way of insuring against the loss of valuable workforce and earning power that comes when serious medical conditions are not supported properly or swiftly. PMI can help employees regain their health, and their earning power, quickly, to the benefit of both them and their employer.
Beyond recouping costs, PMI has evolved in recent years to include various value-add services that will ultimately help maintain the health and wellbeing, both physical and mental, of staff for those employers that adopt this as a benefit.
More than just protecting profits, PMI can help make an organisation into an employer of choice. It is increasingly in demand among staff, who want more than just pay from their employer, and have realised the importance of holistic healthcare.
What are the cost implications?
The cost for an employer of implementing private medical insurance for an entire workforce will vary considerably, depending on factors such as the size of the organisation, the type of package and value-add services, and any specific deal negotiated with the provider.
However, the most recent aggregate data from 2021 showed that the average cost per policy per annum was £1,044, while providers predict that the range of annual costs has changed relatively little, and currently stands at around £1,000 to £1,500 per employee.
Predicting costs becomes more complicated, as it is also possible for employers to provide tiered products for different tranches of the workforce, at different price points, or to opt for packages that cater for specific conditions that are particularly prevalent in their industry, which again will vary the cost. This might include a focus on musculoskeletal issues for those in particularly manual roles, for example.
Compared with some other benefits, the price of private medical insurance can be prohibitive, particularly for small- to medium-sized businesses (SMEs), which are less able to take advantage of aggregate underwriting, based on the demographic profile of the workforce, and instead have their policies underwritten on an individual basis.
However, there are less expensive alternatives on the market. For example, Benenden Health provides a solution with no underwriting, costing £12.80 per employee per month.
These schemes are likely to have more exclusions and limitations, but can provide a more cost-effective method of creating healthcare support for those employers concerned about tightening costs, as well as removing the uncertainty that arises when cost can vary depending on age or pre-existing conditions.
Are there any tax or legal implications?
As with any large employee benefits spend, it is important that employers seek tax advice ahead of picking a PMI policy. For example, healthcare benefits come under the remit of HMRC’s P11D form, and PMI should, therefore, be included on this.
Providers, such as Axa Health, are in the process of lobbying government to do more to ease the tax burden and increase specific support for employers looking to provide staff with private medical insurance, to reflect rising demand, as well as the need to ease strain on the NHS.
What are the current trends in the PMI market?
PMI is becoming increasingly popular in the face of overstretched NHS services, as well as increased awareness of the importance of health following the Covid-19 pandemic.
In addition, PMI can be used to reward loyalty, attract candidates, reduce absenteeism and support staff wellbeing, all of which is becoming increasingly vital in the current economic context and in the face of the war for talent.
The product itself has evolved over time to become a full health and wellbeing service. Private medical insurance is no longer just about paying healthcare bills, but encompasses prevention, assessment, digital services, mental health support, neurodiversity and gender-based health.
Covid-19 and the subsequent rise in remote working arrangements have increased demand for support with musculoskeletal issues and mental wellbeing, with intermediaries reporting that the latter is becoming the most attractive benefit among employers seeking to provide healthcare cover.
The services available to staff through PMI also include digital apps and data analysis. This allows employees to access services such as appointments and testing from home and at a time convenient to them, in addition to helping employers understand the issues facing their staff on a deeper level, reflecting an ongoing trend for the adoption of technology to support health and wellbeing.
Fixed prices, digital products and low-cost cover are some of the changes that have been made more recently in order to address high inflation and keep PMI an attractive prospect for employers. The majority (85%) of respondents to a Benenden Health internal survey of PMI intermediaries, conducted in April 2023, said that interest in low-cost products had increased over the past 12-to-18 months.
Who are some of the key providers?
Many of the traditional health insurance providers will also have a proposition for employers, while some employee benefits providers will have their own options for organisations looking to incorporate private healthcare. Some key names include: Aviva, Axa Health, Benenden Health, Bupa and Vitality.