Need to know:
- Employers want to provide private medical insurance (PMI), even if it means reducing cover.
- More want to offer at least a measure of benefit to the whole workforce.
- Low-cost schemes with major exclusions are popular.
Private medical insurance (PMI), which covers curable short-term medical conditions, has never been more popular in the workplace.
Indeed, research results revealed in September 2023 by Zest found that it has become the most important perk that employees look for in their benefits package, despite the fact that employer-paid cover creates a P11D liability.
Essential benefit
The insurance enables scheme members to bypass the 7.6 million NHS queue and arrange treatment at a time convenient to them and the workloads of their colleagues.
Susie Colley, managing director of specialist intermediary Westcountry Health Care, says: “Years ago, PMI was regarded as the benefit for the rich and famous and was out of reach of mere mortals, but nowadays it’s an absolutely essential benefit. Many [employers] since the pandemic have approached us requiring either a completely new plan or a variation of their existing cover.”
A post-pandemic trend for employers wanting to boost productivity by getting sick employees back to work quickly is a major driver. So is the ability of PMI to help with recruitment and retention, as employees are increasingly asking about benefits packages at interviews.
Andy McClure, marketing and proposition director at Axa Health, says: “Our Mind health study [published in March 2023] highlights that, globally, workers who feel they belong, thanks to a supportive working environment, are two and a half times less likely to say they plan to leave their employer in the next year. PMI is a key consideration in the battle for talent, and some of the businesses we work with clearly showcase their schemes to prospective candidates.”
Cost issues
But the NHS crisis represents a double-edged sword. While it is boosting demand for PMI, it is also causing PMI premium hikes because insurers are paying out more on claims; and the cost of most schemes is influenced by claims experience.
Annual medical inflation has traditionally been around 10% but scheme experience can easily add another 5% to 30% to this, or sometimes far more.
Ally Antell, distribution director at Aviva, says: “We’ve had double digit growth in numbers of lives insured during the past two years but price is an issue, so there’s a big focus on controlling costs. Although most corporates still have comprehensive cover, with an excess of only around £100, some [small- to medium-sized enterprises] SMEs are cutting back on cover levels by, for example, taking reduced outpatient cover or an excess of £200 to £300.”
But insurers are not experiencing increases in claims for cancer, for which NHS treatment has held up comparatively well. Indeed, some innovative PMI providers that exclude cancer treatment have been proving highly popular. Equipsme, for example, doubled its business volumes during 2023.
Dave Middleton, managing director of Benefits Advisory Services and chair of the Association of Medical Insurers and Intermediaries (AMII), says: “New products stripping out cancer treatment but covering cancer diagnostics can cost under £200 per employee per year, and can be a good option for [employers that] aren’t sure if they can provide a standard PMI scheme.
“The average cost of a full-blown PMI scheme, however, is around £1,500 per employee per year. But it can cost a lot less for a young workforce with no claims and a lot more for an older workforce with lots of claims.”
Without hospital treatment
There is also a trend towards employers extending at least a measure of benefit to the entire workforce rather than just offering comprehensive cover to senior staff.
This has led to the popularity of low-cost formats that exclude hospital treatment but provide typical PMI scheme add-ons like virtual GP services, limited physiotherapy and employee assistance programmes (EAPs).
Sharon Shier, head of product development at WPA, says: “Virtual GP services have become integral to SME healthcare strategies. Indeed, some are now purchasing our modular plan with these and EAPs alone. An emphasis on prevention rather than cure is also seeing interest in other bolt-ons focusing on areas like exercise and nutrition.”
These lower-cost PMI options have resulted in an increasing blurring of boundaries between PMI and health cash plans which can offer similar preventative features, along with help towards dental and optical costs and a range of other minor medical expenses.