Taking the pain out of premiums

Keeping a lid on healthcare premiums is a priority for today’s employers. Sam Barrett investigates

In today’s tough economic climate, employers are keen to contain spend on employee benefits. But, while medical inflation and poor claims experience can push medical insurance premiums skyward, it’s one of the most popular employee benefits, often ranked just behind the company pension. Removing or restricting cover can affect morale and ultimately productivity, and may be a more expensive option in the long-term.

Faced with this, advisers have an important role to play. “Advisers have a real opportunity to demonstrate the value they bring,” says Julian Ross, head of marketing and communications at Standard Life Healthcare. “They can help employers re-examine why they bought cover and consider ways to reduce costs.”

This could include an examination of the benefits included in the plan as, depending on the nature of the business, some may not be as popular as others. This can be easier with a large group scheme as Ross explains: “With a larger group scheme you can get hold of the management information as it’s not really possible to identify who made the claims. This can give a good indication of the claims history and show where cuts can be made.”

With large schemes, anything can be flexed but, although there’s less flexibility on smaller group schemes, increasingly, modular design is making this easier. For example, on Standard Life Healthcare’s SME Business Healthcare plan you can reduce the out-patient cover from full refund to £500, making a saving of between 20 and 25 per cent.

Neal Archbold, senior proposition development manager at Norwich Union Healthcare, says he is seeing a lot more instances of employers introducing benefit caps to reduce costs. “It is a balance between employee engagement and the cost to the employer, but more and more employers are looking at their medical insurance as a business tool rather than a sickness plan.”

Another strategy he’s seen that can help to control claims costs is the use of cash benefit on schemes. With this, the employee receives a payment from the insurer if they use an NHS facility for their treatment. “This helps to keep claims down by directing the employee into the NHS. Often they’ll receive the same treatment, for example 90 per cent of radiotherapy units are NHS,” Archbold explains.

As well as capping benefits, some benefits are being considered for a wholesale chop. One area in particular is cancer cover. With a course of drugs such as Herceptin or Avastin costing thousands of pounds, a claim or two can put massive pressure on premiums. “Employers are looking at how they can remove cancer cover but we haven’t seen anyone take it away yet,” says Karen Gamble, regional director at benefits consultants Heath Lambert. “The problem is what happens if someone comes along with a cancer claim after you’ve withdrawn cover? They could claim discrimination. I think employers will be more prepared to remove cover though, once there is a subsidiary product for cancer they can offer employees.”

The insurers’ product development departments are busy looking at this type of product. Archbold says Norwich Union Healthcare hopes to launch a fund based approach to cancer by the end of the year. This, he says, would give employees access to their own pot of money if they needed cancer treatment. “It would be a finite amount but the customer would be able to choose how they spend it,” he adds.

As well as cutting back on cover, removing dependants’ cover, either across the board or for new entrants, can save significant amounts. Gamble explains: “Insurers typically charge double the premium to extend cover to a partner and two and a half times the premium for a family. Just covering the employee can make a big difference to the overall cost.”

Excesses are another common cost control strategy, with a number of different levels and variations available that can take a sizeable chunk of premiums. For example, at Standard Life Healthcare, where it is possible to add an excess either per policy year or per claim, a £100 excess will give a discount of around 8.5 per cent a year if it’s applied per policy year or 20 per cent if it’s applied per claim. Increasing the excess to £250, would give a discount of 17.5 per cent if the excess is applied annually, or 30 per cent if applied per claim.

But while savings can be attractive, excesses do come in for some criticism. “It can be a hurdle, potentially leaving an employer with a two tier plan with some employees who can afford to use it and others who can’t,” says Andrew Grigg, director of Jelf Wellbeing.

A less discriminatory approach could be moving to a smaller network of hospitals or, taking this approach a step further, a guided option such as that offered by the likes of BCWA and Standard Life Healthcare. With this, rather than ask a GP to decide on a specialist for you, the insurer passes you to a local hospital which makes all the arrangements on your behalf. Because it has this greater control, the hospital can charge a lower premium, which is passed on to the employer in the shape of lower premiums. For example, on its SME plan, Standard Life Healthcare offers a discount of around 15 per cent for the guided option. “You do need to check there are hospitals available in the area but it is particularly good outside of London,” adds Ross.

Depending on the size of the group, there are other scheme design options available that can save money. For example, larger employers could consider moving to a healthcare trust. These give them greater control over the benefits they pay but can also wipe as much as 30 per cent on the cost of providing healthcare benefits.

Jelf has also introduced a new take on controlling costs with the launch of its Strategic Healthcare plan. Although it’s still an annual contract it uses a three year pricing model to smooth premium increases. On top of this a claims cap removes any claims that are above a set amount for pricing purposes and a profit share rewards employers when claims are below 85 per cent of the premium over the three year term.

Another option for larger employers is a flexible benefits scheme. Although there are costs involved in introducing a flex scheme, because the spend on benefits is usually based on a percentage of employee salary, annual increases are in line with salary increases rather than medical inflation. This effectively passes the risk of future premium increases to the employee.

Rather than tinkering with the options on the scheme, some insurers are looking at taking a more proactive stance on reducing premium increases. “We’re focussing on new initiatives that look to embed healthier living in the workplace,” explains Archbold. “This helps to make employees healthier so claims are reduced.”

A key strand to this approach is a package of early intervention tools that Norwich Union Healthcare has introduced. These include a back condition management service, Back Up, which employees can call, without GP referral. Once on the phone, they will be triaged and might be referred for a course of physiotherapy to treat the problem quickly.

But whatever steps an employer takes to curb spend, many feel that it will be easier to be tough now. Grigg explains: “It is tough to make cuts but employees do expect them. For most it is more important to have a job and know the company is doing well than having an expensive package of employee benefits. Employers can use this to make their medical insurance much more of a business tool for the long-term.”

Expert view: Healthcare cash plans

While they don’t offer the same breadth of benefits as medical insurance, healthcare cash plans can also help to drive down the cost of employee health benefits.

For starters, as benefits are capped it’s much easier for the providers to maintain premiums over the long term. For example, Westfield Health hasn’t increased the premiums on its Foresight plan for six years. “It’s much easier to predict what our claims are going to be,” says Jill Davies, chief executive of Westfield Health. “Premiums only tend to be adjusted when we increase benefit levels to reflect changes in the cost of healthcare.”

As well as having this pricing stability, which can help employers budget, cash plans can also be used alongside medical insurance to help stem premium increases. “An employer could introduce an excess on the medical insurance and, with the money saved on the premium,

introduce a cash plan,” says Peter Lauris, sales and marketing director at Medicash. “Many of these cover diagnostics. An employee could use the cash plan to determine if they need to take treatment under the medical insurance rather than paying the excess to cover the diagnostics.”

Similarly, cash plans can help reduce the claims bill on medical insurance. For example, while the GP referral process to access the physiotherapy benefit on medical insurance might swallow up a couple of hundred pounds, an employee can self-refer to use the same benefit on their cash plan.

Additionally, as budgets get tighter, new plan features are enabling employers to look at cash plans as a real alternative to medical insurance. Davies explains: “We’ve seen a company that has replaced its medical insurance scheme with our cash plan and included the Surgery Choices option. This gives them access to non-urgent operations for conditions such as hernias, slipped discs and varicose veins for an extra £1.24 a week for each employee.”