Opportunity knocks

Reforms to the NHS are likely to create opportunities for the PMI sector whether the tax burden on cover is reduced or not, says Sam Barrett

While there’s resistance to the plans, especially from the medical profession, the government points to the potential savings, and therefore the sustainability of the NHS, as its motivation. Although the reform programme will cost around £1.4 billion, largely as a result of redundancies, by taking out a layer of management it aims to deliver savings of £20 billion by 2014.

Unsurprisingly, the medical insurance industry is watching carefully how the reforms play out. “There is a lot of uncertainty about what will happen but I do believe that in five years time the healthcare landscape will be recognisably different,” says Fergus Craig, commercial director at Axa PPP healthcare. “It will happen slowly over the next few years rather than being a car crash, but something will change.”

Certainly the private healthcare providers will see more opportunities as competition is opened up with expectations that they will pick up more elective surgery. For instance, Craig says he could see private providers opening up clinics that deal with one or two treatments, for example hip replacements or cataracts, which would enable them to offer them much more cost-efficiently than a general hospital.

In five years time the healthcare landscape will be recognisably different. It will happen slowly over the next few years rather than being a car crash, but something will change

Although the proposals are being touted as cost saving, there are also expectations that standards will worsen in the NHS. With demands on healthcare growing, and without the huge injection of cash it received under the Labour government, waiting lists for non-emergency procedures are expected to rise.

Headlines focusing on the NHS postcode lottery could also return. Decisions on which drugs will be funded will be down to the GP consortia but, although final details are still awaited on how these will operate, there is a risk that the smaller ones will run out of money before the end of their financial year.

New product design

Against this backdrop, demand for some form of health insurance is likely to rise, with both medical insurance and cash plans likely to benefit. This is certainly the view of the Association of Medical Insurance Intermediaries (AMII). Debbie Kleiner-Gaines, managing director of Best Health UK and executive committee member of AMII, says: “Demand for health insurance will increase as more stories appear in the press about problems with waiting lists and so on. With this new demand for cover, providers will be pushed to develop a wider range of options and plans. Some insurers are already doing this to a degree with their modular products but I expect there will be more developments as the reforms are put in place.”

This view is echoed by Craig, who sees insurers facing challenges as the medical insurance market opens up. “Insurers have tended to view medical insurance customers as a homogenous group of people but this will change. The requirements of those at the top of companies will be very different to those of someone on a middle income who wants to take out insurance as they’re worried about the state of the NHS,” he explains. “These groups will need different products.”

Modular products, such as those offered by SimplyHealth and PruHealth, would suit this increased demand. By allowing employers to select the benefits they want for their employees, they can continue to offer the gold-plated version to their executive staff while other employees can take out cover, either voluntary or employer-paid, at a more budget level.

Within the workplace, the ability to keep employees healthy and productive is likely to grow, especially if waiting lists rise. Neil Thompson, product manager for National Friendly, believes employers will be looking for products that deliver results rather than simply give employees a benefit. “Employers will want value for money. It’s a struggle to afford comprehensive medical insurance for all employees but if they can see a return on investment they’ll be interested,” he says.

This may mean greater emphasis on the health problems that can result in long spells of absence from the workplace, for instance musculoskeletal and mental health problems, especially as these are areas where waiting lists could increase significantly. Likewise, low cost plans that provide cover for diagnostics are also likely to become more prevalent, enabling people to get the reassurance of an early diagnosis.

Another area the medical insurers will inevitably need to revisit as a result of the reforms is cancer cover. While many plans stipulate that cover is for drugs approved by the National Institute for Health and Clinical Excellence (NICE), it is set to lose its powers to approve drugs for use on the NHS. Instead, it will determine whether a drug is effective, with GP consortia deciding whether a patient can be given a drug. “This is likely to affect insurers, potentially opening them up to more claims if more drugs become available on the NHS,” says Thompson. This is likely to be addressed, especially as the differences between GP consortia will potentially mean more take-up of private healthcare to avoid the NHS postcode lottery.

Insurers have tended to view medical insurance customers as a homogenous group of people but this will change. The requirements of those at the top of companies will be very different to those of someone on a middle income who wants to take out insurance as they’re worried about the state of the NHS

As well as changes to medical insurance, cash plans are also likely to evolve to suit the new market. Nick Boyton, principle for health and risk at Alexander Forbes says that some cash plan providers have already started to explore some of the in-patient services with hybrid plans that cover areas such as surgery and cancer cover. “We may see more of this depending on the detail of the reforms,” he adds. “With GPs running their own budgets the attitude to health insurance may change. It’s more likely to make them pleased that a patient has cover.”

He also expects the reforms to foster completely new areas of private healthcare. As an example he says that there may be more demand for private GP practices. “These are beginning to appear but they do suit the employer’s demand for healthcare. You can lose a whole morning visiting the GP and this may get worse under the reforms. Additionally, as employers start to think how they can use health insurance to keep their employees in the workplace, an option to get access to a GP quickly will be attractive,” he adds.

Tax incentives

Calls for tax relief to increase take- up of medical insurance and there- by reduce the burden on the NHS are also increasing in volume. “Well targeted incentives for employer funded medical care would have a positive effect on the public finances. Pressures on over-stretched NHS budgets would be relieved and, with prompt access to treatment, there would be lower welfare costs,” says Michael Payne, general secretary at the Association of Medical Insurance Intermediaries.

Many point to the inconsistencies with other employee benefits in support of this. Unlike benefits such as pensions, income protection and even preventative healthcare services such as health assessments, employer paid medical insurance is highly taxed. As well as insurance premium tax, which nudged up from 5 per cent to 6 per cent in January, medical insurance is treated as a benefit-in-kind, attracting employer’s class 1A national insurance, increasing from 12.8 per cent to 13.8 per cent in April, and a P11D charge on the employee at their marginal rate of tax.

Additionally, although the current rules allow treatment for an injury or disease resulting from the employee’s work to not be treated as a benefit in kind, this only relates to privately funded treatment and not treatment secured through a medical insurance scheme. Payne adds: “The government should look at removing disincentives in the current tax treatment of workplace health. If health insurers and healthcare intermediaries take a more holistic approach to healthcare benefits in the workplace, offering cost-effective solutions that go beyond just paying for treatment but include health interventions that have a long-term impact on public health, then a greater case can be made for treatment not to be taxed as a benefit in kind.”

Thinking the unthinkable?

While tax breaks are a possibility, few are prepared to believe the government will do the unthinkable and introduce some form of compulsory health insurance. This has already happened in other parts of Europe, for instance France and the Netherlands. “If you look to Europe, there’s no doubt that we don’t take enough personal responsibility for our healthcare,” says Thompson. “If we paid more taxes the NHS could deliver the services we want, but no one likes to pay higher tax. We need to look at the NHS and decide what it should pay for and where we should take responsibility.”

But, with almost a guarantee of losing the next election, it remains a political no-go in the UK. Boyton says this is particularly a problem for the current government. “It would be a struggle for any government to do something this radical with healthcare but it would be even more difficult for a coalition government,” he says.

However, Craig thinks this time may be different. “It will be hard to do everything through taxation. I’ve seen a couple of recessions and while there was a lot of talk about the role of the NHS then, this time it does feel different.”