Advice – a prescription for PMI’s ills

Employees are starting to get disillusioned with PMI. But quality advice can solve many of their problems says Debbie Kleiner-Gaines, AMII executive committee treasurer and MD of Best Health UK

These days more and more employees rate private medical insurance (PMI) as one of their most valued employee benefits. A prompt return to work coupled with minimum disruption makes PMI a good choice for the employer as well.

But whilst employees might be grateful for PMI, a Mercer report in November 2010 highlighted that they still lack understanding generally about their benefit rewards and are unsatisfied with the communication they receive about them.

I have experienced such dissatisfaction amongst some employees who have seen their PMI premiums increase due to high claims from their colleagues. I recently took over a scheme referred by a general insurance broker that had been serviced by them for eight years. The client offered PMI to 20 management level staff but two employees’ dependants had very high claims for cancer. At renewal, the scheme premiums increased by 50 per cent and then again by the same amount the next year.

The employer was unable to leave the existing insurer due to the two dependants’ continuation of cover. This resulted in the employees becoming disillusioned with the cover and questioning whether it was worth the 40 per cent tax they were paying on the very high premiums.

Eventually 18 employees left the scheme leaving just the two high claiming members on cover.

The general insurance broker concerned had suggested setting up a second scheme, leaving the two high claimers with their existing high cost insurer. Most insurers frown upon this practice and a statement from Aviva in the subject reads: “This is not a practice that we condone.

However, if this situation did happen, as the remaining members would be experience-rated they would incur appropriate increases at renewal to cover the risk the scheme presents with the reduced membership”.

Many intermediaries use this “splitting” approach as standard practice. But most group administrators don’t like the idea of running two schemes.

Many issues where employees are disillusioned can be resolved if the scheme is looked after by a specialist medical insurance intermediary

And here’s another example of dissatisfaction relating to additional costs due to tax. PMI is the second largest benefit in kind by value.
Company-paid PMI is taxed in three ways insurance premium tax, employer’s class 1A National Insurance and a benefit-in-kind P11D charge on the employee at their marginal rate of tax. A professional dancer requiring hip surgery for an injury sustained during a performance will have no tax charge, whereas a sales director who is off work for several weeks with an injury sustained during a dance class would result in a tax charge if her employer pays for private treatment to get her back sooner. For some types of treatment this could result in a P11D tax bill for the employee of many thousands of pounds.

Recently I’ve taken over a few schemes from a non-specialist broker where the client had no understanding of how claims would affect their premiums at renewal. They had also made some odd decisions about having an excess, where the employee pays it and claims it back from the company. There are tax implications on that rebated excess that employees would not be happy about.

Some employers seem to be changing their thinking in relation to PMI as a benefit. Some are looking at cash plans as an option to run in tandem with an inpatient only PMI scheme. But this can be complicated and would therefore require input from a specialist. So, what are the solutions to this dissatisfaction? How do we keep the SME PMI market buoyant while faced with these sorts of issues?

Luckily, many issues where employees are disillusioned can be resolved if the scheme is looked after by a specialist medical insurance intermediary. They would usually offer to present the scheme to staff at each renewal, bringing in the insurer to summarise the cover while the specialist intermediary and insurer would together explain the scheme in laymans terms.

And when it comes to tax, although most intermediaries will not formally answer tax questions relating to PMI and will always refer their client to their accountant, they are well versed in the tax implications of offering PMI to employees. But advice such as whether to offer an excess on a policy should be taken, especially if an employer is considering refunding this to staff.

Clients, whether small employers or HR directors in larger firms face many challenges in providing for staff and keeping the business going. Rising premiums that they don’t understand that can be avoided are irritants they don’t need. Areas like these are where specialists can add real value.