C is for cost-counting

The cost implications of cancer claims are forcing insurers to rethink the way they cover the condition, presenting difficult decisions for advisers and employers says Sam Barrett

Whether it’s the state of NHS provision or the cover available on a medical insurance scheme, cancer treatment is one area of healthcare that is guaranteed to grab the headlines. And, as new drugs push the cost of treatment higher, it is essential that all parties assess the financial implications. “Claim costs are rising,” says Mike Blake, compliance director at PMI Health Group. “Claims frequently break the £100,000 mark and this year I’ve seen a claim for £1 million for stem cell treatment. This can have a huge impact on premiums. As an example, a scheme with a couple of hundred employees saw its premium rise from £450 per person to a renewal premium of over £1000 following a large cancer claim.”

This type of price increase has knock-on effects for schemes. As premiums rise, so do employees’ P11d tax liabilities and inevitably this results in some employees deciding to opt out of the scheme. “Unfortunately you tend to lose the younger, healthier lives. This takes the good risk out of the scheme and can mean premiums go even higher. It’s a recipe for disaster,” adds Blake.

Even without a large claim, employers can find their premiums escalating out of control. “If medical inflation is 10 per cent, it will only take six and a half years before the premium has doubled. This is unsustainable,” says James Kendrick, practice leader of healthcare consulting at Hewitt Associates.

Given that such scenarios could potentially put the medical insurers out of business, their product development departments have gone into overdrive. While the situation used to be fairly straightforward – with most insurers applying the chronic condition rule to cancer claims – this has now changed.

“Over the last 12 months there’s been a big change in the market in terms of the options available for cancer cover,” says Claire Ascott, healthcare manager at Enrich. “Clients now have the flexibility to choose whether to have cover or strip it out completely and, if they do take cover, there are further options around what they do have.”

While the traditional level of cover is still available, the option to remove cover for cancer altogether is now widely available for both large and small groups. “Many insurers, including Bupa which has traditionally covered everything, now offer the option to limit cover to diagnosis only. At this point they’ll then help manage the case back into the NHS,” says Wayne Pontin, business development director at Jelf Employee Benefits.

Alongside these two extremes are other options with insurers using financial and time caps to limit their financial liability. For instance, Axa PPP healthcare allows employers to choose from cover for licensed drugs for up to 12 months; cover for licensed drugs for up to 36 months; and cover for any drugs, whether licensed or not, but recommended by the patient’s oncologist.

But while there’s plenty of choice, employers aren’t necessarily using it. “The appetite to change just isn’t there,” says Ascott. “The insurers are putting the onus on the employer to change their cover but it’s not a decision they feel comfortable making. What happens if you take cover away and then an employee develops cancer? How do you know what claims you’re likely to get and whether your cover will be suitable?”

Where change does occur it will often be more general. For instance Blake says that he’s seen employers introducing a benefit maxima on cover for in-patient treatment to help limit large claims without appearing to target cancer specifically.

Ascott believes the reason there’s so little change on cancer cover among employers is that they simply don’t have enough information to enable them to make an informed choice. “Insurers need to provide more data relating to claims. If an employer has oncology spend in their claims history, let them have details of the type of cancer and the costs involved so they can make a decision about what to cover.”

But, while some employers are sidestepping the issue, possibly due to lack of information about the choices involved, others are taking a much more proactive stance to containing future claims costs. Kendrick explains: “Employers have forgotten why they introduced medical insurance in the first place. Many companies introduced it in the 1980s to enable employees to access treatment quickly, and thereby reduce absence, when waiting lists on the NHS were really long.”

He believes that employers need to take a step back and ask themselves why they have medical insurance. “Is it to complement the NHS or to replace it? And what’s the culture of the company? Many will find that providing cover for conditions, such as cancer, that can be treated easily and quickly on the NHS was never in their remit. They’ve got to treat it as a business expense,” he adds.

Removing cancer cover gives a reduction of around 15 per cent to the premium but also improves pricing sustainability as there’s no risk of a large cancer claim wiping out the scheme for experience rated ones or medical inflation running at double digit levels for community rated schemes.

Kendrick adds that now is the ideal time to raise this with employers. “It might make a bit of noise but in a recession employees are more worried about losing their jobs than a reduction in their benefit,” he says.

Rather than bite the cancer cover bullet, insurers have noted another trend among smaller companies. “With the recession, we’re seeing more and more companies with fewer than 200 employees opt for community rating as a large claim will affect them less. This gives them certainty of premium and cash flow advantages,” says Charlie MacEwan, corporate communications at WPA.

The insurers are also looking at ways to lessen the blow without reducing cover. “We feel strongly that we shouldn’t pick on any particular condition by removing cover. Medical insurance should provide as comprehensive cover as possible so we focus on containing costs by managing the care that policyholders receive,” says Ann Dougan, marketing director at Cigna Healthcare.

With this, all claims for cancer treatment are assessed by Cigna’s team of nurses with regard to their cost-effectiveness as well as the outcome for the claimant. As an example, a claim was recently presented for treatment for pancreatic cancer. This is particularly difficult to treat due to the proximity of the pancreas to other organs but Cigna’s nurses explored the options and suggested the claimant had a new form of treatment, Cyberknife. This is a robotic system that provides a very targeted delivery of radiotherapy, so reducing side-effects and improving the chances of recovery. “This is a very new form of treatment that has delivered really good results for patients,” adds Dougan. “From a cost perspective it also has benefits. While traditional surgery would cost £50,000, Cyberknife costs £30,000. Taking this approach can help to keep cancer claims stable and reduce the need to take more dramatic steps such as removing cover.”

As more drugs and treatments become available, often with even larger price tags, it’s likely that the market will see further developments in this area. Certainly one insurer, which wishes to remain nameless, is putting together a new model for cancer claims. With this, it will cover the cost of diagnosis, but then cover for treatment stops and a tax-free lump sum is paid instead. This could be used to pay for treatment, to make adjustments around the home or simply to blow on that last big holiday. And, although the employer may be concerned that this type of windfall might reduce the chances of someone returning to work, it does cap the financial liability on the medical insurance scheme.

Another trend that is likely to become more prevalent is the use of preventative measures to reduce the risk of cancer. Pontin explains: “The insurers are more likely to move into the preventative side with screening and wellbeing initiatives. This can help reduce the likelihood of cancer claims but, by detecting it earlier, claims costs will be significantly lower.”

Intermediaries would also like to see insurers develop their expertise around sourcing treatment. “If employers are going to have to restrict cancer cover to make the pricing on their schemes sustainable I’d like to see the insurers developing services to help policyholders more. The policyholder doesn’t know what offers them the best prognosis for their money but the insurer is in a good position to help them spend it as cost-effectively as possible,” says Blake.

Change is also likely to be driven by the NHS. Dr Doug Wright, principal clinical consultant at Aviva Health UK, explains: “I suspect we’ll see changes in terms of delivery within the NHS with this encouraging a more mixed economy on funding.

“This could bring more certainty about what is and what isn’t covered which will help employers make a more informed decision about what they provide through their medical insurance. There’s been plenty of change in the last 12 months but we’re likely to see even more in the next 12.”