The government’s £200m cancer fund could actually end up pushing up the cost of PMI, says Sam Barrett
Cancer care is under the spotlight again with the government announcing a cancer drugs fund of £200m a year, but advisers remain sceptical about whether this is enough for it to be able to deliver what the public are hoping for.
The fund, which will be available from next April to the end of 2013, will give cancer patients greater access to innovative new drugs that can extend life or improve quality of life. While the initiative has been well-received by cancer charities, reaction from the health insurance industry has been mixed.
“It’s more care but it’s a statement rather than a solution,” says Matthew Judge, director at Jelf Group.
“Cancer drugs can cost as much as £70,000 for a course so it’s unlikely to be enough.”
Jack Briggs, intermediary sales and marketing director at Simplyhealth, is also unsure about whether the fund is large enough. “We’re going to sit and see whether it makes a difference,” he says. “There is significant pressure to recognise these drugs due to the emotive nature of the disease. Will £200m be enough to cover demand though?”
Cancer is already a major issue in the corporate healthcare arena, where one large claim can see an employer’s premiums skyrocket. “A standard cancer claim is in the region of £50,000 to £100,000 but I’ve seen claims for £200,000 plus. This can completely destabilise the premium,” says James Kenrick, senior consultant, healthcare at Aon Hewitt. “Advances in this area are already pushing medical inflation up to around 10 per cent, much higher than general inflation. This means it only takes six and a half years for a £1 million scheme to turn into a £2 million scheme.”
He believes that the creation of the cancer drugs fund could push claims higher still. “If this means that more cancer drugs are going to be licensed by the National Institute for Health and Clinical Excellence (Nice) it could create an additional charge on medical insurance,” he explains.
Certainly current policy wordings, specifying cover for drugs licensed by Nice, would mean a potential increase in claims costs. While some insurers use a broader definition, for example on some of its schemes Axa PPP healthcare will pay for drugs that are licensed by the European Medicines Agency or the Medicines and Healthcare Products Regulatory Agency, many insurers go with drugs licensed by Nice.
Although there are concerns about rising cancer claims, there have been very few instances of cancer cover being removed. John Russell-Smith, client director at Lorica, says that of around 1,300 clients not one has opted to take out cancer cover. “We’ve had conversations with clients about the cost issue but they’d rather cut benefit in other areas than remove cancer cover. They’re terrified of doing too much to the policy and sending out negative signals to employees,” he explains.
There is significant pressure to recognise these drugs due to the emotive nature of the disease. Will £200m be enough to cover demand though?
The insurers report a similar story. At WPA, Charlie MacEwan, corporate communications director, says while cancer cover is an option on both its individual and large corporate schemes, there’s little appetite to remove it.
“It’s easy to separate cancer cover out but there’s just no demand,” he says.
Part of the reason for this might be the effect it has on premiums. According to Judge, unless a company has had a high exposure to cancer claims, removal of cover for it won’t make a big difference to the overall premium.But, although completely removing cancer care is still seen as a big no-no, there are reports that more clients are taking steps to reduce exposure to large cancer claims. Briggs has started to see movement, particularly among trust clients. “The trust market is like the canary in the mine as it gives you an early indication of what the insured market will do,” he says. “Many of them are having to make harsh decisions about what they provide, with many looking back at why they offered medical insurance initially.”
In many cases this takes the employer back to the 1980s when medical insurance enabled executives to bypass the waiting lists for elective surgery for conditions such as hernias so they could get back to work faster. Kenrick agrees: “Employers are questioning what they provide. Medical insurance was never intended for the highly complex procedures that the NHS is carrying out now.”
Escalating premiums won’t just hit the employer hard. With medical insurance a benefit in kind, employees will start to see their P11d charges rise, even if they don’t make any claims. Left unchecked, this could result in pressure from employees to opt out of the scheme, potentially leaving those with the highest potential to claim pushing premiums higher still.
With this in mind, Kenrick is seeing more clients look to put a cap on in-patient treatment costs. “They’re not singling out cancer claims for a cap but setting a limit across all in-patient treatment. This is a much more acceptable message to give to employees.”
Employers are questioning what they provide. Medical insurance was never intended for the highly complex procedures that the NHS is carrying out now
Where the cap is set varies. While Kenrick says £50,000 is common, Lorica’s Russell-Smith has seen one employer drop it to as low as £15,000 a year – a level he thinks is too low. “Within six weeks someone breached the cap and it caused no end of problems,” he says. “The employer/ employee relationship became difficult and the employer ended up funding it on a cost plus basis.”
Getting employees to take some of the cost of healthcare is another way to stabilise medical insurance premiums. Excesses can soak up some of the claim costs while also directing some treatment back to the NHS.
Co-insurance is also popular. “Set the coinsurance at say 10 per cent with a maximum employee liability of £1,000, and if someone has a fair chunk to pay it might encourage them to go to the NHS for treatment,” says Kenrick.
Other benefit designs tweaks can also be effective without pushing any extra costs on to the employee. For instance, Russell-Smith says that increasing NHS cashback can drive behaviour. “With some schemes, especially ones covering retirees, an increase in the NHS cashback will encourage some to take NHS treatment rather than go private. This will reduce claims costs.”
Insurers are also looking at how they can help stem premium increases. Managed care options are becoming more common, with the likes of Cigna Healthcare and Axa PPP healthcare helping to manage people back into the NHS where appropriate or when benefit runs out.
Advisers aren’t fazed by this approach. Judge says: “This does save the insurer money but if you have treatment for cancer on your medical insurance, chances are you’ll have it in a centre aligned to an NHS practice anyway. Additionally, where someone is managed back into the NHS the insurer might look to cover things like taxis to hospital or home help.”
Some insurers have launched new products aimed specifically at cancer. For example, in November, WPA launched NHS Top Up, a cash plan style product that can include cover for cancer drugs.
A corporate paid version starts at 92 pence a week for the core element, which covers traditional cash plan benefits such as dental, optical and therapies, with the mycancerdrugs option added for an additional £4.20 a month, making a grand total of £98.24 a year. “An employer could take out medical insurance without any cancer cover and supplement it with NHS Top Up with the mycancerdrugs option,” says MacEwan.
There are caveats with this plan though. The mycancerdrugs option isn’t available if a direct relative has been diagnosed with cancer and the benefit limit, £50,000, is a lifetime limit, which could quickly be exhausted.
Others are exploring how they structure their existing schemes. For instance, at Simplyhealth, Briggs is examining whether there’s any demand for different options on its cancer module. “We have a £50,000 module at the moment but might add some further choices, both higher and lower, if there’s appetite for it,” he explains.
More new products are also likely. Judge is exploring a critical illness style option that would cover cancer. This would pay a lump sum if someone was diagnosed with certain types of cancer, giving them the choice of how they spend it. “It’s not available yet but I am talking to an insurer about this. I haven’t had a client ask for it but I want something available for when they do,” he says. “It needs to be very straightforward, specifying exactly when payment would be triggered. The message with critical illness got very confused when medical advances made some of the cancers much less serious and the payment became like a lottery win.”
Whatever the approach to reducing the effects of cancer claims on medical insurance, one strategy is essential – good communication. Russell-Smith explains: “There isn’t a one size fits all approach to reducing rising claims costs, but whatever an employer does, its success is often dependent on good communication with employees. Getting this right makes a significant difference.”
And, for Kenrick, now could be the perfect time to start these communications. “Employers have a great opportunity to explain why they’re restricting or reducing benefits,” he says. “It can seem a difficult message but, if communicated properly, you can get employees on side.”