Corporate healthcare’s pension parallels

Sustainable large corporate medical schemes can now be developed. The parallel world of large corporate UK pension provisions has strangely shown us the way says WPA managing director, corporate Adrian Humphreys

On gaining power in 1997, Tony Blair said that his government would invest so heavily in the NHS that there would be no need for private healthcare in the UK.  15 years later waiting lists are longer, North Staffordshire hospital has hit the headlines and an older population continues to ‘block’ beds.

It can be argued that some form of private healthcare provision is moving from a luxury purchase to an essential buy for both companies and some better off individuals as state provision becomes less adequate.

But the private sector has not covered itself in glory either.  PMI is dull.  Even its name, Private Medical Insurance sounds exclusive and out of date. In truth, fully paid, full cover PMI is going the same way as its close relative the defined benefit final salary scheme.  Both are hugely expensive, designed in a less egalitarian time and no longer fit for purpose.

But there is another powerful parallel; both pensions and healthcare are rapidly becoming a major focus for employees as they recognise that the state provision for both – old age pension and NHS – is rapidly no more than a safety net.

So why do more employers reform their schemes? One reason is traditionally they have called in EBCs who work closely with the large health insurers. More often than not, these large insurers were the previous employers of these EBCs and often become their employers again in the future; hardly fertile ground for innovation.

There is also great potential for ‘rocking the boat’, where senior managers feel that their benefits are under threat – it is easier to leave the problem parked in the ‘too-difficult’ tray for another year.

Perhaps unsurprisingly, the answer may well be sign-posted by the recent changes in the pensions industry – the demise of DB pensions, capping of state pension and the launch of auto-enrolment.

The advent of AE to the many probably still represents an overall saving over the projected cost of a DB scheme open only to the few. The difference is that all employees can now benefit and the government has cleverly got UK PLC to cover some of the costs of future pensions without having to raise taxes or borrow more money.

Perhaps unintentionally the government will play the same trick in the field of corporate healthcare.

The NHS is now on limited funds and is back to rationing. 

World Bank figures show the UK currently spends around 9 per cent of GDP on healthcare, around the same as Uganda.  The USA spends 17 per cent.  France, Germany and Switzerland spend around 12 per cent. The message is simple, we somehow need to increase the proportion of our GDP on healthcare.

This increase could be through higher NI costs. However, AE has already shown us the way.  As a government looking to raise spending, why not expect or even demand that companies provide a basic top-up cover of medical care for all their employees. This can, at the companies’ additional expense be expanded to full private healthcare cover as a benefit to meet the needs of certain tiers of employees. 

The conspiracy theorists may even suggest that the Competition and Markets Authority investigation may even have been paving the way. Why not encourage a parallel, private, generally more efficient healthcare service through private hospitals and clinics?

There is room for some efficiency gains by ditching the current model. This in turn should save costs.  At its most dramatic, simply stop providing company paid PMI and pay a salary supplement instead so that the employee can buy their own. The problem here is again paralleled in the pensions industry; private pensions are about double the cost to purchase privately than through a large group scheme – it’s the same with medical insurance. 

We need to rip up the old private medical insurance contract and design a new tiered employee healthcare plan which integrates fully with employee wellness programmes where both the employer and employee see real and tangible benefits for the money that is spend.

It is strange how often we walk on parallel paths.  Now is the time to learn from what has already happened and prepare for some radical and positive change in the future.