As part of the 2015 UK Summer Budget announcement, it was announced that Insurance Premium Tax (IPT) would be increasing from 6% to 9.5% (a 58% increase) from 1 November 2015. This increase does not affect ‘long term’ corporate insurance policies (i.e. life assurance, income protection and critical illness) due to premiums being treated as a business expense, however, corporate Private Medical Insurance (PMI) schemes will experience this increase in taxation. Cash plans and dental insurance policies will be similarly affected.
With the increased IPT exacerbating the already significant annual PMI cost increases due to medical inflation, many employers may be thinking about taking measures to cut the costs associated with their PMI scheme at the next renewal. Affordability is obviously at the forefront of many companies’ thought processes when hearing of a further increase to the PMI costs, but any decisions to cut costs should be considered along with the effect this may have on the sustainability of the healthcare policy.
Standard cost reduction strategies such as introducing benefit limits or adding/increasing a policy excess may offer short-term savings, but the long-term implications of these alterations could decrease the quality of the scheme and ultimately the value it offers to members. Placing private medical cover under a cash plan arrangement could be considered a more radical approach to tackling cost increases.
There are several alternate approaches to containing PMI costs while sustaining value going forward; implementing an open referral option into a policy being one of these. This approach allows the insurer to select a relevant consultant’s services claim-by-claim, therefore moving away from the GP referral alternative, where a GP’s potentially limited knowledge of each consultant’s specialities and subsequent costs can be avoided. An insurer has access to a wide-range of consultants within their chosen price-bands, helping claimants to get the appropriate treatment they require, possibly at a more controlled cost.
Another subtle way to sustain control of an existing healthcare scheme whilst reducing costs is to make use of a provider’s partner hospitals. This ensures treatment is only provided by certain hospital networks, where there are agreed costs in place with the insurer. This may be seen as a restriction in the access to nationwide healthcare, but analysing a scheme’s management and usage information could make this an easy decision, especially if claimants have already predominantly been using the hospitals in that insurer’s network of partners.
A healthcare Trust may be more suitable for larger companies less keen on applying restrictions to a policy, but still aiming to control costs. IPT will not be incurred by a Trust’s claims fund, which is effectively substituted for premiums that would have been paid if cover was provided by an insurer; therefore, the Trust is essentially a self-insured arrangement. A stop-loss function insuring claims over a selected limit can be introduced to reduce the risk associated with high value claims within the Trust. A Trust not only allows a healthcare policy to avoid hospital or consultant restrictions, but allows more design flexibility than a standard healthcare policy and allows the Trust to retain funds not paid out in low claim years. Consideration towards the additional administration and selection of Trustees needs to be made before establishing a Trust, where using a Master Trust function through a relevant provider may be more suitable for some companies.
In conclusion, one size does not fit all when it comes to providing PMI to employees, this should be considered by all companies that hold, or are thinking of introducing a healthcare product into the workplace. The economic stance of the company, the characteristics of the workforce, as well as the availability of existing health products (e.g. an employee assistance programme, occupational health programme and early illness intervention services typically included with an income protection policy) and the usage statistics of these should be evaluated when contemplating the requirements of a sustainable healthcare Scheme going forward.
Ryan Davies
Assistant Risk Benefits Administrator
ryan.davies@quantumadvisory.co.uk
029 2083 7956