As times are getting tough, businesses' endurance levels are being put to the test. Adrian Humphreys outlines the steps necessary to assess corporate healthcare's state of fitness
You cannot pick up a paper or watch the news today without hearing more doom and gloom about the economy. It is stormy out there and getting worse.
'Lazy customers make for lazy businesses'. By and large in this particular patch of sea - the provision of health insurance and administration of corporate healthcare trusts - many large corporate customers could well be perceived as lazy.
Premiums have been going up year on year, but many clients are still saying 'more of the same please' and signing up for another year and hoping for the best. This is understandable, if not excusable, when the sun shines and profits are rolling in, but what about now, when balance sheets must be balanced and shareholders are beginning to get restive? At these times it is often wise to put the policy through a bit of an assault course to see whether it is possible to burn off some of the corporate fat.
As a start advisers should be aware that company directors are advised to check their brokers out as a first stage. They will ask if they have access to the full market and which insurers they have terms of business with, in writing.
Much hand waving can go on here, but many private medical insurers (PMI) providers only recognise brokers that they believe understand the products and those they would feel happy recommending to friends. The skill base of brokers in this market varies from the truly exceptional to achingly awful.
Having passed as an adviser, the first hurdle of a review is to ask: is the group in the correct type of scheme? Until a few years ago, it was generally agreed that groups with over 100 members should be in a claims related, medical history disregarded type of scheme. Those were in the days when a 'large' medical claim was around £20,000. Nowadays, that's run-of-the-mill. Take a claim for £150,000 and see what that does to a customer's claims related premium. The industry is seeing more and more of the smaller 'large' groups with, for example, under 250 members seriously looking at pooled 'age rated' schemes where the company is one of many - similar to buying a unit trust rather than individual stock picking.
If the scheme has over 500 members and its claims history is relatively stable, what about moving to a corporate healthcare trust? This is where the adviser sets the scheme up in a simple trust and has a company administer the scheme for them. This can be wrapped in a stop loss insurance arrangement to suit the firm's risk appetite. Generally this will knock around 15% - 20% of a company's healthcare costs. There is a calculator at www.protocolplc.co.uk, which can help with comparisons with traditional insurance.
The next stage is to work out what and for whom the firm is paying. Does it give full cover to all staff members and their dependants, a few of the senior people or, as is more normal, a mix and match? This needs serious thought. Why does the company buy this benefit? Is it for the 'perk', to make the remuneration package more attractive; or is it for the benefit that gets the employees back to work as soon as possible?
The right plan
At this stage the adviser could think about tailoring the benefits to the staff. Why give full blown cover to the under 30s when they are unlikely to use the cover and probably will not thank employers for the P11D taxation on expensive comprehensive cover? Perhaps give them a modern cash plan product. This will pay for glasses and routine dental treatment at a fraction of the cost and the staff will perceive real value.
If the client company has a medical history disregarded scheme it is important to ask why. These carry obvious risks as the firm is undertaking to pay for all new employees' illnesses whether already established or not. This may, in the past have made the selling easy and no doubt the administration simplified, but the simple question is why still do it? It is possible to underwrite all new joiners whereby they are excluded for all pre-existing conditions.
The level of underwriting applied could be discussed with the insurer to suit the client- perhaps simply excluding major pre-existing conditions with major joints, cancer and psychiatric disorders. Before the lawyers start to sharpen their pencils, this is not a Disability Discrimination Act disclosure, simply something between the adviser, insurer and employee. No medical data is ever disclosed to the company but the client will notice a dramatic - upwards of 40% - reduction in premiums. Yes, there is more administration, but nowadays this is done almost entirely by the insurer and will add virtually nothing to anyone else's workload.
Keeping things together
If the user is separated from the payer, the result is uncontrolled inflation followed by abuse and breakdown - a fact noted by Milton Friedman. Why disengage the member of staff almost completely from the cost of their treatment? At best the client may have an individual excess which in fact only leaves the employee feeling short-changed and with a good reason to try to extend the treatment beyond the initial excess that they are compelled to pay.
Instead, co-payment sometimes called shared responsibility could be considered. This is where the employee pays a percentage, say 10%, of the fees until they have personally paid out a set limit - say £250. After this, the scheme pays for everything. Imagine the scenario for the employee: They go to a consultant and he charges £100. If they have a £100 excess, they pay the lot, and feel aggrieved. With a shared responsibility scheme, they only pay £10 and realise the true value of the bill - they have become connected to the payment.
It gets better. The consultant suggests they need an MRI that costs £800. If they have an excess they do not care, from now on it is all free. With shared responsibility, they may even question whether there is a cheaper option, they may even start to act like a 'real' consumer and shop around. Yet whatever happens, they will not pay more than £80 and so it goes on. Introducing an element of shared responsibility can see medical inflation slashed to around 3%. Definitely something to consider.
In fact it is possible to go so far as to question why the client has a company paid medical scheme at all. Why not buy out the benefits or close the scheme down? Perhaps a foolhardy thing for an insurer to write, but it has to be up there. Yes, staff will probably find that to buy a PMI product personally will be around 40% more expensive than their employer can buy at the corporate rate, but affinity deals can be done and the company no longer has a large bill to worry about that has a habit of inflating at two or three times that of wage price inflation.
Another highly contentious tactic could be to remove cancer cover. However, there is no doubt that the largest claims today in any scheme come through the treatment of cancer. The advance of the modern therapeutic drugs is amazing but, as the NHS is finding out, comes at huge cost. Taking this benefit out, or at least capping the total treatment cost to say £20,000, will reduce the client's liability and hence have a positive effect on their premium.
In these times, it important to be a more demanding customer. Do not let the insurer get away with anything other than A+ service. Do you still get an annual paper based report full of 'witch-doctor spells' and gobbledegook, or do you have 24/7 online management information suites working alongside well informed account managers? Perhaps if we start challenging one another, we might both start losing that corporate fat.
- Adrian Humphreys is managing director of corporate clients at WPA.
NHS AND PRIVATE TREATMENT: A LEGAL VIEW
WPA sought the legal opinion of a leading barrister, a Queen's Counsel and an eminent practitioner in the field of public law, to address two principal issues:
- The extent to which an individual has a legal right to insist upon the provision of particular treatments by the NHS regardless of cost and;
- The freedom for individuals to move between NHS and private treatment.
Nigel Giffin QC's view:
- There is no bar in law to a patient buying drugs and having them administered as part of NHS treatment.
- There is no reason in principle why patients should not move between private and NHS treatment if required.
- There is nothing stopping a patient receiving both private and state treatment for the same condition at the same time providing this is clinically appropriate.
There is no bar in law to patients buying their own drugs and having them administered as part of a course of NHS treatment. If that is right, it would seem to follow as a matter of logic that, if the only reason why the relevant NHS body would otherwise refuse to provide a course of treatment is the cost of the drugs involved, and if the patient is willing and able to take that cost out of the equation, then refusal to provide the treatment would be irrational and unlawful.
It would be impermissible for an NHS body to refuse treatment in such circumstances merely on account of philosophy or feeling that, if patients without the means of acquiring the necessary drugs cannot have them administered by the NHS, then it should not be possible for anyone to do so.
It may be unlawful for the NHS to dent people to fund their own drugs.
