PMI for pensioners is a growing corporate problem. Kim Strugnell examines the options.
Even where employers have highlighted the potential funding issue, and undertaken some actuarial analysis of the potential liability, the long-term impact is usually totally understated as a result of not fully appreciating the potential inflationary increases in healthcare costs – including greater usage over a longer period of time.
The right measures are not put in place to address the issue, and the ticking time bomb remains undetected.
Even once the scale of the potential liability is identified, making changes is difficult. Retirees may have been promised healthcare cover in perpetuity, and may have previously held positions of influence. Removing cover completely is rarely acceptable, especially at a time when pensioner populations are likely to need the insurance.
Options do remain, however, and the potential savings can make the effort worthwhile; which is most suitable will depend upon the size and scale of the problem, and an employer’s appetite to tackle the challenge.
Cancellation is rarely acceptable, but should be explored regardless. Employers may be surprised at the degree of flexibility they have, or find that more options become available after giving a notification of changes – including a defined window for objections – to members who would be affected.
Robust alternative
Focus must also be given to finding a robust alternative for retirees to take up. Without a suitable and compelling choice of self-funded insurances, negative noise is likely to increase, and failure to find an individual continuation option may even breach certain legal requirements.
Insurers are surprisingly open to conversations in this area. While underwriters are aware of the high propensity for pensioners to claim, providers will often take the practical view that removing a high-risk population from a large corporate scheme – thus lowering the claims incidence, and increase requirements at renewal – is ultimately in their long-term interests.
If moving a retiree population out of the scheme is not viable, employers could review benefits and possible changes made which are not necessarily applied to the rest of the population; in addition, claims management protocols can be reviewed and differing triaging of services applied to pensioners.
While many employers may baulk at the potential outcry of tackling retiree risk, the benefits of doing so are hard to argue with. Experience has shown that having identified the risks then some form of mutually acceptable mitigation and delivery of a solution is normally possible. A recent example on behalf of a major high street bank is a reduction in pensioner liability at about £13m.
Until the true scale of the problem is understood it is very difficult to formulate a plan. However, with the amount of change currently happening in the way healthcare is delivered and funded, ignoring the pensioner liability is no longer an option.
Employers should not be put off tackling this thorny but very real issue as they often do not realise quite how high the cost of doing nothing is.
Kim Strugnell is director of healthcare at Xafinity Consulting
