The cost of keeping premiums under control
By Mike Blake Dip CII, Compliance Director at PMI Health Group
Providing staff with a healthcare benefits package that offers adequate cover, but that is also affordable, is no easy task. Revisions to medical insurance cover could cut premiums by up to 40 per cent, but what are the implications to taking a scalpel to your company scheme?
With escalating budgetary pressures facing businesses, PMI Health Group’s specialist consultants consider the pros and cons of the five most common steps taken to keep a lid on PMI premiums.
Introducing an excess
Pros: This can lead to an immediate reduction in premiums. A £100 excess payable by the claimant, for example, can amount to an eight to 10 per cent discount on premium costs per year. An excess generally reduces the claims made on a policy and insurers can reflect this in the premium. It is even possible to structure PMI with different excess levels for different categories of staff.
Cons: If the policy is viewed simply a staff benefit, employers need to be careful of devaluing it in the eyes of the employee by introducing an excess. Equally, if it is aimed at reducing sickness absence then an excess may deter an employee from using the cover which can mean more time lost.
Introducing a cap on cover
Pros: Rather than stripping out cover for specific conditions, capping the amount employees can claim can mean cutting the costs of PMI while maintaining a level of cover for all acute conditions.
Claim limits can be restricted to certain conditions, such as cancer. This can have a dramatic impact on future premiums. Premium increases of 30 per cent or more are possible when large cancer claims have been made on medical schemes.
Cons: Capping cover can prove extremely difficult to manage because you can never be certain what bills may come in from hospitals, and when they’ll hit your desk. Employees may find themselves in financial difficulties if their policy doesn’t pay out because, unbeknown to them, they happen to have exceeded their annual limit.
When limits are imposed on specific conditions such as cancer, a company may be removing one of the key reasons why individuals chose to join a PMI scheme in the first place.
Removing cover for dependants
Pros: Removing members who are not on the company’s payroll may be viewed sympathetically by employees in the current economic climate, and preferable to reducing their own personal cover. In some cases, family dependants may be covered anyway by their own company PMI schemes.
Where cover for dependants has been removed from a scheme, the option remains to allow members to include dependants on a voluntary basis, and pay for the premium increase themselves.
Cons: Some member of staff may have joined a scheme simply because their dependants would be covered and may object strongly to this being removed.
If a company’s claims history shows few, if any claims, by dependents, then removing them may reduce the premium, but the impact of the move will be limited with claim levels remaining the same.
Restricting outpatient cover
Pros: By reducing the level of outpatient cover from a full refund to a fixed amount of say £500 or £1,000, premium savings of more than 20 per cent may be achieved.
Cons: There are potential issues if outpatient cover is limited. Sometimes, costs can mount up ‘behind the scenes’, especially for diagnostic tests, and if the claimant is not keeping a record, these can cause the annual limit to be exceeded. Consequently, it is important that employers make their employees aware of this possibility.
Excluding psychiatric cover
Pros: Companies that encourage best practice in the workplace and take steps to alleviate employee stress are unlikely to experience high levels of psychiatric claims on their medical scheme – they could enjoy significant cost savings by excluding cover for psychiatric conditions.
For those companies experiencing a high number of a psychiatric claims, PMI cover won’t resolve the root causes of the problems. There’s an argument to say that these companies should address and tackle the issue of why staff are claiming, rather than incur medical scheme claims and any subsequent rise in premium costs.
Cons: If a company has an Income Protection scheme, the insurer may take PMI psychiatric cover into account in is pricing policy. One of the biggest claimant areas for Income Protection is sickness absence caused by psychiatric conditions. PMI psychiatric cover means individuals can get treatment quickly and are less likely to become long-term absence claimants. Removing psychiatric cover may result in losing a discretionary discount from the Income Protection premium.
PMI remains a very popular staff benefit and so for businesses facing the financial squeeze, moves to reduce premiums may prove a better option than the removal of a scheme. Moreover, many employees may not need an all-encompassing policy, while lower premiums will mean lower tax liabilities for them.
Any changes to PMI cover however will have inevitable health, risk or financial implications. Professional advice should be sought.
