Following claims that employers may face an extra £1.1bn PMI bill over the next five years, Kirstie Redford asks Adrian Norris what the industry can do to keep group schemes affordable
Adrian Norris has hit the headlines over the past few months, substantiating claims made by healthcare consultancy Buck & Willis that employers will see group PMI premiums rise by as much as 70% over the next five years. Despite criticism from ' unsurprisingly, a handful of group PMI providers ' Norris, who is managing director of Buck & Willis, stands by his firm's predictions and says others in the industry are backing them too.
'There was some suggestion from a couple of insurers that we somehow overcooked the figures and were scaremongering,' says Norris. 'But actually the vast majority of people that we have had contact with, including our competitors, have said that we were absolutely right. Where surprise has been expressed, it has been surprise that one or two parties have said it was not correct.'
The key point to remember in this debate is Buck & Willis' predictions only stand firm if the current situation ' where medical inflation is high and companies are doing little to reduce costs ' remains constant.
So is it likely we will see a 70% price hike? 'No, to be fair I do not think we will,' says Norris. 'There are few companies that can contemplate their costs going up by 70%, so they will be doing something about it.
'If you look back over the last five years you can recognise the same inflationary impacts have been in place, yet there are few schemes that have seen the kind of cost increases that we are describing over the next five years. The reason for this is that companies have been making changes by putting in cost containment measures and rethinking the way they present benefits to staff. There are plenty of examples of how you can take steps to mitigate some of these increases,' he says.
Providers blaming rising premiums on medical inflation is nothing new and a response that is often frustrating for advisers when explaining continuing price increases to their clients. Some working in the industry claim insurers should be cutting costs in other ways to help combat the impact of medical inflation. However, Norris says saving money elsewhere would make little difference ' the only way to help cut costs is for insurers to look at the way they purchase healthcare and focus on getting clients the best deal.
'The administration costs are something in the region of 10-15% for schemes. That is a minor issue compared to the 90% you are paying for the cost of your treatment,' he says.
'The question is: what discount can you get on that 90% of the spend? If you can start impacting on that, it is far more significant than getting a saving on your administration costs.'
According to Norris, reducing the cost of healthcare needs to start with those responsible for prescribing the treatment ' doctors. He believes healthcare bills could be cut if treatment is managed more efficiently.
'As the NHS knows to its cost, it is terribly easy for clinicians to get a little over enthusiastic with the tests that they have done on patients to make sure they have checked everything out. But each one has a price attached to it. No one is setting out a perfect treatment route for any particular situation ' it is all down to the doctor. This is a direction the industry as a whole has to start moving towards ' some sort of measurement of outcome in relation to the input,' he explains.
Clients also have a role to play in pushing down group premiums, says Norris. Too many employers are paying for benefits their workforce could live without ' they just do not realise it.
'Employers need to think about whether they should be more restrictive about what they pay for. There are relatively painless choices ' being aware of what product combinations exist, and delivering a benefit that to the eyes of the recipient feels like the same benefit they had before, but actually saves some real sums of money,' he says.
Norris explains Buck & Willis has taken the concept of price capping one step further, by passing some healthcare costs onto employees so employers can control their costs more effectively.
'We have been talking to several of our clients about the idea of following the same approach as is being taken with pensions, moving to something that is more controllable. We have defined liability pensions ' why not defined liability healthcare? Instead of being at the mercy of whatever illness patterns crop up within your staff, set up a framework in which you have control over cost increases. Clearly to make that work, you may need to narrow the cover to fit your spending plan or narrow the availability of the benefit to different staff. You could also push some of the cost across to staff so there is a shared cost and shared responsibility.'
Shared responsibility has received much attention in the individual market and is a feasible solution to help companies shed some of the cost for traditional employer-paid schemes. However, even if premiums do increase to the extent Buck & Willis has deemed possible, Norris is confident that with an increasingly failing NHS, demand for private cover with outstrip cost over the next few years.
'We are on the verge, over the next few years of finding many more people have PMI at the top of their shopping list. If they do not have it provided by their employer, they will be looking to buy it themselves. That is why the industry needs to be increasingly gearing itself up to have the innovative products available to meet this demand,' he says.
