Are private medical schemes paying too much to cover too few and could tiered benefits provide a solution, asks WPA's Ellis Turley.
Rising costs of medical treatment coupled with higher utilisation (often affected by the perceived state of the NHS and the postcode lottery) mean that costs continue to rise and sustainability remains high on most agendas.
We can all continue to review and discuss cost containment with our customers but most, these days, have at least one major cost containment in place ranging from excesses and co-insurance through to benefits caps and cancer exclusions.
Whilst we can continue to implement more cost containment initiatives, this will no doubt result in further erosion of the benefit in perceived terms as well as financial ones. As P11d rates rise accordingly, the appeal often diminishes, particularly to those on the lower pay grades - typically the younger population that aren't claiming and no doubt more of them will give up their cover in the future.
At the other end of the scale there are those that simply want the best cover, may already be claiming and are willing to accept a higher personal cost. All of this could lead you to thinking that a "traditional" medical scheme is not the solution for all the stakeholders that it once was.
Perhaps if we forget traditional thinking we can come up with solutions to modern problems. One such solution would be to provide a wider range of benefits, delivered through a tiered benefits approach that enables an ideal framework for both the employee and employer to meet their respective needs.
For the employee they can select benefits that they value the most, at a P11d cost they are more willing to accept.
For the employer they can provide more choice (or more entry points) and cover a greater section of the workforce with no impact on spend.
Tiered benefits could be made up of any combination of benefits, including full PMI, in-patient only, NHS top up, swift diagnosis, dental and much more. Including the ability to select different underwriting terms at different levels.
Fig 1. Population movement based on 100% of the population having Comprehensive PMI prior to the introduction of Tiered Benefits. 5% of original membership broadened cover, 50% remained on comprehensive cover while 30%+15% reduced their cover to a level that was more appropriate to their requirements. Two additional benefits are the 15% reduction in premium and the additions of 500 new lives to the scheme at an NHS Top-Up level.
Tiered benefits has a unique attraction - providing benefits to more of the workforce without significantly increasing the cost of the benefits as a percentage of payroll. A initial reduction in premiums could even be realised
One concern maybe the potential for the value of claims to remain disproportionately higher even with fewer members. This risk can be greatly mitigated by restricting the NHS Top Up tier to an entry level only - for those not currently eligible for private medical cover, so we are not left with current claimants only on the PMI levels. However, even if costs rise in the second year, you can see in the example given there is still a margin of c18% before the premium gets to the previous level which should give the employer some comfort.
As for the employees remaining on full PMI, it is true their P11d rate may rise more sharply in year 2, but this is the reality of the benefit they are receiving and left to normal forces (more non-claimants dropping out of PMI as P11d increases) we would get to this point eventually. Perhaps a step too far for some businesses, which is why the tiered benefit framework is an ideal structure to build the model that works for each unique customer's requirement and risk appetite.
NHS Top Up could be the starting point for those employees not entitled to private medical cover - voluntary upgrades to higher tiers could be catered for
WPA firmly believe tiered benefits are the way forward for company PMI schemes to ensure sustainability and to avoid fully comprehensive PMI schemes going the way of the final salary pension.
Evolution is a slow process and tiered benefits are only a small tremor rather than an earthquake. But this small tremor could move us all towards a corporate healthcare provision that thrives in the future - benefits valued by the entire workforce through a framework built for flexibility and better overall value for the employer.
Ellis Turley is the Operations Director of WPA Protocol Plc, part of the WPA Group.
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