“We regularly see cancer claims for £100,000 and a complicated heart condition can easily rack up a claim of £25,000 to £30,000,” says Wayne Pontin, sales director at Jelf Employee Benefits, the national advisory firm. “A small group would need to keep topping up their healthcare trust fund to cover these types of claims.”
Stop-loss insurance, which is commonly added to healthcare trusts, does reduce the need to keep dipping into the company funds. Essentially a catastrophe cover, this will pick up the tab when claims breach a set level. For example, on a £1m claims fund, stop-loss insurance at 125% will kick in once claims of £1.25m have been paid.
Although this provides a valuable safety net, Pontin says it is not a ticket for groups with more volatile claims experience to move to healthcare trusts.
“If the claims experience is volatile the stop loss premiums will be high. Stop-loss insurers will assess the risk and they won’t take on schemes where there’s a high risk that they’ll have to pay claims,” he explains.
Another indication that smaller groups are feeling more uncomfortable taking on additional risk comes from the insured sector of the market, where more and more schemes with anything from 100 to 200 members are moving from experience rating to community rated pricing.
This trend has been noted by WPA’s MacEwan but also by Steve Bradley, client director at Lorica Consulting, the national intermediary.
“We are seeing more interest in community pricing,” he says. “Companies are worried about rising costs and they like the security of stable pricing that’s available with community rating. The only trouble is this move tends to happen after they’ve been hit with a large rise on an experience rated scheme, which means they’ll be offered a higher price on community rating too.”
But while the tougher economic climate appears to be increasing companies’ desire to shelter from the price hikes that claims volatility can induce, self-funded healthcare for smaller schemes still has its supporters.
“It’s not for everyone and if it’s a very standard employer with a very standard risk profile it won’t be right for them,” says Lawson. “A scheme for 100 members would be unusual but we do have clients that have very different risk profiles that just don’t gel with insurance.”
Age is one of the factors that can make medical insurance scheme underwriters twitchy. Once scheme members hit their sixties, community rated pricing will start to reflect higher claims probability, even though claims won’t necessarily materialise. Lawson says this has been a factor behind some of the schemes she’s set up, including one where the average age was 72. Retirees are another group where self-insurance may be preferable.
“I’ve seen companies that deal with their retirees through a separate self-funded arrangement,” says Simplyhealth’s Hughes. “Benefits can be tailored to their needs and it also helps to keep their claims experience out of the main scheme.”
It’s not just groups that sit outside the underwriters’ risk models that are well suited to trusts. The complete flexibility of the benefits that can be included on a trust also gives them appeal, allowing groups to include benefits that would not ever be seen on a medical insurance schedule.