Large employers are being even tighter with their budgets when it comes to their healthcare spend and, as Edmund Tirbutt reports, are crying out for some innovative thinking
It always comes as something of a relief when the major players in a murky area agree on most of the main trends and developments, as is currently the case in the large private medical insurance (PMI) market – for schemes with over 1,000 members. The field so lacks objective research or indeed any other attempt at transparency that there is little any journalist can do to shed much light on hotly contested claims or accusations.
Point of agreement number one among the major providers and intermediaries is that virtually all employers at this end of the market are seeking to squeeze every last ounce of value out of their scheme arrangements, and they are increasingly being assisted in their task at renewal by professional procurement departments – who have brought a whole new focus to addressing inefficiencies and assessing costs.
Nevertheless, point of agreement number two is that, unlike in the SME market, this appetite for penny pinching virtually never results in schemes being cancelled and rarely sees them even switch provider.
Stuart Scullion, sales and marketing director at national specialist intermediary The Private Health Partnership, says: “There are not many switches at this end but a point in negotiations is often reached when the insurer won’t go down any further and, at that point, in our experience the employer normally stays. The most dramatic approach we’ve had has been from a few very hard up large schemes that have reduced the numbers of employees eligible. In the SME market, on the other hand, we have some clients who will switch to save £100 a year in premium.”
The furthest that most employers have been going has been to tweak benefits. Those willing to tolerate excesses have in some cases been prepared to increase them marginally, most commonly from £100 to £150. Others have been prepared to limit outpatient cover to £1,000 or £1,500 or to switch from using hospital list A to list B or C – or to keep list A or B for executives and relegate the remainder to list C.
Paul Moulton, director of sales and client relationships at insurer AXA PPP healthcare, says: “At the large end we have had no-one cancelling but we have seen the same thing happening everywhere in that the number of lives covered has declined marginally. There was a flurry of redundancies in late 2008 to early 2009 and now it’s more a question of not replacing leavers, so we’ve probably only been seeing a 2% to 3% drop in scheme numbers over the last year.
“Rebroking at this end of the market has traditionally taken place every three years but now some employers are doing it annually and others biannually. There is a definite trend towards putting large PMI schemes into flex arrangements, as opposed to cancelling them, and giving employees the option to upgrade and, less commonly downgrade, from a core level of cover.”
“A lot of organisations have been looking at whether to pay for dependents’ cover,” continues Moulton, “and the first step tends to be to make employees contribute towards it at subsidised rates. We also have a few schemes using co-payment at the claims stage, typically using a basis of either 10% or 20% up to a maximum cap of about £500.”
AXA PPP healthcare’s Corporate Health Plan Pathways, which sees it work with a number of identified preferred providers and – depending on location and condition – make appropriate referrals of claimants, has also been making steady progress since becoming available in January 2009. Offering employers discounts of between 5% and 20%, it has already got “tens of thousands of lives” on board.
Commentators are not flagging up claims increases as an issue either, as one might have expected during recessionary times, although some do not altogether rule out a sting in the tail further down the line.
Damian Lenihan, head of client and customer management at Bupa, the insurer, says: “We are seeing a reduction in membership due to downsizing but not as much as predicted and we haven’t as yet seen an increase in claims going alongside it. This has surprised me as I would have expected to see an increase in claims as a result of people bringing forward operations because of job loss fears.”
THE MAJOR PLAYERS
Further notable unanimity is to be found with regard to the current provider hierarchy. Whereas a couple of years ago it was fairly common to refer to a “Big Three” of Bupa, AXA PPP healthcare and CIgNA HealthCare, the rapid progress made by Aviva UK Health in the large group private medical insurance (PMI) market now makes it more appropriate to talk in terms of a Big Four. But no-one else appears to be at the races. Not even PruHealth, whose book has included Standard Life Healthcare’s since this August, seems to be consistently making its presence felt at pitches.
Prior to the Standard Life Healthcare merger, schemes with over 1,000 lives accounted for about 25% of PruHealth’s overall portfolio and it reports having secured a few big schemes of 5,000 to 10,000 lives “during the past one or two years”.
Tal gilbert, head of research and development at PruHealth, says: “All have switched from other providers as a result of being attracted by our engagement aspect. British food companies and American-owned companies generally seem to have a particular interest as they can see the value of investing in employee health. We started picking up large corporate schemes three or four years ago and Standard Life also had a few large schemes but these accounted for a smaller proportion of its book than they do for us.”
Sandra Dalchow, senior consultant at national specialist intermediary Lorica Consulting, says: “PruHealth and Standard Life Healthcare combined hasn’t made a serious player in the large corporate market yet but it has potential. PruHealth is a very interesting concept and we are always mentioning it to large groups but not many are actually going for it. The problem is that once employees have got used to Vitality benefits it can be very difficult to take them away if you want to switch provider. Probably under 5% of schemes we handle are going for PruHealth, the majority are going for the Big Four.”
Simplyhealth is another with potential, having combined BCWA’s modest large group book with significant self-funded business from third party administrators remedi and Medisure and formidable corporate contacts forged through HSA’s cash plan operations. But its better days in this area are clearly still some way ahead of it.
Howard Hughes, head of intermediary marketing at Simplyhealth, says: “We are doing quite well in corporate PMI as our underwriter has been prepared to price competitively but there is a walk-away price and sometimes we have had to recognise the fact and let a scheme go. The corporate market is offering opportunities to grow quickly but not necessarily profitably.”
The one area in which opinions start to become more divided concerns the popularity or otherwise of the self-insured route. But, while spokespeople report slightly different experiences, they are never poles apart. Two contrary trends are at work, and some individuals are clearly being more exposed to one than to the other.
On the one hand, the imminent rise in insurance premium tax (IPT) in January 2011 from 5% to 6% is clearly focusing attention on the merits of taking as tax-efficient an approach as possible. Although the accompanying rise in VAT from 17.5% to 20% on the administration charge will take some gloss off the self-insured route, the administration charge normally amounts to less than 10% of the overall cost. Of particular concern is the general acceptance that if IPT rates change again they are only likely to rise and, although alarmist talk about them rising as high as the VAT rate has noticeably subsided, many feel that a rate as high as 10% is a distinct possibility.
The Private Health Partnership’s Scullion says: “Although our largest scheme previously topped out at 1,000 to 1,500 lives we have now got an appetite for smaller-end big corporates of 2,000 to 3,000 lives because we think the IPT issue is providing an opportunity to increase self-insured schemes. We’ve had a number of conversations with existing clients, new clients and prospects looking at the self-insured route for the first time. They are saying that, as they have an experience-rated group, premiums will go up anyway if claims go through the roof, and I feel that one in four of all our insured schemes with above 1,000 lives are looking at becoming self-insured, whereas two years ago the proportion would only have been one in 10.”
The other major trend, however, is for employers to seek to take advantage of the unusually keen value available from insurers in the current soft market to fix their liabilities. There are even reports of the odd self-funded scheme switching back to an insured basis for exactly this reason.
Mike Blake, compliance director at national specialist intermediary PMI Health group, says: “Employers are being a bit cautious about going down the self-insured route. They must be comfortable with the risks, and scheme members have definitely declined with downsizing over the past couple of years, possibly by up to 5%. So, as the spread of risk is reducing, finance directors may feel it’s worth paying a little bit more to get a fixed price.
“I’ve even come across mergers reducing scheme numbers by as much as 30%, and it is often during mergers and acquisitions when the keenest pricing gets put on the table. The merged party often ends up with schemes with different insurers, and may therefore be looking to consolidate to one insurer. Insurers may want to pick up a bit more membership and worry about claims the next year, when they feel they may be able to hold onto the scheme and increase the price if they impress with service levels.”
Somewhat strangely, going down the self-funded route often does not necessarily also involve using a corporate healthcare trust. At Bupa, for example, well over 50% of group PMI schemes with over 1,000 lives are self-insured but only around 20% actually use trusts. In some cases employers may be put off by the idea that trusts involve legal baggage but this is no longer true, and trustees’ duties are nothing like as onerous as they are with pensions.
There is also a feeling in some quarters that trusts can involve perception and communication issues because they have a benefit that is discretionary rather than guaranteed. But there is no apparent evidence to suggest that employees are any less likely to get paid in practice with trusts. Indeed, the flexibility that trusts offer to cover things not covered by insured schemes means that employees can enjoy even broader cover.
Chris Bailey, principal at national intermediary Mercer Health & Benefits, says: “In the majority of cases it is hard to see why those self-funded schemes out there not using trusts aren’t doing so, and we see the majority of new schemes being written via trust. We have also seen clients being more inventive around benefits in trusts and around the way they are administered. They have, for example, been introducing guided pathways to manage choice of hospitals and consultants and have even been upgrading rooms and providing better newspapers.
“Administration costs on trusts are being driven down and we are also seeing more use of intermediary negotiations to check that stop-losses are the right size. In the past employers would tend to accept the stop-loss level that the insurer suggested but with the economic downturn employees don’t want to pay for more stop-loss cover than they are going to need. Aggregate stop losses used to typically be 133% or 125% a year ago but now some are as low as 110%. There is also more targeted use of specific stop-losses, particularly for cancer, where there is often a stop loss of £50,000 per cancer claim.”
IMPORTANT NEW DEVELOPMENT
It could, however, now be only a matter of time before trusts and self-insurance start being dwarfed by the “Corporate Deductible”, a new concept unveiled by the oh-so-creative-thinking WPA this May (see box). The idea, which essentially treats a large part of the risk as an excess so that the insured element becomes minimal, is as impressive as it is simple. One could be forgiven for thinking that it is too good to be true, but there is no apparent catch.
Adrian Humphreys, managing director, corporate business, at WPA, says: “After having the Corporate Deductible explained to them, one broker even exclaimed that we have all been driving around on square wheels. We have obtained HMRC [Her Majesty’s revenue & Customs] approval and there is no downside but the upside is that you avoid IPT. It wouldn’t surprise me if it catches on like wildfire but it won’t spell the death of the trust because the insurer still decides what’s covered with the Corporate Deductible, whereas with trusts you cover what you like.”
Matthew Judge, technical director at national specialist intermediary Jelf Employee Benefits, cannot see any flaws in the Corporate Deductible except for the danger that if it really takes off there must be a chance during the current economic environment that the government will try and clamp down on it.
Judge says: “In our view WPA is very leading-edge in terms of its approach to these things and it is always looking at innovative ways of getting around problems. People are basically saying that this idea is so simple that they can’t understand why we haven’t all thought of it before. You basically no longer have to self-fund to avoid IPT but the fund must be a big enough size to make it worth it. From the information that I’ve seen to date I would imagine that you would need it to be at least a few hundred thousand pounds in size for it to generate a meaningful level of saving.”
While WPA should be heartily congratulated for the latest and seemingly most significant of a series of impressive innovations during recent years, it also deserves a huge amount of advanced sympathy because there is a limit to how much it will gain from its brilliance. If HMrC does not clamp down on the idea you can bet your bottom dollar that all the major players in the large group market will simply copy it. Perhaps it is time to change the law to allow UK financial services products to be patented?
OTHER COMPANY-SPECIFIC NEWS
In December 2009 CIGNA HealthCare introduced an option enabling claimants to bypass GP consent and self-refer for physiotherapy to Nuffield Health, which uses certain treatment pathways to avoid over-treatment. To date there has been no evidence of moral hazard proving a problem.
This September CIGNA HealthCare also launched a condition management programme for back pain. The idea is to make sure that claimants get the most appropriate treatments and avoid unnecessary ones, like surgery, for conditions that will not actually get better. They are educated in how to understand the source of the pain and taught coping strategies like cognitive behavioural therapy to change their patterns of thought.
This March Aviva UK Health introduced MyHealthCounts for Business for PMI schemes with above 250 lives – a chargeable standalone health risk assessment programme that aims to provide employers with a tangible return within one year. The pricing structure encourages companies to drive engagement and good health outcomes to degrees that achieve sufficiently high uptake.
Using the same Q Score system that underpins Aviva UK Health’s individual MyHealthCounts service, introduced in June 2009, it gives companies access to a wide range of reports and insights to help them identify their key health risks. It also recommends appropriate interventions to help them effectively manage and improve their employees’ health.
For a very low cost, employers can purchase a core package of benefits that includes an online health risk assessment, health reporting and choice of internal communications materials.
The core package can be further complemented by two additional services, which can be funded by employer or employee. The Knowledge Package is a personal health check to measure the employee’s BMI, resting heart rate, cholesterol level, blood pressure and blood sugar levels, and the Activity Package is a kinetic activity monitor to measure the intensity of exercise and the impact it is having.