A private approach

Just 1% of employers believe the most important reason for providing health insurance is to reduce sickness absence. The same source, Watson Wyatt’s 2005 healthcare survey of 250 leading UK employers, reveals that most believe the main role of health insurance is to create a competitive benefits package. Providing health insurance as a management perk has its merits, but should this be the real business case for paying for cover?

Insurers claim plans can help to reduce absence. From a knee operation to a heart bypass, private medical insurance provides staff with healthcare when they need it instead of having to go on NHS waiting lists.

“Private medical insurance has traditionally been provided as a perk for white-collar management, but more companies are now providing it for staff at all levels. Policies pay for themselves. If you have just one key member of staff off work waiting for an operation for months, it will pay off,” says Marco Bannerman, head of corporate sales at private healthcare provider Bupa.

Graham Drewett is UK compensation and benefits manager at IT services company Logica CMG. It offers full medical insurance for all its 6,400 employees and their dependants. Extending cover in this way makes commercial sense, says Drewett.

“We want staff to recover quicker to minimise costs. If a partner or child is ill, this will affect the employee’s work performance, so we also want them to get better as soon an possible.”

The scheme, which is provided by Norwich Union Healthcare, costs between £265 and £663 per employee per year, depending on how many dependants are covered. “We see paying for private medical insurance as an investment because if you have an employee who is off work for one day, that’s a day’s lost revenue,” adds Drewett.

Cost is the biggest barrier for employers considering providing cover. For organisations with less than 50 employees, insurers usually base premiums on the age profile of the workforce. This is called a ‘community rating’, and essentially means the younger the average age of employees, the cheaper the scheme will be.

For organisations with more than 50 staff, insurers usually calculate cost according to claims experience. So pricing depends on how many claims employees have made on the scheme in the past. If the organisation is new to private medical insurance, insurers will look at similar organisations they have on their books and use their claims experience as a benchmark to work out the cost.

Susan Stevens is head of HR at Toshiba Information Systems. The firm, with more than 350 employees, has just 3.7 days’ absence per employee each year, less than half the national average in the UK services sector. This, says Stevens, is partly because the health insurance provided by Bupa is offered to all employees as a mandatory core benefit in its flexible benefits scheme. It costs £320 per employee annually to provide this.

“We’ve kept prices down as we have a good claims history,” says Stevens. “It can be a drain if you have a bad year, in terms of lots of operations or employees with critical conditions such as cancer. But we’ve had a good couple of years, which hopefully reflects the fact that our workforce is getting healthier.”

Nevertheless, cost remains an issue for many firms. Julie Martin is payroll and benefits manager at Devonport Royal Dockyard. She says her organisation, which has 5,000 employees, has provided insurance since the early 1990s, but because of cost, it has extended cover to senior managers only.

“We see the role of health insurance as aiding recruitment and retention of senior grade staff, rather than absence management. Certain grades expect to see it in their benefits package,” she says.

Although Martin is happy with the scheme, which is currently provided by WPA, cost is proving a burden. “WPA provides us with the most competitive price, but we’ve still had to reduce how many people are entitled to cover over the past year,” she says.

Insurers are trying to combat rising costs by introducing more benefits for policyholders based on the premise that prevention is better than cure. More private medical insurance packages now include benefits such as health screenings and employee assistance programmes, which offer 24-hour GP phone lines and stress counselling. The aim is to encourage policyholders to be healthier so they are less likely to claim.

“Health insurance today is about offering a breadth of services – a whole wellness proposition. HR now wants schemes to contribute to the health and wellbeing of the workforce,” says Jack Briggs, sales and marketing director at insurer BCWA Healthcare.

Offering support services such as employee assistance programmes can also help HR to argue the business case for health insurance. “Finance directors now have to be attuned to the fact that employers have a duty of care to make sure they are looking after the health of employees,” adds Briggs.

Consensus, a City-based recruitment consultancy, provides full private medical insurance for its 14 employees. It recently changed insurers, adopting Standard Life Healthcare because of the wellbeing services it provides.

Consensus managing director, Martin Tyrell, says: “Employees have online access to a wellbeing programme, which gives medical advice and helps them to monitor their health with self-assessments. It is proving popular. Some insurers charge more for similar benefits, but it came as standard.”

Wellbeing services can be bought separately without health insurance. A number of providers, such as Vielife, Businesshealth and Roadtohealth, all provide options. These services are much cheaper as they don’t provide cover for treatment, but aid health promotion and offer support to encourage staff to become healthier.

If the cost of providing full cover is prohibitive, employers can always offer private medical insurance to employees as a voluntary benefit. This means staff have the option to buy their own health insurance through the company scheme for the group rate, which is often less than half the price they would pay if buying individual cover. Despite this, take-up of voluntary schemes is notoriously low as employees often don’t appreciate the cost savings and still consider the premiums to be too high.

With full private medical insurance, the best way to keep costs down is to keep reviewing your scheme. Like most organisations, Toshiba Information Systems uses a specialist broker to review its policy annually. “The broker comes back with a number of quotes and then we decide whether to move or not,” says Stevens. However, she warns that cost should not be the only consideration. “We also base our decision on the reputation of the insurer and the service it provides. Lower cost doesn’t always mean the best plan if the administration is poor – this is where our broker can share market knowledge to advise us,” she says.

Most people value their health, and providing private medical insurance can be a great way to attract and retain staff. But helping employees to stay healthy and providing quick access to treatment should be more than just a management perk.

Schemes are expensive, so if employers are to get the best value, plans need to include benefits to help prevent employees becoming ill in the first place. If health insurance really can reduce absence and increase productivity, justifying high premiums may become that bit easier.

Benefits of health insurance

– Access to a private consultant can reduce the time between diagnosis and treatment, meaning less time off work and fewer side-effects such as stress

– Access to private treatment can get staff back to work quickly by skipping NHS waiting lists

– Provides wellbeing services – some plans offer employee assistance programmes, screenings and online health assessments for free or at reduced cost

– Helps meet legal obligations – the duty of care to look after employee health

– Enhances recruitment and retention – makes benefit packages more competitive.

Beware of: 

– Rising premiums – with medical inflation at around 12%, if employees make a lot of claims in one year, this can also increase premiums the following year

– Small print – not all plans provide the same cover levels

– Administration – don’t choose a plan on price alone; poor administration can cause headaches

– Getting the best deal – the health insurance market is competitive so use a broker to review plans annually.


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