Soaring costs of private medical insurance could see employers withdrawing the benefit, with dire consequences for staff absence rates, an HR consultancy warns.
From April employers will have to pay income tax on medical insurance, this combined with another year of high medical inflation, and a likely increase in insurance premium tax will make policies too costly for some employers, according to Towers Perrin.
Early results of a Towers Perrin survey of major companies showed that the benefits issue that concerns them most is the high rate of medical inflation which has been at about 10 per cent for the past 5 years.
Income tax on medical cover will add between 11 and 12 per cent more to the cost of the policy.
Greg Clarke, health and risk consultant at Towers Perrin, said companies would be reluctant to withdraw private medical cover as it keeps down absence by allowing staff faster access to operations and specialist treatment than they would receive on the NHS.
But if the cost becomes prohibitive they may be forced to offer a cash alternative or other benefits instead, he said.
Stephen Clements, senior consultant at William M Mercer, said companies were unlikely to scrap private cover altogether because it is popular with staff. However, they are likely to look for ways of making it more valuable to the company as an absence management tool, to justify the cost.
Kris Bezzant, pay and benefits manager at Cap Gemini, agreed that the rising costs are a worry, but said it will not deter the company from offering the perk. "Our overriding concern is to keep our package competitive and in line with the market so we can continue to recruit the people we need," she said.