An introduction to private medical insurance

Healthcare

Private medical insurance: executive perk or absence management tool?

Sickness absence is a key issue for UK business. When employees fall ill, the imperative is to get them diagnosed correctly, treated effectively and back to work as quickly as possible. And that’s where private medical insurance (PMI) comes in. Once upon a time, PMI was considered an executive perk most commonly found at director and managerial level.

However, over the years, employers have realised the benefits of offering private medical schemes – which cover the costs of private medical treatment for curable short-term illness or injuries (often referred to as acute conditions) – for all levels of employees, viewing it as an essential absence management and staff retention tool.

Despite the recession, PMI has remained the most commonly available health benefit, provided by around two-thirds (66.4%) of employers. According to the 2010 XpertHR study of over 440 organisations, senior executives fared the best with 57.1% of firms offering PMI to directors, while over half (53%) provided this benefit to managers, and one-third (35.4%) to other staff.

According to Paul Ashcroft, principal and head of sales/health and benefits scheme at consultancy Mercer, the market has changed considerably in the last 25 years, since Bupa and PPP dominated the scene: “PMI schemes have evolved quite dramatically: the style of benefit; what you can and can’t include. Employers can put an excess on the scheme so employees have to pay part of their claims.”

Today, there is a large PMI market, ranging from Aviva and AXA PPP to smaller not-for-profit organisations such as Simplyhealth and WPA. Levels of cover can vary from basic – covering acute, curable short-term illnesses and injuries that are expected to respond quickly to treatment – to comprehensive/critical cover, and cancer cover, which may be required over a long term.

Tailored packages

Some employers may be deterred by the perceived expense of setting up PMI schemes but there are plenty of ways costs can be reduced. And plenty of organisations tailor packages to suit their needs. The XpertHR study found that airline meal supplier Alpha Airfayre provides family cover for directors, partner cover for managers and single cover for other employees. Elsewhere, software company IRIS offers family cover for managers and directors compared with single cover for the remainder of its workforce.

Using an intermediary

In addition, while some employers buy in PMI directly, many choose to use intermediaries/brokers with specialist knowledge, as they can often fish out the most cost-friendly deals, provide expertise and remove some of the administrative burden.

This guide is designed to help you answer any questions you may have. It will examine the benefits of PMI, cost implications, the types of providers and packages available, whether you should use a broker or buy directly, how easy it is to switch provider (and employee considerations if you change), and tax implications. It will also look at the option of corporate healthcare trusts (HCTs), which may be more cost-effective for larger employers.

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