Weekly dilemma: Ending permanent health insurance cover

Our staff receive permanent health insurance (PHI) until they are 60 years old. I understand this may no longer be allowed because of age discrimination regulations. The cost will increase if we have to cover staff up to 65 and more for those over 65. We are considering refusing the benefit to staff over 60 due to cost, or even ceasing cover for all staff. Is this legal, and what steps would we need to take?

Since the age discrimination laws came into force two days ago, it is unlawful for employers to cease to provide PHI to employees when they reach a certain age, unless you can objectively justify the differential treatment.

The Department for Trade and Industry stated during the public consultation process that ‘cost alone’ was unlikely to provide sufficient objective justification. There may be so few staff over the age of 60 or 65 that the actual increased cost could, in fact, be reasonably absorbed.

If the insurer will not continue the cover past a certain age, this may be objective justification for ending the benefit. But you should first consider whether self-insurance is a viable option.

A short-term fix might be to refuse to employ beyond the current retirement age. However, the government has committed to review the default retirement age in 2011 and the current default age of 65 is subject to a judicial challenge.

You could remove the benefit for all staff, or reduce the extent of the cover for everyone to absorb the increased cost of extending the cover to staff over a certain age. This would remove the age issues, but be aware that unless the benefit is entirely discretionary, this could lead to claims for breach of contract.

If the benefit is to be limited to certain age groups, you should prepare written impact assessments setting out what has been done to address the issue and why you will be limiting the benefit. If the reason comes down to cost, then the assessment should set out exactly why the cost could not be realistically absorbed by referencing your company’s accounts.

You should also keep the assessment under regular review, at least annually, as business circumstances and the range of insurance products available will change over time.

Deborah Hely, partner, employment, Beachcroft

Each week we ask the experts to answer your legal dilemmas. If you have a legal question or dilemma, e-mail dawn.spalding@rbi.co.uk

 

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