Providing private healthcare for employees is undoubtedly a costly business. A study carried out by IRS in 2008 found that basic PMI premiums cost around £506 per person, per year.
However, the research showed that PMI premiums are usually tailored to the specific claims of each employer’s scheme, as well as reflecting the range and value of the benefits offered. As a result, individual employers’ PMI payments can vary considerably. The highest in the study was more than £3,000 per person per annum.
It also revealed that many of the largest employers (those with 1,000 or more employees) are setting up self-insured schemes, known commonly known as healthcare trusts (HCTs). Under these arrangements, the employer acts as its own insurer and assumes the risks involved in being required to finance what are unknown future liabilities for its members’ healthcare costs. According to Richard Saunders, business development director of the Healix Group, the employer can keep any monies if claims are lower than anticipated, rather than the insurer taking the profit.
Another benefit is that healthcare trusts are not insurance and therefore do not attract insurance premium tax (IPT), which is due to increase from 5% to 6% in Jan 2011. There is a small element of IPT if aggregate or specific stop-loss is arranged by the managing company on the employer’s behalf.
However, Charlie MacEwan of WPA warns that healthcare trust schemes are only viable for large organisations. “Our view is it needs to be 400 [staff] before you consider it. If you’ve got the low claims volatility you can go for it.”
However, the IRS study also showed that large employers that do not self-insure can reap the benefits of their size by being able to negotiate preferential PMI terms that are not available to employers with smaller healthcare schemes. The median annual payment per person was found to be almost 9% lower among employers with the largest workforces than it is among employers with the smallest number of employees: £495 compared with £543.
Another option for large employers is a risk-sharing insurance contract, in which the employer covers a proportion of the claims cost. This would usually be combined with stop-loss cover to limit the annual claims cost.
One option for employers that cannot afford to finance PMI schemes is to negotiate with PMI providers to offer discounted medical insurance to staff. The employee then foots the entire bill, but still gets private medical insurance at a cheaper rate.