How & why keeping a lid on PMI costs makes sense

Oct 23, 2018

The PMI industry waits with bated breath to discover whether Chancellor Philip Hammond will apply any further increases to Insurance Premium Tax (IPT) in the upcoming Autumn Statement.

If it is announced as part of the Autumn Statement, scheduled for 29th Oct, that the rate of tax on health insurance is to be increased, the NHS and all those using it will be badly impacted yet again. 

The rate of IPT has doubled to 12% over the last three years. And it’s not helping anyone. Cost represents the main factor for individuals and families when choosing to buy - and keep - health insurance. 

The findings of a study by the Centre of Economics and Business Research (Cebr), found that almost 200,000 individual health insurance customers have cancelled their policies to depend solely on the NHS in the past three years, largely because PMI is simply too expensive. 

The Cebr used data gathered from 2003 to 2017. It estimated that every 1% increase in IPT has led to around 31,000 people moving from private to NHS-funded care. In other words, the government just seems to be robbing Peter to pay Paul: receiving more funding via taxable means yet adding even more pressure onto an already over-stretched NHS. 

At the same time, the individual PMI market as a whole is struggling to grow. LaingBuisson’s most recent Health Cover market report, published in October 2017, revealed a 2.2% contraction in individual PMI policies to 928,000. 

This represents a similar percentage fall as that reported in the previous three years, with the market resting at 1.47 million people covered (2.2% of the population). The corporate market, on the other hand, showed small (0.6%) growth, now covering 5.42 million lives (8.3% of the population). Experts predict that these figures will not change markedly when the next report is published shortly. 

PMI is still a valued benefit. And as the NHS faces ever more pressure as a result of an ageing population, the associated rise in chronic diseases and growing recruitment issues thanks to Brexit, insurers will continue to provide valuable support alongside the UK’s most beleaguered yet beloved institution. 

Industry taking action

So in the absence of fiscal incentives, what are PMI providers doing to help keep costs under control? 

There are numerous cost containment strategies available, their relevance and worth being wholly dependent on client needs. These range from opting for a higher excess or a ‘6-week option’ (where the policy will only provide cover if the NHS waiting list is longer than six weeks) to placing limitations on the breadth of coverage available in terms of out-patient or hospital cover. 

Brian Walters of specialist broker Regency Health says that increasing the excess is invariably the most obvious cost-containment option. “Where the excess is payable once per policy year, rather than per claim, it’s straightforward to work out the annual premium saving and weigh it against the potential liability.” 

Walters says that 6-week options should be treated with caution and the implications explained carefully to the client. He also notes that some cost-containment options may not be reversible at a future renewal and that clients should be made aware of this. “Different insurers have different rules on which upgrades require underwriting approval, and these rules are subject to change. Clients should be made aware that downgrading their cover can sometimes be an irrevocable move.” 

Directional vs managed care

Another option, adopted from the US, is directional-care. This shouldn’t be confused with managed care, which has been around for a while in the UK. 

Whilst both aim to keep costs under control, managed care will direct a claimant to a consultant from their list of specialists and hospitals that have agreed to charge a certain fee level. This option promises to source the best consultant for the condition but it might involve the individual having to travel some distance. 

Clients were taking up this option because it was cheaper but feedback made it clear that not everyone wanted to travel.    

For this reason, VitalityHealth introduced Consultant Select, a form of directional care – the only plan of its type in the UK - which also promises to find the the best consultant for the condition, but has additional service guarantees in place that say the provider will look beyond their panel of approved consultants if the best person can’t be seen within 10 days and / or if the individual has to travel for more than 40 mins. 

In other words, it’s still a cheaper treatment path, but because of the guarantees in place members can in theory have access to all of the provider’s hospital lists. 

It’s also an ideal option for clients who don’t know where they want to be treated. The independent Alliance Health Group is used, ensuring full transparency with regards to data quality and peer reviews, plus consultant led referrals promising “the right doctor, first time”. 

Consultant Select is also signed up to the Patient Charter, guaranteeing that if the member isn’t satisfied with the choice of consultant, they can go elsewhere. 

Ian Sawyer, Managing Director, Assured Futures, says: “It is essential that customers understand the compromises they make when reducing cover, but it is still possible to reduce premiums and still have a very good policy. 

“For those who have a comprehensive level of cover, dropping to limited outpatient treatments (i.e. £1,000) will still cater for the majority of instances they are likely to face. For those on lower levels of cover, reducing the choice of hospitals and removing any additional ‘bolt on’ extras like dental cover can all help reduce costs. 

“There is no right or wrong, it’s just essential to get good advice from an independent adviser and understand the compromises being made.”


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