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SMEs pay more for private medical insurance, Mercer survey reveals

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Small to medium sized companies (SMEs) are facing higher premiums for providing their staff with private medical (PMI) insurance in 2011, according to new data released this week by Mercer.

The report shows, on average, that premiums for SMEs - defined here as companies employing up to 200 staff - have increased by 10% since 2010. By contrast, large companies in the UK and Ireland are experiencing PMI increases of 4.9%. SMEs are now paying average annual PMI premiums per member of £1,532, up from £1,499 in 2010. Per employee, annual premiums have increased by an average of £78. Data was analysed from Mercer Elect, a specialist service from Mercer, which enables SMEs to provide staff employee benefits of a standard only usually available to larger companies.

The findings on PMI costs for this report were taken from 136 companies renewing their private medical insurance for 2,275 staff during the first quarter of 2011. The increase in PMI premiums for SMEs is driven by a variety of factors, not least the increases set by insurers, now looking to regain margins that were eroded in the recession, when premiums were dropped in order to retain business.

In the background, rising costs of healthcare, concern over the impact of NHS reform and an aging workforce are adding to the upward pressure on the cost of PMI.

However, according to Mercer, SMEs can mitigate these increases by adopting practices that are common with individual financial decisions that of putting pressure on their adviser to get them the best deal.

Donna Biggs, principal at Mercer, said: "We push our financial advisers for the best deals in our personal life, but SME owners seem to largely forget these lessons when assessing PMI for their staff. Companies should look at their broker and challenge them to see if they are capturing the best deals on the market."

As SMEs often provide key members of staff with PMI cover, premiums are subject to substantial increases if an employee's health changed. One firm of solicitors providing PMI cover for three senior members of staff saw the cost of providing cover increase nearly 40% per person from £1,852 to £2,578.

The cost of providing healthcare and health-related benefits to employees is also affecting larger companies, but premiums have not leapt to such a degree. Data from Mercer's 2010 pan-European survey on employer health benefits showed that medical inflation across 14 European countries rose by 3.3% in 2010. Companies in the UK and Ireland experienced a higher-than-average increase of 4.9%.

Medical cost increases have been a feature of the business landscape for several years now as advances in medical research and technology result in development of ever more effective - and expensive - diagnostic tools and medical procedures. In addition, aging populations and financial uncertainty mean governments are cutting healthcare benefit protection levels, in response to shrinking public spending budgets, increasing usage of company plans.

Biggs added: "While NHS reform is on hold, the long-term trend is towards increasing expense of private plans, so managing this cost is essential. PMI is highly valued by employers and a useful tool in attracting and retaining staff."

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