PMI premiums are growing much faster than the rate of inflation due to a number of factors. One of the main reasons for this is that the number of claims has risen over the years, partly driven by the wider number of treatments available now, some of which, such as those for cancer, are extremely expensive.
Despite rising costs PMI still remains possibly the most popular and emotive employee benefit and employers have been reluctant to stop offering it. To cut costs some employers try offering something other than traditional PMI, such as cash plan products or limited versions of ‘PMI proper’ which, due to very high excesses or little in the way of outpatient benefits, have a very limited appeal to staff. But there are measures you can take to keep PMI costs under control. Here are my 10 top tips when renewing your PMI policies:
- Benchmarking: Get independent advice on how your existing policy compares with other organisations’ policies, including those in your sector, to determine if it’s competitive. Some companies, surprisingly, don’t benchmark and they could be missing the opportunity of getting a more competitive rate.
- Open referral: Savings can be made by using open referral, whereby GPs refer patients to any consultant with a particular speciality for treatment, rather than explicitly naming a specific consultant. The insurer then guides the member to a choice of consultant that has the speciality specified from an approved list that they maintain. This practice can, however, meet resistance from senior executives who are used to using their preferred doctors and hospitals and it may need to be ring-fenced to accommodate their wishes.
- Administration fees: These can vary widely, so it’s worth shopping around. If you run a large scheme, check how much the administration fees are and determine if they are competitive. Also, check whether these fees can be fixed over a two or three year period. Small companies aren’t able to fix these fees in the same way, but it is important that the administration fees they pay are clear and transparent.
- Commission: Determine how much commission is included in your premium and ensure this is commensurate with the work your broker is conducting for you. Look at ways of lowering commission, if appropriate, or check whether it can be netted out of the premium and agree a fixed fee instead, linked to RPI increases (lower than medical inflation). Working on a fee basis also keeps the subscription and P11d liability for members lower. Not all schemes can reduce or net out commission.
- Cancer cover: There are a number of options for financing cancer treatment, but covering all eventualities comes at a large cost to the employer. Most employers opt to provide full cover, however, one alternative option is to use the NHS for the initial diagnosis and treatment, but then go privately for any treatment which the NHS will not provide due to costs. It is also possible to limit the amount of cover a scheme provides by incorporating a financial cap.
- Excess: The introduction of an excess (£100 per person per annum is fairly common) will immediately impact positively on claims risk and provide savings on premiums. While the initial introduction of an excess can create quite a bit of emotion and noise from members, generally it is widely accepted as being the norm.
- Dependants: Ensure members and their dependants only join a scheme at the point of policy renewal each year. If you don’t it will have a significant impact on risks as people could be joining because they are ill. If their treatment is expensive, such as with cancer, this will have major implications for the cost of the scheme. The only exception to this is if a member’s lifestyle changes, for example if they get married or have a child, and wish to add these dependants to the scheme.
- Retirees: Policies need to be designed so that the subscription is neutral for all employees irrespective of age. Historically insurers would double the rates for over 65s. Employers should look to charge a flat rate for all employees and only charge higher rates for any legacy retirees they retain in the scheme. It is, however, advisable to remove retirees from the scheme upon retirement as the risks rise considerably, which impacts the future costs for employers and employees.
- Funding via a Trust: For schemes with a premium around £200,000 or more, it is also worth considering the option of funding the scheme through a health trust. This will give you control over what you cover under your plan and help you to limit your insurance premium tax liability (IPT) which reduces the cost and employee’s benefit in kind tax liability.
- Payment terms: It is worth asking your provider about any savings which can be made by adjusting a policy’s payment terms, which can be worth up around 5% of the premium.
Soraya Chamberlain is head of healthcare & wellbeing consulting at PSHPC
