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Time to tweak your medical insurance scheme?

1 February 2017

Many switched-on companies have realised that it's well worth offering group private medical insurance (PMI), which can enable employees to avoid the NHS queue and enjoy treatment in a private room at a time convenient to them and their work colleagues.

The cover can both reduce absenteeism and act as a potent recruitment and retention tool.    

Nevertheless, such employers are often failing to offer the most appropriate forms of underwriting for employees and their dependents, and they could benefit from considering different options available to them.

The most common mistake is to have a scheme that uses a moratorium basis, effectively doing the underwriting at the claims stage. Fortunately, virtually none of our clients use this approach as we are loathe to recommend it.

Moratorium underwriting will automatically exclude pre-existing conditions from the last five years for a set period, typically for two years on a rolling basis, but may include them after that if you have been symptom free.

The one real advantage of a moratorium scheme is that it can be implemented immediately because employees do not have to fill in health questionnaires but the potential downsides invariably outweigh this. The essential snag is that employees rarely know if a condition is covered until they actually make a claim, and it can create considerable ill-will if they find that they aren't.

Indeed, we have come across cases where an employee being refused a claim as a result of having a pre-existing condition has led to an exodus of other employees from the scheme, even to the extent that there are not enough remaining members to secure worthwhile premium rates. 

Having a scheme that uses full medical underwriting at outset avoids this problem because, although pre-existing conditions are excluded, at least employees receive a certificate spelling out exactly what they are and are not covered for.

However, nowadays even full medical underwriting rarely represents the most effective solution. Problems can arise in recruitment, especially when employees or their dependents have conditions they have been treated for under their existing plan which would be excluded under a new scheme as a result of constituting pre-existing conditions. We have seen several cases of potential employees not accepting jobs for this reason.

Employers should therefore be considering switching to a PMI scheme at renewal that offers cover on a basis of medical history disregarded. This will ensure that all exclusions are removed and existing claims will continue to be paid. Employers also benefit from reduced administration because no medical underwriting is required at outset.

Although upgrading to medical history disregarded schemes can cost somewhere between 20% and 30% more, this is likely to be worth paying by almost any firms seeking to attract high-calibre employees in today's marketplace. Many hedge funds and other small firms looking to recruit from bigger competitors are in fact finding that they cannot attract the staff they want if they don't offer medical history disregarded.

Indeed, the approach is virtually now a pre-requisite for firms involved with financial services, IT, law and most other professions. High earners quite simply expect to have all their pre-existing conditions covered.

Whereas medical history disregarded used to be restricted to schemes with at least fifteen members it is now increasingly available to those with only ten members. In fact we might even be able to arrange it for smaller schemes with fast growing companies that expect to have ten scheme members within the next six months.

Many employers who should have medical history disregarded never had it brought to their attention at outset, as they were too small to qualify, but have now grown to a size that makes them eligible. So this is something they should be giving serious thought to at renewal. In our opinion virtually any company that still uses a full medical underwriting approach should at least be considering quotes for medical history disregarded at renewal.

If you would like to talk to Chase de Vere about upgrading to a medical history disregarded basis or need advice on any other aspect of your group PMI cover please do not hesitate to contact us on 0345 300 6256.