How healthcare trusts can help to help mitigate rising premiums

As medical costs continue to soar, healthcare trusts are looking increasingly like the wise choice for employers.

Levels of medical inflation cited as anything from 10-15% per annum (net of RPI), depending on your source, have increasingly brought health costs into focus for companies offering medical benefits to their employees.

Drivers for the increases include:

Increased utilisation, with more people looking to overcome the challenges of access to NHS support
Smoother access to private provision, including virtual GPs and self-referral pathways
The continued tail of claims following the pandemic, and the linked aspects of increasing mental health and other challenges
Greater awareness generally of the benefits of good health and wellbeing
Escalating drug and health professional costs; and
New treatments coming on the market

Claims experience becomes an important driver, but increases can lead to a ‘lockstep’ impact.

For example, one year’s poor claims may lead to premium increases that are not recovered if experience improves.

Against this backdrop, an annual renewal can be challenging when looking to re-negotiate rates with insurance providers, typically with the help of a broker.

Viable option

Approaches to the market for comparative rates may not lead to improved terms and any switch comes with challenges, including dealing with claims in progress.

For plans that cover more than a few hundred members, healthcare trusts are a viable option to help manage the situation.

Under this model, medical claims are paid out of a trust.

Rather than paying premiums, the trust is funded by the employer (and possibly also the employees).

Trustees are responsible for the operation of the trust and will appoint a third-party administrator to manage payments from a claims fund to cover the cost of treatment for members.

Trusts can provide several advantages to help with cost management:

Greater transparency of costs, allowing removal of any unnecessary insurer or other margins and ensuring fees cover only the specific support required
The removal of costs and commission that may have been directly linked to premium inflation
Control of funding/pricing through the employer and trustees, with the ability to smooth rates, using funds held in the trust, avoiding highs and lows that make budgeting challenging and can cause problems for successive groups of employees
Crucially, given this isn’t insurance, savings on insurance premium tax, which is not payable on the main funding, but only on any stop loss insurance. That can result in a saving in this area alone of 10-12%
Increased flexibility of provision, allowing adjustment of the package to meet specific requirements or target key areas of interest for the company, e.g. for DEI purposes
Direct oversight of the claims processes and administration, with the help of the trustees and consultants, allowing targeted health and wellbeing interventions for key claims causes
Flexibility over the levels of protection for adverse claims, through a variety of stop loss and reinsurance tools

Trust solutions

For those with membership in the 250-750 range, a master trust may be appropriate.

All of the insurers, offer master trust solutions, as well as specialist trust administration firms such as Healix and WPA with a variety of options to protect against adverse claims experience.

The master trust offers a packaged solution, dealing with the governance and trusteeship aspects alongside the administration.

Larger plans will typically want the greater flexibility that is available through a standalone company healthcare trust.

The requirements of the trust model include registration of the trust, the maintenance of funding records and the filing of accounts.

However, these can be managed through a combination of in-house benefit management, a consultant/broker, the administrator and other third-party support.

The ongoing running of a standalone trust need not be onerous, typically with three or four trustee meetings a year, to monitor claims experience, oversee the administrators, review potential benefit changes, and set rates for the following year.

The trustees may be in-house, but there is increasing interest in the use of independent trustees to provide additional resource and expertise, supplement in-house resources, and provide an independent perspective on the activities.

With appropriate third-party support, management of a trust need not be onerous, and trusts can be an increasingly useful vehicle as part of an overall health management approach, providing further control opportunities for medical costs.