How poor governance is killing private medical insurance

The cost of private medical insurance for businesses is spiralling due to poor governance. Could this kill PMI and what can you do about it?

Private medical insurance (PMI) has long been one of the most valued employee benefits, giving staff faster access to treatment and helping employers reduce sickness absence and productivity loss.

However, over recent years the cost of funding PMI has become increasingly unsustainable for many employers. Premiums have risen sharply, with Corporate Adviser reporting increases of 60% or even 70% in some cases. While there are multiple factors behind this inflation, one major contributor is often overlooked: poor governance.

Weak governance of PMI schemes is quietly driving higher claims, escalating premiums, and ultimately threatening the long-term viability of employer-funded PMI.

How poor governance drives costs

Unrestricted joining and leaving of schemes

PMI is a taxable benefit, which means some employees, particularly younger or healthier ones, may choose to opt out if given the opportunity. In some organisations, PMI is even offered as an opt-in benefit, rather than being automatically included.

The challenge comes when employees are permitted to join (or leave) the scheme at any point throughout the year, as this allows individuals to opt out of cover while in good health, only to rejoin when treatment is required or if a family member’s health needs change.

This pattern of choosing when to join increases claims spend, while reducing the level of premium contributed to the scheme. As private medical insurance is priced on the basis of claims experience, these higher costs are subsequently reflected in increased renewal premiums for all members.

As premiums rise, the benefit becomes less attractive, especially to younger or lower-claiming employees, who are then more likely to opt out. This leaves a scheme dominated by higher claimants, with fewer non-claimers to subsidise costs. The result is a vicious cycle of rising claims, shrinking membership and ever-increasing premiums.

Over time, this spiral can make PMI unaffordable for employers altogether. In short, poor governance can end up “killing” otherwise valuable PMI schemes.

Voluntary members

It is quite common that employers will sometime allow employees to add their spouse and/or children onto a policy where the employee has to pay the cost of the premium.

Managing this voluntary population is really important or claims will escalate very quickly. Companies should have strict rules on entry and ensure they have rules in place in respect of employees who simply want to add their dependants onto the policy when ill and immediately make a claim. Ignore voluntary members at your peril.

Insuring employees after leaving

Another common governance failure is allowing former employees or retirees to remain on the company PMI policy either until renewal or as part of a severance deal. We often see companies allowing leavers to stay on the cover as they have treatment pending.

Allowing members to stay on your company policy after they have left employment can cause costs to increase dramatically. Companies with the lowest premiums are strict here and demand employees leave the group scheme on their last day of employment.

Why this matters for the future of PMI

The cumulative impact of poor governance is clear: PMI is becoming increasingly expensive and harder to justify. If this trend continues, employers will struggle to demonstrate value, employee participation will fall and the industry itself will face a serious sustainability challenge.

The good news is that this outcome is not inevitable.

Employers need to review their PMI governance

A lack of robust governance increases claims and drives premiums higher – but relatively simple changes can make a significant difference:

Clear joiner and leaver rules: Employers can implement strict scheme rules (often encouraged by insurers) to prevent employees joining purely to claim. This may include annual enrolment windows or allowing changes only after qualifying life events, such as marriage.
Voluntary members: Any voluntary members should be clearly identifiable and have agreed rules in respect of joining and leaving in order to protect the policy.
Late joiner restrictions: Employees who decline cover initially may still be allowed to join later, but subject to medical underwriting. This can prevent claims for pre-existing conditions and discourage joining simply to claim when ill.
Regular membership audits: Periodic audits help ensure all members meet eligibility criteria and that the scheme is not paying for people who should no longer be covered.