Hike in NI payments could hit numbers taking up private medical insurance

Millions of employers and employees stand to lose spending power as a result of the 1.25% National Insurance (NI) hike, which is due to come into effect on 6 April 2022 and will become the Health and Social Care Levy from April 2023.

And in the longer term, this could have far-reaching consequences for the health and wellbeing benefits marketplace.

The impact of the NI hike

For someone on the median basic rate taxpayer’s salary of £24,100, the new NI rate equates to a tax increase of £180 a year, while for a worker earning a typical higher rate taxpayer salary of £67,100, the annual difference will be £715.

For businesses, meanwhile, Class 1 NI contributions will rise from 13.8% to 15.05%, pushing the cost of employing someone on a £30,000 salary up by £265 a year – or £7,950 for 30 employees being paid at that level.

With so much more money going towards ‘healthcare’, cutting back on employee benefits such as private medical insurance (PMI) is one way employers could look to balance their budgets.

“When looking at the employer cost related to the increase, the sums can, in some cases, well exceed the premiums being paid for an employee to participate in a company-funded PMI plan,” said Bruce Eaton, director at Health and Wellbeing Services company Medipartner.

He believes that increasing NI to provide funds for the NHS could have the unintended consequence of reducing access to employer-funded PMI, further increasing the strain on public healthcare resources.

NHS backlogs

PMI is designed to offer policyholders an alternative to publicly available healthcare via the private health system. And one of the most widely cited benefits of this is to avoid NHS waiting lists, which are currently at historical highs due to the Covid-19 pandemic.

According to the latest figures, the number of people waiting for treatment is close to 6 million, up from 4.43 million in February 2020.

This situation has prompted some employers to start offering PMI for the first time. However, overall policy numbers remain relatively low, with only around 3 million of the working population having access to employer-funded PMI according to figures from LaingBuisson's Health Cover UK Market Report.

PMI costs

Medipartner’s research indicates that the average tax by salary for participation in a company-funded PMI plan (based on average premiums quoted by LaingBuisson) is £559.75 a year.

The bad news is that this amount is likely to rise due to NHS backlogs – increasing the probability of it becoming a cost too far for both employees squeezed by higher living costs and employers facing rising payroll costs.

“Waiting list increases and a period of limited access to health services mean we could also be looking at an rise in policy usage and therefore a period of increased premiums by way of adjustment to increased demand and subsequent claims,” Eaton said.

“Add this to the NI increase and the cost of living and many corporate PMI buyers could well be faced with decisions they do not want to contend with.”

While he expects some employers to take a long-term view and swallow any premium increases to continue providing appealing private medical benefits, he also thinks more companies will start to choose a cost-effective approach designed to complement NHS services as a result.

Innovations

In fact, a growing number of employers are already focusing on innovative benefits that aim to meet company goals of improving employee health and wellbeing.

The rationale is that, as it’s undoubtedly cheaper to prevent health problems than to treat them, concentrating on encouraging the workforce to take positive action to reduce their chances of developing health issues later in life should prove an effective way of future proofing healthcare benefit spend.

“In the immediate term, practical health-supporting initiatives that can work across the public and private health systems would seem to be the most cost-effective and logical approach towards whole-of-workforce health and wellbeing participation,” Eaton added.

One thing that seems increasingly certain as external and internal forces combine to usher in a new era in employee health and wellbeing is that traditional solutions will have to evolve to continue to meet employer needs.

Author is Andrew Woolnough, director, Equiniti HR Solutions

This article was provided by Equiniti