What medical inflation means for the cost of insurance benefits
From the spiralling costs of food to soaring energy bills, we are all aware that inflation levels are higher than they’ve been for many years. It’s a trend being mirrored by medical inflation.
With medical inflation having been at 5-6% in recent years, it is now being quoted at 9% – and rising.
Wide inflationary factors are behind the increase. Fuel, materials and energy price increases are all hitting bottom line costs for hospitals and clinics. On top of this, the research and development of new drugs and techniques has an impact over and above the underlying inflationary factors.
Scientific miracles are costly
Illustrating the potential cost of new drugs, in February the BBC reported that the NHS has treated a young girl, Teddi, with the most expensive medicine ever prescribed in the UK, a therapy called Libmeldy.
Libmeldy is a one-off treatment, rather than an ongoing cost. However, that single cost is an eye-watering £2.875m (though NHS England has negotiated an undisclosed discount). While the drug is relatively early in its lifecycle (meaning long-term outcomes and prognoses are not guaranteed), NICE, the UK body that assesses drug suitability for NHS funding, says Libmeldy is one of the most clinically effective medicines it has ever appraised.
More people are going private
Compounding the impact of inflation on costs is an increase in the use of private medical services, due to capacity issues within the NHS.
While it is still early to be looking at data for this trend, insurers say they are seeing the numbers of claims rising. There is a corresponding fall in members opting for NHS cash benefit pay-outs over taking treatment privately – which is often an appealing option for members when they can access timely NHS treatment.
This turn towards private provision is particularly marked in primary care. Digital private GP services are now almost standard in the employee benefits market. Many insurance providers are offering them as a value-add benefit attached to private medical insurance (PMI), a group income protection scheme, or a health cash plan, for example.
The rising cost of private medical insurance
In terms of the increase in wider medical inflation, the impact on schemes, while perhaps not catastrophic, is going to be felt almost across the board. Administration rates will increase at higher percentages than previous years, as insurers and administrators respond to wider inflationary factors, and higher increases will apply to claims funds.
Insurers have also started to reassess how they fund digital GP services, as use has increased. Where, previously, insurers have positioned their digital GP add-on as “free,” some are now suggesting that they will include the use of the benefit in the overall claims package, affecting the claims fund for subsequent renewals.
Where providers already separate out digital GP costs, there have been price rises of up to 30% for this benefit. While still a relatively low cost per capita per annum, this is undeniably a significant percentage increase. Despite this, there is a strong argument for it remaining good value for money, given the potential reduction in absence costs which provision of a digital GP service can support.
Increasing PMI premiums affect both the company providing the benefit and the member, who is paying a benefit in kind tax on their company paid premium, and also potentially funding the cost of cover for dependants.
When premiums and rates rise, there is always the risk that those members in generally good health may opt out of the scheme to reduce their tax burden, leaving a smaller population who are more likely to use the scheme. This means that claims could remain relativity static, while the membership has reduced, driving up the rates still further the following year.
Encourage a healthy lifestyle
The ideal way to ensure the long-term sustainability of PMI provision is to have healthy members who don’t need to use the scheme. While not all of this is within employers’ control, statistics show that up to 88% of the UK’s preventable disease burden is lifestyle related.
Through a robust and well-communicated wellbeing strategy, you can support your employees in maintaining a healthy lifestyle, with key areas of focus being physical activity, nutrition, alcohol use, and mental wellbeing. Offering direct access pathways and health screenings can also ensure that members are accessing treatment as early (and therefore as cheaply and, more importantly, as effectively) as possible.
Inflation, including medical inflation, has placed more pressure on PMI and is likely to result in higher costs for employers and scheme members. There are actions that employers can take to mitigate these impacts.
Where viable and appropriate, your scheme should also be regularly tested against the wider market. This enables you to ensure that you are accessing the most competitive terms available and that you are still getting best value out of your benefit budget.
Supplied by REBA Associate Member, Gallagher
Gallagher is a global, integrated HR consulting, benefits administration & technology services provider.
