What every employer needs to consider as medical inflation makes private medical insurance premiums a difficult pill to swallow

The UK healthcare system – both state and private – is in the middle of a perfect storm.

There are three primary causes for this.

1. The Covid-19 pandemic

The Coronavirus pandemic had far-reaching effects on overall health and wellbeing.

During lockdown, many people were left unable to access treatment and diagnostics. Home working created an increase in musculoskeletal (MSK) conditions due to inappropriate desk and seating. Not to mention the rise in mental health issues and problematic diseases progressing due to delays in diagnoses.

According to the Office for National Statistics (ONS), the number of people deemed economically inactive due to long-term sickness has risen to more than 2.5 million – an increase of more than 400,000 since the start of the pandemic[1].

2. Geopolitical issues

The war in Ukraine and the ensuing energy bill crisis has affected individuals, businesses, and hospitals alike. Meanwhile, the cost of living crisis has had a further knock-on effect, with costs from GP consultations to insurance claims rising at every stage of the process.

The cost of living crisis is also having a detrimental effect on people’s health and wellbeing.

Money worries are one of the biggest causes of stress for UK employees with 4.2 million workdays lost each year in absences because of a lack of financial wellbeing, equivalent to £626 million in lost output[2].

3. NHS industrial action

NHS strikes during 2023 have led to record numbers of patients waiting prolonged periods for treatment. In fact, the waiting list for planned NHS treatment in England has gone up to a record high of 7.75 million[3].

The NHS 18-week target states: “The maximum waiting time for non-urgent, consultant-led treatments is 18 weeks from the day your appointment is booked through the NHS e-Referral Service, or when the hospital or service receives your referral letter[4].”

The last time this target was met was in 2016[5].

In October 2023, the BBC reported that the number of people waiting more than a year for treatment currently stands at 397,000, with nearly 9,000 people in England estimated to have been waiting more than 18 months to start their treatment[6].

The outlook remains bleak

Now winter is here, we face the threat of new Covid strains, on top of the usual seasonal illnesses.

This will undoubtedly mean that the number of patients facing long NHS waiting lists will increase even more.

Plus, with ministers recently rejecting an NHS plea for £1 billion to cover the cost of strikes by staff, unless an agreement is reached, hospitals expect to reduce the number of planned operations they perform over the next few months, too[7].

As you might imagine, these issues have a far-reaching impact on the UK economy, the employment and labour market as well as insurances and employee benefits.

Private healthcare hasn’t escaped unscathed

Private healthcare has also seen a considerable shift. As well as increasing demand due to the issues affecting the NHS, it is also seeing a sea change thanks to advances in medical insurance.

In this digital age, private medical insurance (PMI) members are becoming more aware of the benefits that are made available to them and more savvy in utilizing them. Digital GP services, direct access pathways, and open referral care all add up to creating a much easier and quicker claims journey.

In recent months the medical insurance profession has faced significant challenges, such as:

• A dramatic rise in the incidence of claims, with more people making claims than ever before
• Higher treatment costs charged by providers, who themselves have faced a significant rise in operating costs
• An increase in claims for diagnostic tests, driven by the widespread use of digital GP services that are leading to more referral for investigations and tests
• An increase in “bounce back” claims related to mental health and cancer treatment impacted by the Covid-19 lockdowns.

Now we are seeing an increase in medical inflation

All the above problems have combined to cause an increase in medical inflation.

Indeed, for the last 20-plus years, medical inflation has typically remained at around 10.5% but in recent months has increased closer to 20%.

This will have a direct impact on renewal premiums.

Additionally, recent changes in claiming behaviour means that insurers can no longer rely on the past three years’ claims activity to predict the required renewal premium. In fact, the current year’s performance now has a much stronger influence on pricing.

As a result, insurer’s pricing philosophies have become more cautious.

Following the data, they are now assuming that customers are more likely to claim and this, coupled with medical inflation, is leading towards unprecedented price increases.

What can employers do to balance employee benefits with increasing costs?

It can be extremely difficult to strike a balance between budgeting for employee benefits v the impact on the business for not providing them.

And, given the problems impacting the NHS, the state healthcare system cannot be relied upon to assist with returning employees to work.

Where PMI was once considered a luxury, instead of asking “can we afford to offer it?”, more and more employers are instead asking “can we afford not to?”.

While it’s impossible to prepare for the unexpected, knowing what’s happening within the NHS and private healthcare market does provide valuable insight towards steps that you could take to be better prepared for this new normal.

Premiums for new and existing business are likely to be higher than expected. So, if you have a PMI scheme and are yet to renew, we recommend that you budget for a cost increase of at least 25%.

This is a significant cost increase, and many businesses may find it difficult to absorb. As such, now is an opportune time to ask yourself:

• What sacrifices are you prepared to make to your benefit structure, to contain costs at renewal?
• What savings can you make elsewhere on other benefits? For example, is your pension scheme on a salary sacrifice basis, could you achieve a lower annual management charge by reviewing your current pension scheme?
• What mental health support do you currently offer to employees and is it fit for purpose?
• Do your staff have access to support for MSK conditions or are they reliant on the NHS?
• Are there any gaps or overlaps in the benefits you’re providing? 
• Are your employees aware of the value of their overall benefits package or could engagement be improved through a benefits platform?

When assessing the cost of your benefits package, remember that it’s not only PMI that has seen a steep increase in claims. Cash plans and dental insurance policies have also been affected.  

Meanwhile, the increase in mental health issues has also led to a rise in group income protection claims for long-term absence. This, in turn, means you should also expect premium increases on other benefits.

Get in touch

Now is the time to look at what benefits you already have in place with a fresh pair of eyes and we’re here to help.

We can help you understand:

• Ways you could maximise your return on investment
• What sacrifices you could make
• Where you could make improvements to your benefits package while keeping costs at the forefront of considerations.

Please get in touch to speak to our team of experienced specialists. Email info@aspirafp.co.uk or call us on 01454 632 495.

Please note

This blog is for general information only and does not constitute advice.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions.

[1] https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/economi...

[2] https://maps.org.uk/en/work-with-us/financialwellbeing-in-the-workplace

[3] https://www.bbc.co.uk/news/health-67087906

[4] https://www.nhs.uk/nhs-services/hospitals/guide-to-nhs-waiting-times-in-...

[5] https://commonslibrary.parliament.uk/research-briefings/cbp-7281/

[6] https://www.bbc.co.uk/news/health-67087906

[7] https://www.theguardian.com/politics/2023/nov/08/surgical-operations-to-...

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