With private medical care such a popular perk for executives, companies are treading very carefully on cost containment issues.
Anyone who wonders why private medical insurance (PMI) is the senior executive's second favourite perk - the company car comes top in most polls - need only sit in an NHS hospital waiting-room for instant enlightenment.
Despite everyone's best efforts and intentions, the tedium and the frustration are endless. PMI may be socially divisive, even morally questionable (should healthcare be a purchasable commodity just like any other?) but executives and their companies like it because it puts them back in control, of time if not of illness or injury. People are seen quickly, at times that suit them rather than the system, and for non-emergency surgery, the waiting lists in the private wing are short or non-existent. At the last count about 6.3 million people were covered by PMI in the UK, more than 60% of them by schemes paid for by their companies, and the numbers are growing.
But there is a snag. Premiums are rising fast as insurers struggle to cope with medical cost inflation, which, as a result of the expense attached to such things as new medical technology, runs several percentage points ahead of the retail price index. Companies, cost conscious as they emerge from recession, have found themselves faced with a dilemma. They don't like the fact that they are having to fork out more for PMI but dare not cut back too heavily on a key element of the benefits package. Private medical insurance is part of the deal that attracts senior executives to the company and holds them there.
One solution which has emerged recently is so-called managed care, an idea imported from the US in which the insurance company becomes much more involved in the nuts and bolts of healthcare provision. It uses its influence to control treatment costs by constantly monitoring medical procedures and discussing more cost effective methods with the hospitals and doctors providing the care.
A key element in many managed care schemes is the preferred provider arrangement, a three-cornered deal in which the company agrees to use specialists and hospitals nominated by the insurer in return for competitively priced premiums. In theory at least everyone wins. The company gets lower premiums, the hospital gets lots of profitable business since all company employees will be sent there, and the insurer gets a degree of influence over procedures and costs in return for the business it is putting the hospital's way.
Glass manufacturer Pilkington has such an arrangement with PPP, one of the leading PMI providers, and the local Fairfield Hospital in St Helens. Bob Lunt, Pilkington's group remuneration manager, says that in the two or three years following the introduction of the programme it has saved about 15% on its costs. 'The benefit to Pilkington is reduced cost, without affecting the quality. The benefit to the hospital is that they hope to get higher volumes, and the benefit for PPP is that they retain Pilkington as a client because we're satisfied that we're getting the most cost-effective arrangement.'
Managed care is attractive to companies precisely because it is based on the ideas of cost containment and quality improvement which are central to their own businesses, but insurers are being cautious about the way they introduce it. They must be careful that they do not overstep the mark and alienate either the medical profession, by seeming to encroach on clinical freedom, or their customers by appearing heavy-handedly prescriptive about what claimants may or may not do. Herein lies the paradox: if insurers take a softly-softly approach to keep patients (and doctors) sweet, they limit their own room for manoeuvre on cost containment, yet cost (and consequently premium) containment is what the customer wants.
'Employers will increasingly demand evidence of efficient management of medical expenses schemes,' says William Laing, a director of the London-based health services consultancy Laing & Buisson, 'but so long as private medical insurance remains a luxury purchase or a senior employee benefit, companies aren't going to be ready to support the more aggressive approaches to cost containment that you see in the United States where, for example, you get non-reimbursement in the event of failure to comply with clinical protocols.' In America the insurer might insist, for instance, that the patient goes to a preferred hospital 100 miles away. That insurer could never do so here, says Laing, because in the UK the PMI patient is paying a lot of money to get special treatment.
'Clients with private medical insurance in this country wouldn't accept the restriction on choice. They have been pushed around in the National Health Service, they don't want to be pushed around if they are paying again out of their own, or their employer's pocket.'
Laing believes the insurers could become more aggressive, however, if they succeed in their aim of taking private medical insurance more downmarket.
'The hope of the medical insurers is that they will be able to expand downwards from the top echelons of management to middle management and then other employees. If that does take place, one could imagine that those newcomers would be more likely to accept a more directed product, so more managed care would be possible.' The interesting question then, of course, is whether one would face a situation where, with apologies to Orwell, 'all care is managed but some care is more managed than the rest'.
However the managed care dilemma is resolved, the experts believe the PMI habit will grow rather than diminish. Laing & Buisson projects that the number of people covered by PMI by the year 2000 could be more than 7.9 million. 'It's really all a question of money,' says Laing. 'Will people have the disposable income (which they use to buy PMI as individuals and to top up company paid PMI with, for instance, spouse's cover) and will PMI be pitched at the right price? The answer to the first will be yes, whether the second is yes is yet to be determined.'
Laing thinks the much-heralded end to company downsizing may also have an effect. As companies start to re-recruit middle managers, they will have to think about things like PMI to attract staff. 'Companies are going to have to motivate and reward these people.'
If other experts are correct, there may be some changes in the pattern of coverage among those whose premiums are paid by their companies. The arrival of another American innovation, flexible benefits, on these shores is making some people question how much medical cover they need. The idea is that employees are allowed to pick-and-mix such benefits as company cars, mortgage assistance and pensions, taking cash in hand if they don't, for instance, want or need a car. Benefits expert Mike Elworthy, a consultant with William M Mercer, thinks that while companies will go on insisting that the executive's own PMI deal is a core benefit and not commutable, benefits for dependents, for example, will be more negotiable.
Alongside PMI, many companies now provide permanent health insurance (PHI) protection for their senior executives against long-term periods of absence through illness, and some are also offering relatively new products like dental insurance. 'At the moment,' says Elworthy's colleague Mike Tyler, 'dental insurance is seen as optional. Very few companies have moved to the situation where they are buying it for the employee themselves. They're making it available on a group basis but individuals have to elect for it and pay for it. A very limited number of companies pay for it totally if those involved are very senior employees.'
Private Providers - The competition grows
There are more than 20 companies looking for private medical insurance business in the UK market. Eight of them, including the market leaders BUPA and PPP, are non-profit distributing provident associations, the remainder commercial insurers and mutual societies.
BUPA and PPP between them account for more than two-thirds of the market. The commercial insurers' share has more than doubled in less than a decade to around 20%. The biggest of the commercials is probably Norwich Union with what was estimated, in 1994, to be 9% of the market.