Like A Hole In The Head… Private Medical Insurance Numbers Already Down With The Impact Of Tax Rise On The Horizon

Demand for private medical cover moved down in 2014 despite a growing economy with record employment levels. Moreover, according to healthcare intelligence provider future prospects for market growth are also dented with the unwelcome sharp rise in Insurance Premium Tax (IPT) set to knock the sector in November this year.

The latest data published in LaingBuisson’s Health Cover* report puts the number of private medical cover policies in the UK (insured and self-insured) at 3.94 million at the start of 2015, down marginally from 3.97 million a year earlier. However, while there has been little change in volumes in the past three years (2012-2014 inclusive), medical cover policy numbers are 9% below a peak of 4.32 million at the start of 2008. Overall penetration of the UK population by private medical cover (people covered) fell to an estimated 10.5% at the start of 2015 compared to 12.3% six years earlier.

Findings confirm there were similar falls of around 14,000 for both company paid policies and individual paid policies during 2014, with falling demand from SME companies (with less than 250 employees) a trend feature in recent years.

There has been a frustrating lack of growth in employer-funded volume demand in the last four years despite reasonable economic growth during this time and 5% growth in full-time employees in the UK to reach record levels. These trends suggest that medical cover penetration has not matched workforce expansion with some large employers, while the cost of private medical cover as a large ticket item may be holding back wider take-up from small and medium sized companies.

LaingBuisson economist Philip Blackburn highlights that long-term growth of corporate medical cover depends on the tangible financial and non-financial pay-offs which private healthcare can deliver to employers as a core part of health and wellbeing spend. Insurers are making progress to quantify these pay-offs, while focus remains on ensuring the costs of medical cover are efficiently and effectively managed for clients. The forthcoming proposed rise in IPT from 6% to 9.5% in November 2015, therefore, delivers a blow for the health cover industry, adding a fixed cost uplift to medical insurance, and potentially further raising the barrier to market growth.

Sadly, the IPT uplift comes after brighter prospects for medical cover growth just a year ago, when claims costs fell sharply by 5% in real terms (taking into account economy inflation (RPI)) in 2013 – the first significant contraction in recent history. Contributing to this fall was effective cost-containment, highlighted by Bupa’s open referral initiative, applied on a large scale since 2012. This sharp drop in claims costs was not repeated in 2014, as medical cover payouts edged down by 0.8% in real terms to be £3.45 billion. While the impact of cost-containment was again evident during the year, there was upward pressure on costs as claims incidence rose across the industry as a whole.

Commenting on the present state of the market, author of the report, Philip Blackburn said:

‘Private medical cover is currently at a crossroads. A lack of growth in volume demand when the UK economic cycle is at a strong point, suggests there are barriers to a wider market which need to be addressed. While tackling high costs of cover needs to be an ongoing priority for everyone within the private healthcare industry, demonstrating the financial benefit of private healthcare to employers would appear imperative for long-term market prosperity. To this end investment in the value of private healthcare is required from insurers, hospitals and doctors alike. However, while the medical cover market has recently seen some progressive achievements on cost management, a regressive step has now been delivered by the government. Private medical insurance needs a 3.5 percentage point rise in IPT like a hole in the head, and this additional cost is projected to dampen market demand in 2016 and 2017.’

But Employers Embrace Low Cost Health Benefits

A different story can be seen from LaingBuisson estimates for health cash plans, which show that employer demand is surging forward, as a low-cost corporate health benefit seems to fit the bill for many companies.

While its penetration remains much lower than private medical cover, the number of employer paid health cash plan contributors increased by 12% in 2014 to reach a high of 833,000 at the start of 2015, following similarly impressive growth a year earlier. The number of company paid cash plan contributors (policies) has more than doubled in the past five years (2010-2014 inclusive), encouraged by an average price which has not increased over the period, and underpinned by a sales drive from intermediaries keen to grow a progressive market. Meanwhile, individual demand for cash plans continued to edge down in 2014, falling by 2.4% to be 1.81 million individual paid contributors at the start of 2015. However, this was the smallest annual fall in seven years, and suggests stable demand from individuals may be approaching.







Sign up for all the latest news from The Carer!

Sign up to receive the latest issues, along with highlights of the latest sector news and more from The Carer, delivered directly to your inbox twice a week!