“A combination of factors have come into play,” says Steve Moody, claims manager at Norwich Union Healthcare. “There are more complicated treatments, for example the monoclonal antibodies such as Herceptin that have been grabbing the headlines. There are more of them and they’re more expensive.”
Certainly the new drugs aren’t cheap. For instance a course of Herceptin, which is used for early and metastatic breast cancer, costs £30,000 and a year’s course of Avastin, which is used for metastatic colon cancer, can cost as much as £69,000. Indeed Moody estimates the cost of these drugs runs into the millions at Norwich Union Healthcare. “There are lots more of these types of drugs in the pipeline too, which will put further pressure on the cost of medical insurance,” he adds.
These rising costs have serious implications for corporate medical insurance. Although two thirds of people diagnosed with cancer are over 65, and therefore likely to be outside the corporate arena, the new drugs can be particularly effective on younger people. This means schemes are likely to be affected by the increased costs.
Some schemes are likely to be hit harder than others. Glen Smith, managing director of intermediaries Healthcare Partners, says smaller schemes could be particularly affected if they experience a large claim for cancer. “If you have a company with less than 100 employees on an experience related scheme it only takes one person with a large cancer claim to seriously affect the loss ratio and cause the premiums to jump,” he explains.
Although none of Smith’s customers have changed the cancer cover in their policies yet, Howard Hughes, sales and marketing manager at BCWA has already noted some movement. “We’ve seen a number of large corporates with medical expenses trusts introduce some very strict rules about what is covered for cancer. They need to protect their funds from large claims.”
Other areas of the corporate market may find themselves affected. For instance Larry Bulmer, managing director of intermediary Advo Group, believes the SME market will only feel a slight increase in cost. “Where they have age-related policies the insurers should be able to smooth any increases in claims costs into the premium. We’ve had other wonder drugs in the past and although they create an initial increase in the cost of treatment, once they come out of patent they can actually bring about cost savings,” he explains.
While reaction from employers and intermediaries has been mixed, all the insurers have taken steps to ensure their plans reflect the emergence of these new drugs. For some, such as Bupa, which has always covered all cancer treatment, there’s been no change, while others have revised their cover.
Axa PPP healthcare is in this latter camp, introducing a number of new options for its corporate clients. “There are many different reasons why employers provide their employees with medical insurance,” explains Dr Gary Bolger, head of medical policy at Axa PPP healthcare. “If we decided to cover all cancer treatment, premiums would have to rise significantly in a few years’ time to reflect the increase in claims costs. For some employers these increases might not be sustainable and benefits may have to be decreased so they could afford the premium. A change in cover, or in extreme cases the withdrawal of a policy, can be very difficult to communicate to employees.”
To offer its experience-rated corporate clients this choice it has three different levels of cover as well as a more bespoke offering for larger clients. The first level gives up to 12 months’ treatment with licensed cancer drugs. The second extends this to 36 months and the third covers any chemotherapy treatment recommended by the employee’s oncologist, including unlicensed and experimental drugs.
“When making a choice between the different cover options, clients need to think about their objectives in providing cover,” adds Dr Bolger. “Why do they provide cover? What are they prepared to fund? And what costs are they prepared to shoulder?”
The new demands have also been taken on board by the Association of British Insurers, through its PMI committee. At the beginning of October it published new guidelines on how to explain cover for cancer. These will require insurers to provide more details about what they do and what they don’t cover, which will help to avoid confusion among customers.
Product innovation is also certain as a result of these cost pressures. Already a number of cancer-specific products have been developed, although these have been principally in the individual market. Bupa has offered a cut down product covering treatment for heart and cancer conditions to its individual customers for several years and WPA launched its cancer only offering, mycancerdrugs, earlier this year.
In return for a premium the same as the policyholder’s age, they will receive a lifetime benefit of up to £50,000 towards the cost of cancer drugs that have been licensed but haven’t had approval by the National Institute for Health and Clinical Excellence for use in the NHS. So far this is only available to individuals, although WPA is assessing its viability for a corporate launch.
But Smith says these schemes don’t really translate to the corporate market. “I’ve never sold a scheme that only covers one particular condition and even with increased costs for cancer claims I can’t see it taking off. It’s crystal ball gazing madness,” he explains.
Insurers are also likely to take different approaches to limiting cover. While so far limitations have been based on time periods, monetary amounts are likely to come into play. For instance on BCWA’s individual policy, Personal Health, there is a cap of £50,000 on cancer and heart treatment for the lifetime of the policy. Hughes adds: “When we introduced this, intermediary feedback indicated that they expected this to be the way forward on corporate products too. Customers like a policy to be explicit about what is covered.”
Higher potential claims costs will also mean insurers taking a more hands-on approach to cancer claims. “There will be more intervention and case management from the insurers to make sure the customer is getting the best value for money,” Moody explains.
This already happens with many of the big-ticket claims but could be developed further. “I expect to see some closer relationships with the healthcare providers with more network products and situations where the provider has responsibility for delivering the care within a fixed price,” adds Moody.
Other products may also evolve to suit the changing medical environment. In particular, group critical illness could experience renewed interest. “There is definitely a place for a critical illness style of benefit, whether as a stand-alone product or incorporated within a medical insurance scheme,” says Bulmer.
He says that providing employees with a lump sum if they are diagnosed with a serious cancer would give them the freedom to decide how they want to spend the money. “They could use it to fund treatment, for rehabilitation or even to clear debts. This is more powerful than having benefit within the medical insurance policy that could potentially be cut off at some point. It would also take the cancer costs out of the medical insurance claims fund, which would mean greater stability,” he explains.
So while the initial reaction to the increased cost of cancer drugs was fear about the sustainability of medical insurance, innovation could address this and bring new life to the market.
Case Study – Individual options
“I suggested they arrange an individual policy through the continuation options”
Glen Smith, managing director, Healthcare Partners
Four years ago, Glen Smith, managing director of intermediary Healthcare Partners, took on a new corporate client, a small IT consultancy.
“The company employs around 50 people and had an experience-related scheme in place which cost them around £25,000 a year. They liked the experience-related aspect as the age profile of the employees is relatively young and they weren’t making many claims. However I did warn them that their size might make cover expensive if they suffered any large claims,” he says.
Two years later, one of the directors of the company was diagnosed with non-Hodgkin’s Lymphoma and he required extensive treatment including chemotherapy and radiotherapy as well as a series of courses of Rituximab. He was able to claim for this treatment through the company’s medical insurance scheme, with bills totalling more than £33,000 being settled by the insurer.
A year later at renewal the premium was adjusted to take this claim into account, resulting in a 30 per cent increase in premiums. “Because of his health, the director had taken early retirement but, because of his seniority, the company still provided him with medical insurance,” explains Smith. “I suggested that rather than keep him on the company policy they arrange an individual policy through the continuation option. This was on no worse terms so he still enjoyed the same level of cover. I also spoke to the insurer about moving the company to an age-related scheme, which meant a premium increase of just 5 per cent compared with the 30 per cent increase they were facing initially.