When the government announced it had signed a deal to use the independent healthcare sector’s capacity to help fight Covid-19, the medical insurers’ pledge not to profit from the pandemic was seen as a huge positive. But, a year on, advisers and their clients are finding there isn’t necessarily as much clarity as they’d like behind the promise.
Although advisers applaud the insurers’ good intentions, a lack of consistency in their approaches is causing difficulties. “It’s really positive that they responded so proactively and promised to be fair to everyone,” says Mercer head of corporate consulting Chris Bailey. “But, while every insurer is promising they won’t retain any excess profit resulting from the pandemic, their approaches are markedly different. This makes it very difficult to determine what’s fair and what clients should do at renewal.”
As 2020 was such an unusual year from a claims perspective, most insurers have chosen to kick their rebate calculations down the line. “Overall, the insurers’ approach is to take a two-year position when determining whether a rebate is due,” explains Aon principal, employee benefits Rachel Western. “This helps to flatten the risk and keep stability in the market but it leaves us with a lot of uncertainty.” As examples, Axa Health is offering some of its group clients the option to enter into a two-year profit share agreement. Vitality is using its renewal cashback mechanism to return any pandemic-related surplus to its smaller group clients, with its larger corporate clients having their cases assessed on an individual basis at renewal. Bupa has now announced a £125m rebate, adding that it will appoint an independent third party to ensure fairness.
First out of the blocks with a rebate was WPA, which has already made two premium rebate payments to its customers, in April and June 2020. Each of these rebates was equal to roughly 40 per cent of a month’s premium for its insured customers, totalling around £7.4m across the two payments.
With the nature of potential rebates uncertain, and unlikely to be clarified until 2022, renewal discussions are much more complicated this year. Bailey says there are multiple scenarios around whether a client can switch insurers. “Some insurers tie their clients in, telling them that if they’re still insured when they carry out the rebate review, then they could be entitled to a payment. Others allow them to move. It adds another layer of complexity,” he explains.
Advisers are also seeing insurers retain profit shares on cost plus policies. “Insurers are arguing that, as there’s likely to be a bounce back in terms of claims, any return they make now is pending benefit,” says Towergate Health & Protection head of specialist Debra Clarke.
Insurers are also pushing through premium increases, which can be hard to stomach. Gallagher strategic director, risk and healthcare Graham Yearsley says most are putting premiums up by 5 to 10 per cent. “The company hasn’t used the policy but the insurers’ calculations are based on what the premium would be if it had been a normal year,” he explains.
Some clients are seeing even higher increases, with Western saying she’s seen increases of 50 to 60 per cent for some clients. “Some may be justified, perhaps due to cancer claims that would normally have meant an increase of 100 per cent or more,” she says. “But it’s really tough, especially where a client is in financial difficulties and receiving the rebate now could help them survive.”
Bounce back or rebate?
There’s also the small matter of whether or not clients will even receive a rebate at the end of the two-year period. With insurers opting to take this longer-term view on any rebate, there is a possibility that, as employees catch up on postponed treatment, claims volumes in 2021 will make up for the drop in 2020.
Several factors will influence the level of claims this year. Although there will be some catch-up as capacity returns and employees feel comfortable going into hospitals again, not all treatment will still be needed. For instance, knee pain that may have required an arthroscopy can often resolve itself with time.
But, there’s also a risk that the pandemic will mean significantly higher claims costs in 2021, more than compensating for last year’s lull. Screenings and diagnoses for serious conditions such as cancer and heart problems have been postponed and the pandemic could also lead to more claims for mental health, musculoskeletal and long Covid. Clarke adds: “Some conditions will require more treatment and additional costs for personal protective equipment (PPE) will come through too.”
This has already been seen in the dental insurance market, where Western says premium increases of up to 40 per cent are common. “It’s difficult to justify this with clients when fewer people have been able to access dental treatment,” she explains.
The level of uncertainty in the market means advisers have an even more important role to play. Western says she’s having to really fight for her clients. “Every client is different; some will have got through the pandemic fine but others are in real financial difficulties. For them, getting a rebate now could help the business,” she says.
Putting a client’s case to the underwriters rather than account managers has proved a particularly successful part of her strategy, but she says it’s also essential to explain the implications to the client. “Catch up claims could bite them later,” she adds. “We’ve also been advising our self-insured clients not to spend any rebate now as they may need it for catch up claims.”
Clarke is also finding that this year’s renewals are taking longer and would like more transparency from the insurers. “I can understand why insurers want to take this longer-term view but I do wish they’d taken the same action as WPA and paid rebates already,” she says. “It’s not easy explaining this to clients, especially when it’s all shrouded in so much mystery.”
The uncertainty around what’s at stake means that, even though a client may be tied into a two-year profit share agreement, advisers are finding that a market review may be the best way to go. Western says that doing this can push the incumbent insurer to negotiate.
Although there’s still a lot to be resolved with rebates, it will result in something of a shakeup in the medical insurance market. Yearsley expects a redesign of healthcare benefits. “In the same way that defined benefit pensions became unaffordable, employers can’t continue to fund this unlimited healthcare liability,” he explains. “The world has completely changed as a result of the pandemic: it’s an opportunity to start all over again with healthcare benefits.”
He believes that more employers will move to trust arrangements, giving them greater control over the benefits they offer but also the costs. “On a trust, 100 per cent of any excess funding would have rolled over to the next year, removing all the rebate uncertainty,” he explains. “Product development in this market also means that even very small groups can go into a trust now.”
Living through a pandemic has also propelled health to the top of the agenda, which will mean increased demand for products that can be rolled out to all employees. Clarke says these could build around the digital health products that became popular over the last year. “A product that focuses on prevention and early intervention could be lower-cost and really support workplace health,” she adds. “As we come out of the pandemic, employers are looking for ways to support all of their employees.”