Benefits strategies become out of date if not regularly reviewed. Sam Barrett looks at the many ways in which a start-of-year refresh can prove beneficial
A new year offers the perfect opportunity for a fresh start, with resolutions covering everything from finances to fitness. Health and wellbeing benefits are not immune to these New Year’s resolutions either, with 2016 set to be the year when many organisations overhaul their strategies, making them fitter and more cost-effective.
A number of factors in the employee benefits arena have meant that many organisations’ healthcare propositions have got seriously out of shape over the past few years.
Challenges of diversity
For starters the workforce and its healthcare needs and priorities have become much more diverse.
At one end of the spectrum, the removal of the default retirement age has resulted in an increase in the number of older employees in the workforce. Although those choosing to stay on beyond age 65 tend to be fitter than the average, health problems and, in particular, chronic conditions can be a more common characteristic.
Younger employees also present challenges to employers. Millennials entering the workforce have grown up with technology and expect it to feature in every-thing, from their work through to their leisure activities and healthcare.
There is also a greater expectation that employers will take care of their staff. The Government’s Health, Work and Well-being initiative, which has seen the launch of the Fit for Work service, has underlined the role that employers should take in helping employees to stay healthy and in work.
In addition, there is more pressure on employers to engage employees. As the economy continues to recover, it is becoming a jobseeker’s market again. Simplyhealth sales and marketing director Raman Sankaran says this will force employers to take a much more proactive approach to the healthcare benefits they provide.
“Organisations are recognising they need to safeguard employees’ health but also provide benefits that are relevant and engaging,” he explains. “This will become increasingly important if they want to attract and retain key members of staff.”
But against this pressure to provide more is the other key trend – the increasing cost of healthcare benefits. For this, the big whammy is the increase in insur-ance premium tax, which was announced in last year’s July Budget and pushed the rate up from 6 per cent to 9.5 per cent from 1 November 2015.
Initiatives around healthcare procurement, such as open and self-referral and the joint venture set up by Aviva Health and Vitality-Health, have helped to control medical inflation but this may be unsustainable.
Buck Consultants senior consultant Chris Evans says: “These initiatives might cancel out the IPT rise but the problem with medical inflation is that any new cost-control mechanisms only really serve as a recalibration.
Premiums will start to climb again so employers need to factor this in when putting together their benefits packages.”
In addition, many believe that further IPT increases will filter through over the next few years. “It’s a bit of a soft target for the Government,” says Axa PPP healthcare intermediary distribution director Paul Moulton. “The average in the EU is around 12 per cent so I can foresee a few more increases over the next couple of years.”
As employers seek to mitigate the IPT increases, managing the cost of healthcare benefits will be an overarching theme. But while some may opt for more restric-ted products, others will look to generate savings by making their products more effective.
Due to the increasing tax burden, appetite for healthcare trusts is set to grow significantly in 2016. For example, on a £500,000 pre-mium, the IPT charge will inc-rease from £30,000 to £47,500. Conversely, with a trust arrangement, although there will be VAT to pay on the administration and IPT on any stop loss insurance, these elements form only a relatively small proportion of the overall cost and therefore the tax bill will be significantly lower.
As a result, many consultants have already seen a lot of interest. “A lot of our clients are conducting feasibility studies to see whether a trust would be an appropriate funding vehicle,” says Evans. “It’s not just about the tax savings; they need to make sure they’re comfortable taking on the additional documentation and governance. That said, I expect to see an increase in the percentage of schemes that are run through a trust in the next 12 months.”
While the need for claims stability means that trusts are more suited to larger employers, many expect the increased tax burden to push insurers and trust providers to explore ways of offering greater tax efficiencies to smaller organisations.
Already several insurers offer arrangements for smaller companies. These include the corporate deductible products from WPA and Aviva but also Axa’s Master Trust, which can be suitable for groups with an annual premium as low as £200,000.
Below this level, the volatility of the claims fund makes trusts difficult to justify. But Moulton believes there are still options for trimming costs.
“Employers will be looking to modular products and cost-control mechanisms such as excesses to help them build a framework of benefits that fit their budgetary constraints,” he says. “It’s more challenging but insurers have developed suitable products.”
While using these options may help employers to keep to their budgets, JLT Employee Benefits head of group risk and healthcare Adrian Humphreys thinks many companies may require a more fundamental redesign of their benefits.
“Employers should focus on what they want their healthcare benefits to do,” he says. “It might be appropriate to offer senior management gold-plated medical cover but other staff might simply need something that gives them a fast diagnosis or the everyday healthcare benefits available through a cash plan.”
Another area he highlights as ripe for a reboot is healthcare benefits for spouses. While it is traditional to extend many of these benefits to partners, Humphreys says this reflects the workplace of the 1970s.
“Many spouses are working now and will be eligible for these benefits from their own employer. Consider whether it’s really necessary to keep providing them.”
As well as ensuring that benefits are both up to date and appropriate, there will be more focus on integrating healthcare benefits. Willis PMI Group compliance director Mike Blake says: “Employers and insurers are keen to find ways to join up benefits so that they can manage employee risk more effectively. Products are traditionally kept in silos but, by integrating them, employers can offer a more seamless way to support employees.”
For example, traditional healthcare products such as medical insurance, group income protection and cash plans can all come into play when an employee is unwell or injured and unable to work but, where the illness is work-related, this can lead to claims on the employer’s liability.
“Employers can use all of these products, plus the new Fit for Work service and any occupational health support they might have, to help an employee stay healthy and in work,” Blake adds. “Ensuring there’s no overlap and they work together more effectively will help to save money.”
Flexible benefits are likely to feature heavily over the next few years. As well as providing a way to manage costs, these offer choice to employees.
“The workforce is so much more diverse nowadays so flex ensures that everyone can choose the benefits that are relevant to them,” says Sankaran.
To support this view, his firm is launching a flexible benefit cash plan this year. Although Simplyhealth’s products have always been suitable for inclusion in flex schemes, the new plan can be easily implemented on any platform and tailored in line with the employer’s benefit programme.
But while flex enables employers to provide all their staff with healthcare benefits that suit their requirements, Blake warns that it can have unintended consequences.
He says: “Some schemes will see short-term savings as fewer people select benefits but emp-loyers need to be mindful of who’s taking out cover. If medical insurance is selected only by employees likely to need treatment, claims will be higher, with premiums also increasing.”
Prevention will also become more important in 2016. As well as helping to reduce costs, it can support the ageing workforce, where chronic conditions can be more of an issue for employers.
Moulton believes technology will help to bring it alive. “There’s a lot more interaction between wearables and employers’ health and wellbeing benefits,” he says.
“Our health gateway allows employees to download their health data and use it to personalise the information and support they receive.”
This shift towards prevention is being supported by some of the key trends in the benefits arena. Initiatives such as self-referrals and online GP appointments make it easier for employees to take control of their health and get any problems addressed early.
While all of these trends will shape future benefit strategies, Evans predicts that employers will use different elements from all of them to drive their health and wellbeing strategy.
“Employers will increasingly be looking across the whole picture to see how they can invest in the softer interventions to influence the harder costs,” he says.
“It will be much more about spending money on the right things for the right people at the right time.”