Taking care of the money when sickness strikes

Medical cover can be a valuable addition to an employment package, and helps keep the workforce fit and healthy, writes Sam Barrett


Sick and injured employees are bad news for business, reducing productivity and pushing up absence rates. But, while accidents and illness can’t be completely avoided, effective healthcare benefits can help speed up an employee’s recovery time.

Private medical insurance is a popular way to get employees fixed and back to work, but it can be pricey. Figures from healthcare analyst Laing & Buisson show that employers paid an average of £865 per employee for medical insurance in 2011.

There are ways to reduce this cost, as Gavin Shay, of AXA PPP healthcare, explains. “Employers could reduce the benefits on a plan, cutting back on out-patient cover, for example,” he says. “Alternatively they could maintain the benefits, but use a reduced hospital network or a six-week option, where employees receive treatment on the NHS if the waiting list is less than six weeks.”

Adding an excess – where the employee pays the first £100 or more of the claim – can also help to reduce the premium. How much of a reduction depends on the scheme, but as a rough guide John Russell Smith, client director at Lorica Employee Benefits, says a £100 excess can shave between 4 per cent and 8 per cent off the premium.

Rather than offer medical insurance, a growing number of companies are putting healthcare cash plans in place

However, although it will cut the premium, a chunky excess can deter people from claiming altogether; something Mr Russell Smith says can defeat the purpose of providing medical insurance. He prefers a co-payment arrangement, where the employee pays a proportion of the claim, say 20 per cent, until they hit a maximum limit, for example £200. “This encourages the employee to think before claiming, but shares the risk more fairly,” he adds.

Rather than offer medical insurance, where only around 10 per cent of employees claim each year, a growing number of companies are putting healthcare cash plans in place. These provide cash back on everyday health items such as dental bills, eye tests and physiotherapy, so potentially all staff can claim at least once a year.

Further, in spite of their potential high usage, cash plans are low-cost with many starting at just £1 a week per employee. This can give a reasonable amount of benefit too. For example, at Westfield Health, £1 a week gets an employee a range of benefits, including £55 of dental cover, £55 of optical cover, £150 of cover for physiotherapy and other similar treatments, £200 of consultations, and MRI, CT and PET scans.

Pricing is also very stable, says Jill Davies, Westfield Health’s chief executive. “We haven’t changed the pricing on some of our plans since 1999 which, in the tough economic climate, makes it very easy for employers to budget,” she says.

As well as looking after the relatively minor health problems, employers can use group risk benefits to take care of more serious health problems. Group income protection provides a replacement income if an employee is unable to work as a result of long-term illness or disability. Possibly more importantly, it provides access to rehabilitation and other support services that can help an employee recover and return to work.

Peter O’Donnell, chief executive of Unum, says that, at around £300 a year per employee, it’s a wise investment. “Each year around 300,000 employees are absent long term at a cost of £3.1 billion to UK businesses,” he warns.

Another option is group critical illness. This pays out a lump sum when someone is diagnosed with a serious condition, such as cancer, heart attack or stroke. But Mr Russell Smith says that few employers pay for it themselves. “Giving employees a lump sum if they get cancer or have a stroke makes many employers feel uncomfortable about the message they’re sending out,” he says. “That said, it does work well in flex [flexible benefits] schemes, giving employees with no dependants an alternative to life cover.”