Anyone who wonders why private medical insurance (PMI) is the senior executive's second favourite perk -- the company car comes top in most polls -- need only sit in an NHS hospital waiting-room for instant enlightenment. Despite everyone's best efforts and intentions, the tedium and the frustration are endless. PMI may be socially divisive, even morally questionable (should healthcare be a purchasable commodity just like any other?) but executives and their companies like it because it puts them back in control, of time if not of illness or injury. People are seen quickly, at times that suit them rather than the system, and for non-emergency surgery, the waiting lists in the private wing are short or non-existent. At the last count about 6.3 million people were covered by PMI in the UK, more than 60% of them by schemes paid for by their companies, and the numbers are growing.
But there is a snag. Premiums are rising fast as insurers struggle to cope with medical cost inflation, which, as a result of the expense attached to such things as new medical technology, runs several percentage points ahead of the retail price index. Companies, cost conscious as they emerge from recession, have found themselves faced with a dilemma. They don't like the fact that they are having to fork out more for PMI but dare not cut back too heavily on a key element of the benefits package. Private medical insurance is part of the deal that attracts senior executives to the company and holds them there.
One solution which has emerged recently is so-called managed care, an idea imported from the US in which the insurance company becomes much more involved in the nuts and bolts of healthcare provision. It uses its influence to control treatment costs by constantly monitoring medical procedures and discussing more cost effective methods with the hospitals and doctors providing the care. A key element in many managed care schemes is the preferred provider arrangement, a three-cornered deal in which the company agrees to use specialists and hospitals nominated by the insurer in return for competitively priced premiums. In theory at least everyone wins. The company gets lower premiums, the hospital gets lots of profitable business since all company employees will be sent there, and the insurer gets a degree of influence over procedures and costs in return for the business it is putting the hospital's way.
Glass manufacturer Pilkington has such an arrangement with PPP, one of the leading PMI providers, and the local Fairfield Hospital in St Helens. Bob Lunt, Pilkington's group remuneration manager, says that in the two or three years following the introduction of the programme it has saved about 15% on its costs. 'The benefit to Pilkington is reduced cost, without affecting the quality. The benefit to the hospital is that they hope to get higher volumes, and the benefit for PPP is that they retain Pilkington as a client because we're satisfied that we're getting the most cost-effective arrangement.'
Managed care is attractive to companies precisely because it is based on the ideas of cost containment and quality improvement which are central to their own businesses, but insurers are being cautious about the way they introduce it. They must be careful that they do not overstep the mark and alienate either the medical profession, by seeming to encroach on clinical freedom, or their customers by appearing heavy-handedly prescriptive about what claimants may or may not do. Herein lies the paradox: if insurers take a softly-softly approach to keep patients (and doctors) sweet, they limit their own room for manoeuvre on cost containment, yet cost ( and consequently premium) containment is what the customer wants.
'Employers will increasingly demand evidence of efficient management of medical expenses schemes,' says William Laing, a director of the London-based health services consultancy Laing & Buisson, 'but so long as private medical insurance remains a luxury purchase or a senior employee benefit, companies aren't going to be ready to support the more aggressive approaches to cost containment that you see in the United States where, for example, you get non-reimbursement in the event of failure to comply with clinical protocols. …