The development of the health insurance market over the last 20 years has taken place against a backdrop of changes in the NHS, tax impositions and the reluctance of generalist IFAs to venture into the market.
Bupa commercial director Stephen Flanagan says: “In the 1980s and early 1990s, both corporate and individual business experienced a period of consistent growth until the tax regime changes in the mid-1990s, which saw the tax rebate on premiums for over 65-year-olds taken away and the imposition of insurance premium tax.
“Health insurance had never had its own tax before but it was part of a broader pattern of taking away things that were supporting the private sector.”
Axa PPP Healthcare head of corporate health development Dudley Lusted says: “One of the first things that New Labour did was take away tax relief, hastening the decline of the individual market. However the corporate market has flourished as employers have recognised it is a cheaper way of getting cover because of the spread of healthy and less healthy lives.”
When tax relief was removed, Flanagan says every player in the market suffered and some parts of the market are still struggling today to recover from the blow.
Changes in the NHS and rises in the cost of treatment over the last two decades have also affected the market. Historically, consumers have been driven towards private health insurance by the prospect of long NHS waiting lists but, more recently, consumers have become preoccupied with the quality of treatment.
Flanagan says: “The benefits are now seen as having a single consultant, more contact and, in the wake of MRSA fears, greater cleanliness for private patients.”
HSA managing director Chris Harrison says product offerings have broadened as access to the NHS has been reduced over the last 20 years “While the NHS has maintained its freefor- all philosophy, service levels have been diminishing, particularly with regards to optical and dental care. There has been some responsibility moved on to consumers to find their way through the system and part of that pattern has incorporated cash plans,” says Harrison.
He says the way cash plans are used by customers has changed over the last two decades. “Cash plans used to be about putting meat on the table on a Sunday if one of the family’s earners had to have a stay in hospital. These days, cash plans are increasingly about responding to other social needs, leading to treatments such as physiotherapy being added to benefits,” he says.
At the higher end of the market, Lusted says the ongoing impact of medical inflation has given rise to the trend in recent years for some providers to keep costs low by establishing networks of preferred hospitals.
Flanagan believes it is only in the last four years that products have undergone significant changes, citing menu-based design and the pricing of cover as two of the most significant developments: “Previously, if you had a past illness, you could be simply excluded from that type of cover. Now it can be covered at a cost,” he says.
Insurers have introduced a range of products giving people different levels of access to private treatment through expensive and less expensive products while cash plans provide the most basic cover.
One part of the health insurance story which appears to have remained notably static until recent years is the extent of generalist IFAs’ dealing in the market. Lusted says: “Between 1985 and 1990 we saw the emergence of specialist intermediaries. General IFAs have only become interested since pensions have become less attractive.”
Flanagan says: “The IFA market is still one of the biggest untapped markets and it is only now that generalist IFAs are really starting to look into health insurance. Only in the last 18 months or so are we seeing non-specialist IFAs who have stayed away thus far show an interest.”
Harrison says insurers such as HSA are working towards making lower-cost products such as cash plans a multi-distribution activity, not just direct to corporations and individuals.
But if IFAs prove reticent in distributing cash plans, this only echoes their seeming reluctance to distribute higher-end products. Flanagan says health insurance has not been an easy sell for IFAs and recent perceived improvements in the NHS means that it must be repositioned as a wellness product by distributors.
Flanagan adds that as the UK approaches full employment, health insurance is being viewed less as a director’s perk and more applicable to other areas of the workforce: He says: “Coupled with the problems in the NHS, if there is a situation where someone could be off work for six months or a year waiting for treatment, employers are more happy to pay for staff to be seen privately.”
Axa PPP Healthcare highlights FSA regulation of health insurance as a further key issue which is providing a golden opportunity to develop “cash and care” services for clients, taking into account their welfare and well-being, as well as wealth creation and management.
Lusted says: “Things are changing under FSA regulation, with health insurance coming into the fact-find and IFAs considering other revenue streams. Also, insurance and non-insurance services are working together to manage health, including health insurance, income protection and occupational health.”
Given this backdrop, it seems likely that health insurance will become a more mainstream product for generalist IFAs in the next 20 years.
Mike Hall – Chief executive, Standard Life Healthcare
Healthcare over the past 20 years has been a mixed bag. In many respects, nothing has changed. In many other ways, everything has. But it is not my intention to give a blow-by-blow account of the past two decades. I want to take this opportunity to frame my view of healthcare since 1985 in the context of its role in financial planning and how it has changed for advisers and providers.
It doesn’t seem like 20 years ago that Bob Geldof was calling on the world to unite for Africa, the miners’ strike ended and Neil Kinnock moved against Militant. Medical achievements that today would seem commonplace were then making history. In 1985, a three-year-old became the world’s youngest heart-lung transplant patient. I was part-way through my final post in the NHS and less than five years away from the start of my private healthcare career, wondering if the NHS red tape would ever end and if the gulf between private and state healthcare would ever be bridged.
As financial services professionals, and as consumers in our own right, we know that private medical insurance has had every label applied to it over the past 20 years. Perk, luxury, budget, expensive, affordable, comprehensive, limited, invaluable, life-saving – the list goes on. But the changes in how PMI is viewed are more about how lifestyles have changed than they are about any great change in the politics of healthcare. Twenty years ago, we would defer to doctors to an extent that even doctors would not now want from today’s engaged patient.
Now, when we think about private healthcare in general and PMI in particular, we think about 24/7 access to a GP, self-paying as one of our choices and maybe arranging some back-up insurance for bigger bills. We will shop around for fixedprice packages from hospitals and we will switch PMI insurers to get a better deal and not lose anything into the bargain.
In short, we now want – and to a large extent have got – control over our healthcare. Despite arguments that people would be better off putting money under the bed, for millions of people PMI is something they believe they ought to have to live the lifestyle they want.
Earlier this year at Standard Life Healthcare, we asked research firm TNS to look at 2,000 people’s attitudes to a range of lifestyle and financial priorities. We found that half of people thought they ought to have made adequate provision so they could get any medical care they wanted by the age of 30.
A further sign of the times was that people believed that we ought to have achieved a work-life balance by then as well. For healthcare to have stood still against this backdrop would have indeed signalled its demise. But just as the NHS has had to try to keep up with consumer demand despite record investment, private healthcare providers have recognised that healthcare is seen as a consumer commodity and have continued to innovate to keep up with ± and anticipate – consumer demand.
One such major change in the past few years has been the introduction of health and well-being support. On one hand, the argument is almost indisputable that a healthy workforce is likely to be a more productive one and research shows that workers themselves acknowledge that. But the family – or the couple or the individual – also recognises the impact that a sense of wellbeing has on their work, relationships and quality of life. That is why access to qualified health information, nutrition and exercise support is now part of the new breed of PMI plans.
For the financial adviser, PMI providers have become smarter at explaining the differences between plans. Policies are simpler to set up and, in some cases, administer online. The case for company PMI sits comfortably with the business case for health and well-being support at work, and individual PMI has developed to be a financial tool and a lifestyle support all in one. New approaches to regulation will over time mean that PMI can be given a proper role in holistic financial planning, where a mix of saving, insuring and investing will help people mix and match self-pay and PMI.
That way, they can be advised about a healthcare plan that gives them the options and protection they feel they ought to have.
We have come a long way in the past 20 years, from an age of kowtowing to an age of control. It has been slow coming but there is now a general recognition that universal healthcare cannot be provided solely from taxation. On the one hand, we will not stand for the tax increases we would need to have. But on the other, we will not wait for the healthcare we want. Rather than PMI being seen simply as an alternative to waiting for the NHS, it is now part of an integrated approach. That is why it is being taken more seriously within financial planning.
Having spent about half my time in healthcare in the NHS and the other half in the private sector, I am no longer seeing it as a game of two halves. Holistic healthcare is very much more than the sum of its parts and something we are growing to accept that we simply ought to have control over.