Medical Insurance News

The next workplace scandal waiting to happen could be the watering down of medical insurance policies. Many finance directors have been able to downgrade pension schemes in the past few years - depriving up to 2 million employees of the more attractive benefits in 'final salary schemes'. Until recently they were able to quietly change the schemes because so few employees understood pensions and would put up a fight. If finance directors want to repeat the trick, medical insurance schemes could be next in the firing line.

Over 4 million people are members of their employers' medical plans, which can easily be worth over £500 a year for a family. The benefits of belonging to a company scheme are substantial, says medical independent financial adviser Penny O'Nions: 'In group schemes, you can achieve discounts of up to 40 per cent. And extra bits of coverage can be put on to the scheme - such as psychiatric care, outpatient services and some short-term travel.' Many employers give the perk cost-free to their staff who only have to pay the tax charge on getting such a 'benefit in kind'. But workers who have to pay can console themselves with the thought that the costs are low. Insurers can keep the costs down because they get the whole workforce's premiums in one go with no late payments, the employers tend to do some of the administration and there is also a very clear claims record for each individual workforce.

However, the benefit is becoming more expensive to provide as medical costs soar. 'We are seeing the cost of private medical insurance exceeding inflation by some margin,' says Kevin Morgan, a health specialist at independent financial adviser Ezi. 'That will continue'.

Finance directors who want to look for cheaper premiums from other providers can do this fairly easily. Andy Sampson, head of planning and research at Legal & General Healthcare, says: 'It's always been a competitive market. Brokers tend to trawl the market every couple of years for their corporate clients.' So, some employers are changing their providers every couple of years. They often change the package as well - introducing excesses and restricting the number of hospitals staff can use. The package is frequently changed, even if the policy stays with the same insurer.

In the past, switching insurers often created insoluble problems for employees. Since the medical insurance contract was between the employer and insurance company, an employee was classified as a third party and was unable to enforce the contract.

However, the Financial Ombudsman has now stepped in and says: 'So long as the insurance is for the benefit of individual employees, then the employees can complain to us if they have an unresolved dispute with the insurer. There is no requirement that the employer has to consent to or participate in the complaint.'

In most cases, the new insurer will pay for existing claims but may introduce new terms for other members. As the Ombudsman says: 'Insurers generally leave it to the employer to make sure employees are aware of any new terms or restrictions on cover. The changes have often been made at the employer's request rather than at the insurer's instigation