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The health imperative

The health imperative

Nearly seven in ten FTSE 100 firms provide some form of private healthcare for employees. Is it the responsible choice?

Long stories short

  • The Bank of England raised rates to 4.5 per cent and warned it wouldn’t hit its 2 per cent inflation target until 2025.
  • Sharon White survived as John Lewis chair after assuring staff the business would always be employee-owned.
  • A survey showed only 20 per cent of US financial services firms are requiring employees to be in the office five days a week.

The healthcare imperative

Nearly seven in ten FTSE 100 firms provide some form of private healthcare for employees, up from six in ten before the pandemic. Of 1,000 businesses polled by the Independent Healthcare Providers Network, almost one in five is considering offering private medical insurance to staff in the coming year, rising to four in ten for those with more than 1,000 employees.

So what? The UK faces a triple crisis of low productivity, a shrinking workforce and – with record NHS waiting lists unlikely to shorten until next spring – poor public healthcare outcomes. In the absence of short-term solutions from the government, companies are doing what they can to tackle all three by funding private medical insurance (PMI) for staff.

The result is the creeping privatisation of healthcare, not by government but by employers.

The risk for businesses is that they get locked into a cycle of paying increasing sums to healthcare providers. The risk for the public is worsening healthcare inequality.

The benefits include:

  • Talent. “Employers looking to attract and retain talent are looking beyond what has traditionally been the case – giving PMI to senior management – and extending it out to the whole workforce,” says Nick Howard, partner and head of employee engagement at Brunswick. He is currently working with two large companies actively considering workforce-wide PMI. 
  • Productivity. There’s evidence that poor mental health, in particular, is associated with loss of productivity. Even before the cost of living crisis, Deloitte research showed that UK employers were contending with costs of £56 billion per year due to poor mental health among staff.

By the numbers

2.5 million – people reporting long-term sickness as the reason for economic inactivity.

185.6 million – working days lost because of sickness or injury last year, a record high.

£150 billion – yearly cost to the economy of ill-health among working-age people.

The US lesson. America’s employer-based healthcare system is an exception among rich countries and a cautionary tale about embedding healthcare as an employee perk.

It came about by drift rather than choice: while Britain’s modern welfare state has its origins in the 1943 Beveridge Report and the 1945 Labour government, the US version has its roots in wartime government policy, and a ruling that contributions to insurance funds did not count as wages. The system received a boost when employers’ contributions for health benefits plans were deemed tax deductible. 

Annual premiums for employer-sponsored healthcare reached an average of $22,463 in the US last year, up from $6,438 in 2000 in a period when real wages have hardly moved. 

The Health Transformation Alliance, a group of more than 50 US businesses including JPMorgan and Coca Cola, has been campaigning since 2016 to curb healthcare costs.

Steadily rising discretionary private health spending in the UK now matches that in the US, where Obamacare made more health spending compulsory.

What next? In an attempt to improve health outcomes for staff, the CBI has urged the government to expand the scope of health support companies can provide as a non-taxable benefit in kind, a reform that could raise expectations of employers still further. 

“Tax breaks for PMI are fiscally inefficient and highly inequitable,” says Nigel Edwards, CEO of the Nuffield Trust. “If you give everyone 10 per cent off their PMI, you’ll simply put prices in the private medical sector up by 10 per cent. So actually the gain is captured by the insurers.” 

He warns against a “vicious cycle” of demand for faster treatment pushing up prices in the private sector and in turn drawing surgeons and anaesthetists away from NHS work. Employer-based private healthcare might, in the long run, turn out to be an expensive fix. 

Thanks for reading.

Barney Macintyre


Additional reporting by Jeevan Vasagar.

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