medical expenses policies

medical expenses policies - group schemes

Many private medical expenses policies are provided by employers for their staff. 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. However, actions involving the employer can give rise to quite a few of these complaints.

A typical case arises when the employer transfers the group scheme to a different insurance company. The new scheme may not have identical terms to the old one, even when it has guaranteed ‘protected underwriting terms’ (in other words, an undertaking that no new underwriting terms will be applied). This provision protects anyone who is already suffering from a medical condition. It will not, however, give any protection for claimants who are affected by a policy exclusion. For example, if the new policy does not provide cover for mental illness, the ‘protected underwriting terms’ will not continue that cover for employees even though they may have been covered under the old policy.

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 (to reduce the cost of the insurance) rather than at the insurer’s instigation. Nevertheless, we do not always agree with the insurance company that it can delegate to the employer its responsibility to give clear advice about the change in terms, and not accept any responsibility for that advice.

In cases where the insurance company had details of those employees who would be adversely affected, we are likely to take the view that it is the insurance company’s responsibility to ensure the employees in question are given the relevant information. They are, after all, the intended beneficiaries. In some cases, the insurer may not have details of individual employees/beneficiaries under the scheme (or details of the previous scheme). Nevertheless, we would expect the insurer to work with the employer to provide clear factual information about the new policy and its coverage, highlighting – wherever possible – significant changes from the cover previously available.

This responsibility is not, of course, absolute. If an insurer prepares appropriate documentation explaining the changes, but the employer does not then make this available to the employees, we may well consider the insurer to have taken all reasonable steps.

On the other hand, the insurer may merely assume that the employer will give information about any significant change in terms to the staff members who will be affected. In such cases, if the insurer then declines claims – on the basis of significant terms that were not explained to the claimant – we may not agree that the insurer acted correctly. Where the line should be drawn will depend on the particular circumstances of each case, but in general we expect insurers to play an active role in notifying the employees of all changes.

case studies – medical expenses policies – group schemes

13/01
Private medical expenses – transfer of cover to new insurer – exclusion for ‘mental illness’ – insured not advised of change in terms – whether claim valid.

Mr B had the benefit of an employer’s group medical expenses scheme. He suffered from intermittent mental ill-health and the insurer had paid for his treatment. In January 2000, his employer changed insurers. The terms of the new policy excluded ‘treatment of psychiatric and mental disorders unless your company has specifically applied to include this benefit’. The employer had not paid the additional premium required for this benefit.

In May 2000, Mr B was hospitalised for mental problems. The new insurer refused to cover the cost of treatment, relying on the policy exclusion. Mr B argued that he had not been made aware of the change in policy cover. The new insurer said that the employer had made a specific enquiry about continuing mental health benefits for Mr B and it contended that the employer was under a duty to advise Mr B that it had decided not to pay for this extension.

complaint upheld
The new insurer had taken no steps to ensure that employees such as Mr B were aware of the new policy terms. And despite being informed of Mr B’s situation, the insurer did not make any effort to notify him of the change, nor did it require the employer to provide him with this information.

If Mr B had been told of the restricted terms of the new insurance, he could have chosen to continue cover for himself under the old policy. The failure to give him correct advice had prejudiced his position.

We required the new insurer to deal with any claims Mr B made during the first year of cover, if these claims would have been valid under the terms of the old policy. However, we did not agree with Mr B that he was entitled under the new policy to indefinite mental illness cover.

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13/02
Private medical expenses – transfer of cover to new insurer – exclusion for ‘elective’ surgery – whether new insurer entitled to rely on exclusion.

Mrs L was an employee of JI, which provided private medical insurance for its staff. When she became pregnant, her doctor told her that her baby would have to be delivered by Caesarean section. This was because Mrs L had undergone uterine surgery some years previously. She telephoned the insurer for advice and was told the operation would be covered.

In March 2000, JI transferred the insurance to a different insurer. Mrs L’s baby was born the following month and she submitted her claim to the new insurer. It refused to make any payment, explaining that the policy specifically excluded ‘elective sections’ for maternity claims. It concluded that the Caesarean was ‘elective’ because the pregnancy was normal and there was no emergency relating to the delivery.

Mrs L complained that no one had told her that the change of insurer meant that, despite the previous insurer’s decision, she was no longer covered for the operation. She noted that the company secretary had told her that the new insurer had not asked him any questions about the health of employees or the treatment proposed for any of them. Instead, it had told him that the transfer of cover between insurers was ‘on protected underwriting terms’, although these were to be based on the new policy wording.

complaint upheld
We accepted that the surgery was ‘elective’, but we did not agree that the limitations on cover had been made clear. The brochure referred to the employer’s need to ensure any difference in cover was explained to staff, but there was no evidence that the insurer had drawn those differences to the attention of the company secretary.

Although the policy had been transferred ‘on protected underwriting terms’, the meaning of this phrase was not clearly defined. In our opinion, it indicated continuous cover. No policy document had been sent to employees by the time the surgery was performed and Mrs L could not have known of the exclusion.

In the circumstances, we decided that the insurer was liable for the cost of the surgery.