What is Open Referral?

Open referral is an alternative process for claiming on a PMI scheme. Instead of having your GP refer you directly to a healthcare provider (specialist/consultant/hospital) for treatment, they issue you with an ‘open referral’ which you take back to the insurer to make a claim.

Your insurer then refers you to the appropriate person from their list of recommended providers – the insurer, rather than your GP, has the control over who treats you.

Bupa introduced open referral at the end of 2011 and was initially promoted as being the default method for all corporate PMI schemes with Bupa. They have openly said that it was done in response to employer concerns over the escalating cost of healthcare.

Bupa, as the market leader in healthcare, was key to this move being successful. With a market share of approximately 40%, they needed to be the ones setting the trend for others to follow. Although there has been resistance from both the medical profession (largely down to self-financial interest) and claimants in some circumstances, it has been generally well-received and is becoming more widely accepted.

With some adverse publicity and some claims disputes between members and Bupa, they have relaxed this position, allowing employers to opt out of open referral completely for a 5% increase in rates, or ring-fence senior staff so they retain the traditional method of claiming, while the rest of the staff remaining on open referral.

As expected, in late 2012 and May 2013 respectively, AXA PPP and Aviva launched their versions of open referral. With the top 3 insurers by market share now having a version of open referral, it indicates the way the market is heading. Both AXA PPP and Aviva recognised the competitive advantage open referral has provided to Bupa.

The driver to determine whether this option can stay the course will be data demonstrating the influence it has had on reducing medical inflation while not significantly impacting member outcomes.

Why are they doing this?

Medical inflation has been hovering around the 7-10% mark for a long period of time. With this significantly above normal inflation, increases in PMI premiums are seen as unsustainable, with some companies even ceasing to provider PMI as a result. With open referral insurers are able to control provider costs and hence companies’ premiums.

This is done by agreeing fees with specialists and hospitals and if these aren’t agreed upon, the provider could find themselves removed from the insurer’s list of providers. As well as controlling costs, the insurers also claim they can control clinical outcome, by ensuring the provider also has the qualifications, experience, proof of outcomes etc.

They can also direct the treatment pathway, which will remove the potential for over-treatment that has occurred in this market.

What it means for the member is that they can be reassured that their treatment is being carried out by the right specialist at a convenient location with facilities that meet the right standards. For the employer it means medical inflation and therefore premium increases are better-controlled. At the moment the choice is only on corporate (claims-related) schemes (not individual or SME (age-related) schemes), but this provides additional options for employers looking to managing cost.

What’s our house view?

We believe open referral is here to stay and its reach will expand to other contract types as time goes on. This is substantiated by Bupa, whose initial figures indicate medical inflation being down to low single figures, which is a significant saving on the current medical inflation trends.

Our own Employee Rewards Watch has shown that 88.6% of companies offer their employees PMI as a company paid benefit, and 62.4% see managing costs as a real challenge. Open referral must only help in controlling medical inflation without the need to reduce the levels of cover or increase excesses.

With the top 3 providers have gone this route it is interesting to see other providers ‘selling against’ the concept on the basis that it takes away freedom of choice from the member. We believe this is more of an issue for the other providers, however, if they are unable to build a large enough network of providers to offer to members.