Buyer’s guide to health cash plans 2012

Focus on facts

What are health cash plans?
For the payment of a premium, health cash plans reimburse members for the partial or full cost of a range of everyday health treatments. Typically, the benefits included in a cash plan are dental and optical care, on-site care, on-site health screening, physiotherapy and employee assistance programmes (EAPs).

What are the origins of health cash plans?
Health plans date back to the 1870s when they were known as Hospital Saturday Funds, created to help people access healthcare that they otherwise could not afford. Originally, workers would pay one penny for every pound they earned towards the cost of medical treatment. When the National Health Service (NHS) was created in 1948, cash plan providers restructured their services to reimburse members for care that was not covered by the NHS.

Where can employers get more information and advice about health cash plans?
The British Health Care Association on 01536 519960.

In practice

What is the annual spend on health cash plans?
According to Laing and Buisson’s Health cover UK market report 2011, spending on UK health cash plans was valued at £482 million in 2010. Employees spent an estimated £434 million on plans, while employers spent £48 million.

Which providers have the biggest market share?
According to Laing and Buisson’s report, Simplyhealth currently dominates the health cash plan market with a 45% share. Other dominant providers include BHSF Group, Health Shield, HSF Health Plan, Medicash, Sovereign Healthcare and Westfield Health.

Which providers have increased their market share over the past year?
Westfield Health increased its market share by half a percentage point, from 11% to 11.5%, in 2010. Simplyhealth’s market share declined by one percentage point, from 46% to 45%, while most other providers’ market share remained static.

Nuts and bolts

What are the costs involved?
The cost to an employer of implementing a health cash plan can start from around £1 a week per employee. According to Laing and Buisson, in 2010 the average price paid for a cash plan by employers was £113 a year per employee.

What are the legal implications?
There are no legal implications around implementing a health cash plan, but providing a plan helps an employer fulfil its duty-of-care obligations to employees’ health and wellbeing.

What are the tax issues?
Employer-paid health cash plans are treated as a benefit in kind for tax purposes. The value of the benefit is determined by the premium paid, not the cash that is paid back.

As healthcare costs continue to rise, health cash plans offer a cost-effective and popular method of providing healthcare cover to employees, says Rebecca Patton

Health cash plans can be a cost-effective way for employers to bridge the gap between National Health Service (NHS) provision and private medical insurance (PMI) for employees.

Health cash plans have a long heritage dating back to the 1870s. They were created as a form of health insurance for people who could not afford to pay for healthcare. In their earliest form, cash plans were known as Hospital Saturday Funds and allowed workers to contribute a small amount of their earnings on payday, traditionally a Saturday, to fund medical care when needed.

Cash plans enable members to claim back partial or full reimbursement for a range of day-to-day healthcare treatments, such as dental and optical visits, as well as altern- ative therapies, hospital stays, on-site health screening, physiotherapy and employee assistance programmes (EAPs).

Providers, including Westfield Health and Medicash, also offer options such as Best Doctors, which allows employees to contact a doctor for a second opinion about an ailment.

Providers are expanding the types of treatment that are covered by cash plans to include more holistic practices such as reflexology. According to Laing and Buisson’s Health cover UK market report 2011, published in July 2011, current trends suggest cash plan cover will expand more into such alternative treatments over the next 10 years.

Employers can fund cash plans themselves, share the cost with employees or offer cash plans as a voluntary benefit. Engage Mutual, a provider that entered the health cash plan market last year, launched a voluntary benefit option in June this year.

Annual limit on cover

With cash plans, employees typically pay for their initial treatment when it takes place and are reimbursed after submitting a claim to the provider. There is an annual limit on the amount of cover staff can claim, which means that a plan may not always cover the full cost of treatment.

The low-cost nature of health cash plans means many employers see them as a cost-effective way to meet various workplace health objectives and needs. Benefit-in-kind (P11D) tax relief may be available, depending on your local tax office, particularly in workplaces providing duty-of-care benefits, such as eye tests for visual display unit users and stress prevention.

The relative cost-effectiveness of cash plans has also made them popular with employers trying to control costs during the economic downturn, particularly for those that cannot afford pay rises but want to put something extra into their benefits package.

According to Laing and Buisson’s report, the total number of employer-paid schemes rose by 11.2% in 2010, with UK organisations spending a total of £48 million on health cash plans, equivalent to 10% of the total spent on all cash plans.

The average price employers paid for a health cash plan in 2010 was £113 per employee, which was 7.8% less than in 2009.

Relatively stable cost

The fact that the cost of a cash plan is relatively stable, and therefore easy for employers to budget for, also makes them an attractive perk to offer employees.

There has been a trend in recent years for employers to offer health cash plans as a complement to private medical insurance (PMI). For example, an employer may offer PMI to its senior managers, but a cash plan to the rest of the workforce. Some providers, such as Simplyhealth, offer PMI excess cover as part of a health cash plan.

The popularity of health cash plans has also been fuelled by a general feeling among employers that expensive, comprehensive PMI is not valued by many lower-level employees. This lack of appreciation is particularly common among younger staff who, because they are typically fit and healthy, tend not to make use of PMI. Instead, such employees appreciate the way cash plan reimbursements for treatment can help enhance their take-home pay when the scheme is offered as a flexible benefit.

Benefits worth £328 million were paid to employees via health cash plans in 2010, with £30 million paid on employer-paid plans, according to Laing and Buisson’s report.

With the government aiming to slash £20 billion from NHS costs by 2015, free healthcare is increasingly hard to access and waiting times for NHS treatment could lengthen further. This may make employers feel more obliged to provide health cash plans to help sick employees return to work more quickly, making cash plans an even more attractive benefit with which to help pay for non-urgent surgical and medical procedures.

Provider add-ons

Cash plan providers offer add-ons to their schemes to cover surgical procedures, and these cost from around £1 a week per employee. They can be bolted onto a cash plan covering both surgical and medical procedures. The government’s NHS reforms are likely to further increase demand for such add-ons.

Health cash plans that include phone access to a doctor are expected to be in particular demand because they help mitigate the impact of NHS cutbacks that may result in reduced access to employees’ local doctors.

But the biggest impending impact on the healthcare market is likely to be the Financial Services Authority’s Solvency II directive, which aims to implement solvency requirements for all European Union (EU) insurers and reinsurers that better reflect the risks organisations face. The aim of the directive is to help reduce the possibility of consumer loss or market disruption.

There is some concern that the directive will affect smaller providers because they will have to prove they have the necessary capital and reserves to be able to continue to offer a service.

Employers should take steps to ensure their health cash providers are financially robust enough to continue providing their required services by examining their annual reports.

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Solvency II was due to come into force in November this year, but an amendment has been passed allowing EU member states longer to prepare for the changes. The implementation date is now 1 January 2014.

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