Over the past couple of months healthcare cash plan providers have been telling me that they are going through a bit of a boom. Amid talk of recession and redundancies, these medical savings plan providers have been increasing sales forces to cope with demand from employers.
It is not hard to work out why, especially when you spot the parallels between the trends in defined benefit versus defined contribution pensions, and private medical insurance (PMI) versus cash plans.
PMI inflation has been running well ahead of national inflation levels for many years – driven in part by medical advances which offer more cures to more ails, but usually at an increasing cost.
So the old paternalistic employer view on PMI that ‘we will look after you 100% no matter the cost’ is going out the door as employers turn their sights on cash plans and view them as the equivalent of contract-based DC pensions – that is, cash plans give you a bit of help, but basically employees are on their own with the NHS.
Obviously the implications for health benefits are not on the same scale as those for pension benefits given that it is estimated that just 7% of employees get PMI from their employer.
But it is significant that these 7% are likely to be highly paid senior staff. Employers don’t usually tend to like to upset this level employee by reducing benefits.
So some employers are resolving this conflict by choosing a hybrid PMI and cash plan option, where they opt for a high excess on the PMI and use the cash plans to supplement this. In some cases this has been done with no change to the employees’ benefits, but with significant cost cuts. Which may explain why we are seeing an increase in cash plans offered through the workplace.
However, Lang & Buisson reports that corporate PMI coverage has increased by 2.8% in the past two years. Although this is an extremely small rise it may be the notable flip side to the ‘PMI is doomed’ story that some in the industry are touting.
Just a final salary schemes are still perceived as highly valuable by employees, influencing their thinking when making job choices, some may argue the case that PMI will also be seen as a golden benefit that is highly desirable where it is offered.