Employer-funded healthcare cash plans

Healthcare cash plans have traditionally been paid for as a voluntary benefit by staff, but an increasing number of employers are seeing the value of funding the perk for their employees, says Tom Washington

The healthcare cash plan market typically performs well in tough economic times because of the perk’s relatively low cost. Through such schemes, employees can receive cash back on healthcare expenditure, such as on optical or dental check-ups.

Traditionally, cash plans have been offered as a voluntary benefit, paid for by employees. But some providers are now offering products aimed at the corporate market for employers to purchase for staff. According to Laing & Buisson’s Health & Care Cover UK Market Report 2008, published in July last year, the employer-funded market grew by 27% in 2007, while individual and employee-paid plans increased by just 1%.

This growth may partly be due to cash plans’ affordability. Although there is no real difference in cover between employer-bought products and cash plans funded by employees, organisations may be able to get attractive deals on price if they pay for the perk. For example, Healthshield offers a basic employer-paid cash plan for 85p per employee per week, whereas the equivalent employee-funded scheme costs £1.85.

The difference is due to the higher number of staff guaranteed to be covered by an employer-paid plan. Jill Davies, chief executive of Westfield Health, says: “Guaranteed numbers mean the risk can be spread across the corporate books as there are fewer members signed up independently who are likely to make claims. Employers are getting prices based on volume.”

Employer-paid cash plans are particularly relevant in the current economic climate, says Lara Rendell, marketing manager at Healthshield. “Cash plans came about in hard times,” she says. “When people have got lots of money, paying for glasses or dental care isn’t a worry. But when they are struggling to pay bills or worried about job security, a cash plan can really help.”

Despite this, the corporate market remains comparatively small. Because healthcare cash plans have traditionally been marketed to employers as a voluntary benefit, it is often tricky to persuade them to fund it.

John Howard, senior consultant at Buck Consultants, says there has never been much of a market for employer-paid cash plans. “The reason why [organisations] do not pay for it is because they do not see it as a benefit they need to pay for to attract good staff,” he says. “Whereas private medical insurance (PMI) aids recruitment as well as getting staff treated and back to work quicker, cash plans do not help with either.”

Although PMI remains the healthcare benefit of choice for many employees and employers, rising costs for medical treatment have resulted in employers looking for cheaper alternatives in some instances and possibly turning to cash plans.

Many providers believe employers’ awareness and understanding of the perk is improving. Healthshield claims 55% of new business is company-funded, and Westfield Health’s Davies agrees it is a growing market. “We have seen an increase in employers buying the product for their staff,” she says. “It is common sense because they mitigate the risk of staff falling ill and having time off work.”

The National Aquarium in Plymouth introduced an employer-paid healthcare cash plan for its 70 staff in March last year to demonstrate it is taking a proactive approach to employee health. Andrew Robertson, managing director at the National Aquarium, says: “We chose to introduce a cash plan for staff to give them a little extra – something to add value to their regular pay rises. Times are changing for healthcare in the UK, and even dental and optical check-ups are not cheap.”

But employers considering buying healthcare cash plans must be sure their workforce will value the perk. Howard says it would be a big mistake for employers to promote it as an alternative to PMI. “A cash plan will be viewed in very different ways, certainly by those hoping for PMI. Among blue-collar staff it might be considered an attractive part of a package, but for senior employees, cash plans are of no interest.”

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This could be attributed to the lower perceived value of a cash plan, something Rendell believes is changing. “Cash plans used to be thought of as just for blue-collar workers, but employers understand them now and can see their benefit,” she says. “They have a higher perceived value than what they actually cost.”

If you read nothing else, read this…

  • According to Laing & Buisson’s Health & Care Cover UK Market Report 2008, the employer-paid cash plan market grew by 27% in 2007, while the employee-paid market increased by 1%.
  • Employers can often provide cash plans more cheaply because guaranteed numbers spread the provider’s risk.
  • Cash plans are not a substitute for private medical insurance, but can help cover some costs.
  • Healthcare cash plans are valued by some levels of the workforce, but are unlikely to appeal to senior-level staff.