Buyer’s guide to healthcare cash plans (May 2009)

As employers try to trim the cost of healthcare benefits, cash plans are increasing in popularity as a value-for-money perk, says Sam Barrett

Once seen as a poor relation of private medical insurance (PMI), healthcare cash plans are proving their worth as a mature and flexible employee benefit. With healthcare spend now coming under pressure in the current economic climate, many organisations are welcoming the perk’s low price tag.

James Glover, corporate director at Simplyhealth, says: “We are seeing a lot of interest in cash plans from employers which are looking for a cost-effective way to reward employees. We are also seeing instances where an employer is bringing in a cash plan to replace PMI.”

Stuart Scullion, sales and marketing director at specialist intermediary the Private Health Partnership, has seen several cases of an organisation telling employees it cannot afford PMI, but putting a healthcare cash plan in place as a sweetener.

“One of our clients went from a 60-man PMI scheme to a five-man scheme with a cash plan for the rest of the staff,”” he says. “It is tough out there and employees are prepared to take a cut in benefits if it helps save their jobs and the company.”

In another case, one of BHSF’s clients offered its staff the option of giving up their individual PMI cover and replacing it with a family cash plan. Brian Hall, sales and marketing director at BHSF, says: “Between one-third and half of employees were happy to make the switch. For some, they were not using the PMI, so it had become an expensive P11D benefit. With the healthcare cash plan, the tax position was not as harsh and [the employees’] whole family could benefit.”

But it is not strictly an either/or situation when it comes to choosing between a healthcare cash plan and PMI, because the two products can work well together. Peter Lauris, sales and marketing director at Medicash, explains: “We see cases where an employer introduces an excess on its PMI [cover] and, with the saving it makes on the premium, puts a cash plan in. This can pick up the cost of consultations and diagnostics, enabling the employee to use the PMI to pay for any more expensive treatment, if it is required.”

As well as covering the cost of initial consultations, this approach can also reduce the number of claims made on a PMI policy. In turn, this can help to contain premium increases. Larry Bulmer, chief executive of health insurance intermediary the Advo Group, says: “Clients want to reduce spend and a cash plan does allow them to reduce benefits on PMI. We have seen clients looking at reducing the physiotherapy benefit, out-patient cover and consultations by bringing in a cash plan.”

Product development is reflecting the changing healthcare benefit market, with some providers pushing cash plans closer to the PMI model.

For example, in 2007 Westfield Health launched Surgery Choices, which was designed to be used alongside the provider’s Foresight, Chamber and Mosaic plans, and provides cash lump sums for a number of non-urgent surgical procedures. These include treatments for hernias, varicose veins, hip replacement and slipped discs. Other providers are also expected to go down this avenue, with Simplyhealth’s Glover hinting at a similar move in the next 12 months.

As well as edging into the PMI arena, the dental market is increasingly attracting the attention of cash plan providers. Dental is one of the most popular benefits on cash plans and, with National Health Service (NHS) dentistry becoming harder to access, several providers have seen the merits of a stand-alone dental plan. Among those pushing into this market are Simplyhealth and Medicash.

Cash plans are also becoming more employer-focused, by offering occupational health benefits, employee assistance programmes (EAPs) and online health assessments. Mike Izzard, managing director of Premier Choice Healthcare and chairman of the Association of Medical Insurance Intermediaries, says: “Cash plans can be a really good tool for employers. For instance, an employee assistance programme can pick up a potential stress case before it develops into a long-term absence.”

Flexibility has also become increasingly important in the cash plan market. Providers have traditionally required an organisation to have a couple of hundred employees before they would supply a bespoke plan, but some are now tailoring their products for smaller groups of staff.

For example, Health Shield will look at groups of 50 or more employees and Westfield Health offers an online flexible quotation system, Mosaic, to employers with at least 30 employees. Meanwhile, BHSF will put together just about any package of benefits for groups of 30 or more employees. “Some companies want bespoke benefits, but we find that price is the real driver behind tailoring plans,” says Hall. “We will also add in trade-up options for the employee, which gives them flexibility too, which is not common on bespoke schemes.”

Cash plan providers are confident about the future, with traditional providers pointing to their 100-year plus track records as evidence that they will survive the recession. But although demand might be strong, consolidation in the market is a distinct possibility.

“Most of the corporate market is held by a handful of traditional cash plan companies, with the medical insurers also actively selling their cash plans,” says Hall.

“There are still umpteen small players out there that could be absorbed by a larger player,” he adds.

So with claims likely to rise as employees squeeze as much value from their cash plans as possible, it could be a case of the survival of the largest, as well as the fittest.

Focus on facts:

What are healthcare cash plans?
Healthcare cash plans provide cash lump sums towards a range of everyday health benefits in exchange for relatively low premiums, starting at less than £1 a week. By far the most popular benefits included in the plans are dental and optical, but options such as physiotherapy, consultations, diagnostics, and employee assistance programmes (EAPs) are also popular with employers and employees.

What are the origins of cash plans?
The roots of cash plans can be traced back to the days of Queen Victoria, when they helped people access healthcare, originally settling the bills with the hospital rather than reimbursing the member.

People used to pay one pence for every £1 they earned. This was usually collected on Saturdays when the people were paid, which led to the name Saturday hospital fund. With the arrival of the National Health Service, cash plan providers changed their constitutions to enable them to reimburse individuals for healthcare costs.

Where can employers get more information and advice about cash plans?
More information can be obtained from the British Health Care Association, a trade body representing the majority of not-for-profit cash plan providers (visit or call 0153 651 9960).

Nuts and bolts:

What are the costs involved?
£1 a week per employee is the cost often quoted for a healthcare cash plan, but prices can start from as little as 58p a week for a bespoke scheme, through to about £10 a week for top-of-the-range plans. Unlike private medical insurance, cash plan premiums tend to be held for several years, with any price rises usually reflecting an increase in benefits.

What are the legal implications?
A cash plan can help employers cover some of their duty-of-care requirements. For example, any optical benefit can pick up the cost of eye tests and glasses for staff who use visual display units. In some plans, an employee assistance programme and counselling can support those suffering from stress.

What are the tax issues?
Cash plans are treated as a benefit-in-kind and are therefore subject to tax and national insurance. However, some employers have succeeded in obtaining an exemption from their local tax office, arguing that the premium is so small once duty-of-care benefits are removed, that it is not cost-effective to collect the tax.

In practice:

What is the annual spend on cash plans?
Almost £500 million was spent on cash plans in 2007, according to figures from healthcare analyst Laing & Buisson.

Which cash plan providers have the biggest market share?
Simplyhealth, which includes the HSA, Healthsure and Leeds Hospital Fund brands, is the largest player with almost 50% of the cash plan market. In second place is Westfield Health, while other big players include Health Shield, BHSF and Medicash.

Which cash plan providers increased their share most over the past year?
According to Datamonitor’s report UK Healthcare Cash Plans 2008, the big movers in 2007 were Westfield Health, which grew through sales of new policies to corporates, and Axa PPP Healthcare, which increased business as it renewed former Legal & General customers.