Feature – Beginners’ guide to healthcare

They say that the man who has his health has everything, but what about the employee who has healthcare? Are they grateful? Do they use it? Does their company gain an advantage? Would yours? If so, what are the options and how should employers go about introducing a plan into an organisation?

Mark Dixon, business solutions manager for HR software company 4th Contact, explains: “It can help with sickness absence and getting people better quicker. It can help with recruitment and retention, adding value to a remuneration package or, at the very least, matching what the competition offers. Finally, it can help with public image; a company can be seen to be taking a duty of care towards the wellbeing of its staff.”

Of course this theory may not always stand up in reality. And the question of whether, and how, to introduce a healthcare plan becomes even more complicated when employers start to see what is available, and try to decide what to offer and who to offer it to. The four main healthcare options include private medical insurance, healthcare cash plans, critical illness cover and income protection schemes (see all four boxes), each of which has its own pros and cons.

So, once employers have all the facts, what is the best way to select which staff to roll their choices out to and on what basis should they do so? First, a warning. Adrian Norris, managing director of the Health and Welfare Practice at Mellon, cautions: “Don’t make any healthcare plan a contractual benefit. Once you have legally pledged to give something to someone it is very hard to withdraw from that. Instead, make a healthcare plan a discretionary benefit. This means you can change the type of the cover. Of course, employees will still not like this, but at least you are within your rights to do so.”

Clearly the nature of the organisation will ultimately determine what ought to go into a healthcare plan and who it ought to be presented to. Certainly it used to be the case that any sort of healthcare plan was the preserve of upper echelon employees only but in recent years that has begun to change. “We have seen a big shift,” says Sarah Dowdall, product development director at voluntary benefits firm Motivano. “Companies are now offering healthcare plans to greater numbers of staff, usually via [flexible benefits].”

Critical illness
Interestingly, critical illness cover offers some of the benefits of income protection (IP) but without all of the costs. In the event of suffering total and permanent disability, or serious illness, an employee does not receive an ongoing income and everything else that comes with it. Instead, they receive a single tax-free lump sum. Note that not all conditions are covered. Most schemes will cover a core list of approved conditions, which can be extended for a further charge.

The size of a premium is also based on age, gender, health, family history and occupation. The charge tends to come out to around £200 per person per year according to Jelf’s Coles. Obviously this is far cheaper than IP. It is also less of a long-term liability because once the one-off payment has been made, employees are taken off the payroll. The sense of giving employees a safety net, however, still applies. And this, of course, can positively influence recruitment and retention.

Income protection
Income protection (IP), pays an ongoing monthly income to someone who becomes physically unable to work for whatever reason, with a couple of exceptions. The employee stays on the payroll and for as long as the policyholder is not medically fit to return to their existing, or a similar role, they will receive an income of a generous salary percentage.

IP schemes were originally introduced by organisations that did not have a final salary pension scheme in place to deal with long-term sickness absence. As employers have wound up these pension schemes, some have looked to income protection to fill the gap left in employee healthcare. The Employee Benefits/HSA healthcare research 2004, shows 46% of senior managers, 41% of white collar workers, and 23% of blue collar workers now receive IP.

The upsides for the employer and the employee are intertwined. Employees gain peace of mind. They know that should anything drastic happen they will not be abandoned to welfare. IP is seen as a financial lifeline and is perceived as a real perk. This means employers gain a useful weapon in recruiting and retaining staff.

The downside is that it is very expensive. Tobin Coles, sales director of Jelf Corporate Healthcare, says the budget for taking out IP is comparable to private medical insurance. Typically, employers should expect to pay about 1.25% to 1.5% of payroll. If an employee does have reason to use their policy, it becomes more costly still. This is because the employer is legally obliged to carry on paying for all their benefits plus their NI and pensions contributions.

Healthcare cash plan
This is often seen as the poor man’s private medical insurance. Undeniably, it is far cheaper. The charge can be as little as £1 per week per person, according to Jelf’s Coles. The cost for employers, however, will vary depending on the level of cover that they choose. Alternatively, offering a cash plan on a voluntary basis passes the cost on to staff.

And what do policyholders get for their money? They receive a tax-free financial contribution, from 50% to 100%, towards the cost of everyday treatments. Typically a healthcare cash plan will include cover for prescriptions, hospital stays, consultations with NHS-recognised specialists, health screenings, dental check-ups, sight tests, glasses and contact lenses, visits to physiotherapists and the like and, in some cases, sessions with complementary therapists.

There are three key advantages to this product. Firstly, there’s its low-charge, making it relatively affordable. Secondly, there is its wide cover of common aliments, making it a useful tool in improving employee wellbeing and, thus, productivity. Finally, there is its simplicity, making it a tangible benefit for all, even the young, and this is always a plus when trying to attract top talent.

And the disadvantages? Apart from its lingering image problem, there are two others. Firstly, healthcare cash plans help only with the cost of treatment, not its provision and employees must seek this for themselves. Secondly, it cannot be enforced; if an employee wants to wait for free NHS treatment rather than pay and be partly refunded for private service, bosses can do nothing. This can become a bone of contention for employers.

Private medical insurance (PMI)
PMI is designed to help with the costs of private treatment. Effectively, this allows staff to jump the waiting list for conditions requiring hospital treatments such as curable short-term illness or injury. This includes nursing fees and hospital accommodation. In addition to being able to go to the top of the queue, policyholders can choose which expert to see or which facility to go to.

This type of healthcare product has several pros and cons. It can be seen as a competitive and caring element of a remuneration package. But not all potential employees will appreciate PMI, especially those under 30 who may see themselves as nothing short of immortal and therefore in no need of it.

But when employees do fall sick, as even the young will, PMI can help to get them back to work more quickly than if they had to wait for NHS treatment. However, the Employee Benefits/HSA healthcare research 2004 showed that almost 90% of sickness absence relates to minor conditions not requiring PMI, merely reliant on rest and a good old dose of Panadol.

But it does not cover all conditions. Most policies, for example, will not pay out for HIV/Aids, alcoholism, infertility and pre-existing conditions.

PMI has traditionally been viewed as an executive benefit, although this has now begun to change as it filters down through the workforce. The aforementioned research figures show that over 80% of senior managers, around 65% of white collar workers and around 30% of blue collar workers now receive PMI.

It is also perceived to be one of the most expensive healthcare benefits. Jelf’s Coles, does the sums: “For a large company you would expect to pay £350 per person per year. That can be doubled for a small company.”

And premiums are only going up – anything from 3% to 13% a year, depending on who you ask. So, the question becomes: is PMI really worth it?