The rise of healthcare cash plans

Executive summary

• Healthcare cash plans are popular among employees and employers alike during tough economic times because they give access to key health services for a low cost.
• They can cover dental, eyecare, physiotherapy, osteopathy, counselling, stress helpline, specialist consultations and diagnostic tests – exactly what they cover can be decided between employer and provider.
• Premiums start from less than £1 a week and price increases are rare.
• On average, an employee will claim between three and four times a year and this high claims frequency means cash plans are also highly appreciated.
• Healthcare cash plans can complement private medical insurance. Some employers increase the excess on their private medical insurance and take out a cash plan to help staffs meet the cost of the low ticket items.
• Cash plans can be tailored to specific workforces or employers can buy an off-the-shelf system.

Main feature

Threat of recession brings the cost of employee benefits into sharp focus. But, while many products see sales stall, healthcare cash plans experience sales growth during tough economic times.

“Cash plans do perform well during economic downturns,” says Lara Rendell, marketing manager at Healthshield. “We’re busier than we’ve ever been and have recently increased our sales team to deal with the extra demand.”

There are a number of reasons why cash plans perform well in poor economic times, but cost is probably the main one. Premiums start from less than £1 a week, for which an employee can access significantly more in benefits. For example, Healthshield is launching a new company-paid plan, Essential, in 2009, which for 75p a week (equivalent to £39 a year) will allow the employee to claim back annual benefits including: £50 of dental; £50 of optical; £150 of physiotherapy and other therapies; and £200 of specialist consultations.

Price increases are also rare. “Premiums are fairly static, which enables employers to budget more accurately,” says Jill Davies, chief executive of Westfield Health. “It’s three years since we last increased our premiums and when we do increase them it tends to be in line with an increase in benefits.”

This compares very favourably with private medical insurance (PMI), where premiums can jump by as much as 10% a year as a result of the rising cost of healthcare.

Additionally, as cash plan premiums are the same regardless of age and medical history, this can be beneficial to many employers. “Medical insurance premiums take into account age and health, so the cost can be a barrier for companies with older employees,” says Sue Weir, chief executive of Medicash. “On top of this, while medical insurance premiums can increase substantially to reflect a heavy claims year, this won’t happen with a cash plan.”

In fact, cash plan providers actively encourage employees to claim. “Cash plans are designed to be used. Employees don’t need a GP referral to use any of the benefits and we’ll help employers promote them to keep usage as high as possible,” says James Glover, member services director at Healthsure, admitting that his motives aren’t purely altruistic. “The more a plan is used the harder it is for an employer to take it away,” he adds.

On average, an employee will claim between three and four times a year and this high claims frequency means cash plans are also highly appreciated. “Employees don’t need to be ill to claim,” says Davies. “Everyone goes to the dentist at least once a year and if you need glasses or contact lenses you’ll get a lot of value out of a cash plan.”

Benefits also appeal to all ages. For example, physiotherapy is great for younger, fitter employees who might suffer from sports injuries.

Cash plans can also help an employer tackle sickness absence problems. “Musculoskeletal problems and stress are the two main causes of absence, so by providing access to services such as osteopathy, physiotherapy and counselling, it’s possible to treat these problems early, before they result in long-term absence,” explains Weir.

Although comparisons are often made between the two products, cash plans can be used effectively alongside PMI, often helping to drive down the overall spend. Brian Hall, sales and marketing director at BHSF, explains: “The two products complement each other and we are seeing some employers increasing the excess on their private medical insurance and taking out a cash plan to help employers meet the cost of the low ticket items such as specialist consultations and diagnostics.”

As an example, BHSF recently arranged a healthcare cash plan for a company with 1,500 employees. It had added a £150 excess to its PMI scheme but, by paying £50 a head for a cash plan, was able to deliver the same benefits. Further, by rearranging cover in this way, it was able to save around £100 per employee.

To make this easier to do, many of the providers will also flex benefits so that an employer can have exactly what they want. Most will only tailor schemes if you have several hundred employees, but Westfield Health and BHSF will work with much smaller employers. Westfield’s Mosaic product allows benefits to be tailored for groups as small as 30 and BHSF will put together bespoke schemes for as few as 35 people.

But even with an off-the-shelf product, a cash plan delivers a broad range of benefits. The two main ones are optical and dental in terms of claims, with the latter becoming even more important as NHS dentistry becomes harder to find. Physiotherapy and other therapies such as acupuncture and osteopathy are also popular and many providers also include health screening.

Although some providers still include cash payments for hospital stays, most have updated this benefit with money towards specialist consultations and diagnostic tests such as MRI and CAT scans. As well as benefits to help employees meet the cost of healthcare, more employer benefits are now included on plans too. Most providers will include some form of stress helpline, with some including access to face-to-face counselling sessions, or offering it as an upgrade option. Additionally, occupational health services are also appearing on benefit schedules.

More innovation and attention to employer benefits is expected too. Healthsure’s Glover expects to see more occupational health services added to plans. “We include pre-employment screening and occupational health advice on our plans already and think these areas will become more important, especially if companies are forced to downsize,” he explains.

As more employer-focused benefits are added to healthcare cash plans it creates an interesting situation as far as tax is concerned. Employer-paid schemes are a benefit-in-kind and as such, tax is payable.

However, with so many benefits forming part of an employer’s duty of care requirements, for example eye tests and counselling, some employers have successfully won a tax exemption. Hall explains: “Some employers have been able to demonstrate that the tax due is so small once the duty of care benefits are removed, it’s not worth collecting. It does depend on the local tax office, but it is worth speaking to your tax office about this.”

Voluntary schemes

For the ultimate in low cost, a voluntary scheme could be the worth considering. With healthcare cash plan providers happy to do all the promotional legwork required to sign up employees, the only cost will be the administration needed to introduce the plan.

Premiums are higher than on an employer-paid scheme but lower than those on an individual scheme. For instance, at BHSF a voluntary scheme is £1.15 a week, compared with 98p a week for an employer-paid scheme and £6 a month (equivalent to £1.38 a week) for an individual one.

Take-up does tend to be fairly low though. Brian Hall, sales and marketing director at BHSF, says that only between 5-10% of employees will take out a scheme if it is offered on a voluntary basis.

There are ways to bump this up. Stuart Scullion, sales and marketing director at the Private Health Partnership, says that if an employer makes just a small contribution, more employees will be prepared to sign up. “Where an employer agrees to pay just 50p of the £1 a week premium, take-up will increase. We’ve also seen this increase further if you allow the employee to extend cover to their partner and children, even where this means no additional cost to the employer.”

Back to Employee Benefits Report for Financial Directors – November 2008