The healthcare cash plan has gathered pace, driven in part by inclusion in flexible and voluntary benefit schemes, and an increase in private medical insurance premiums. By Debbie Lovewell
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When it comes to employees’ most desired perks, healthcare cash plans are rarely top of the list. Their image may have changed somewhat since the days when they existed to provide the working poor with medical treatment, but cash plans still lack the glitz and the glamour of rivals such as the company car.
Yet the cash plan market is continuing to gather pace. The inclusion of cash plans in flexible and voluntary benefits schemes, coupled with the rising premiums of other healthcare products such as private medical insurance (PMI) have all contributed to a growth in cash plan popularity over the past few years. Ann Dougan, marketing controller at healthcare provider Cigna, explains that changes to the way cash plans are offered has boosted employee take-up.
"Flexible benefits has a reasonable role to play in encouraging interest. The emphasis up until now has been on voluntary benefits. As people move into flex, the level of take-up increases." And the number of employers that are now paying for the benefit for staff is also continuing to rise. Raman Sankaran, head of marketing at HealthSure, says: "We have seen a marked increase in the number of employers that are looking to put in some kind of employer-paid plan."
HealthSure, for example, has seen a 15% increase in this type of business over the past year. Jill Davies, executive director of Westfield Health, reports similar findings. "Over two-thirds of our new business [wins] now [are plans that are] purchased by employers for their staff." However, this trend doesn’t appear to have spread across the whole market. Paul Kitching, sales manager at not-for-profit cash plan provider Sovereign, explains: "In the last 12 months, we’ve found the market’s been relatively static. The vast majority of cash plans that corporates have taken onboard are offered on a voluntary basis. There has been an awakening prompted by difficulties in recruiting and retaining new staff [but] the movement is relatively small. There hasn’t been a full scale rush."
Where employers are funding more cash plans for staff, this doesn’t mean that they are providing employees with the same level of cover they may have chosen to pay for themselves. Cathy Gilbert, national sales and marketing manager for Bupa Cash Plan, explains: "Some employers pay for the lowest level [of cover] and then staff can choose to opt up." The market’s change in direction may be partly due to employers’ increased awareness of employees’ health.
With absence figures continuing to rise and the launch of the Health and Safety Executive’s (HSE) stress management standards last year, providers report that employers are turning to healthcare cash plans to tackle absence issues and protect themselves against employee litigation. Jeremy Chadwick, group head of PR at HSA, says: "There is no doubt that people are recognising that cash plans have a role to play in peoples’ health. They are not a replacement to PMI, but a good complement.
We’re seeing a real wake-up as employers are starting to address statutory obligations." He points out that healthcare cash plans, for example, can cover treatments such as dental and optical, which are often excluded from PMI schemes. But while the cash plan market appears to be growing, it has also started to move in a different direction. Sovereign’s Kitching believes that the market has taken on a much younger slant. Employees of this age often have much higher priorities competing for their cash than healthcare, so providers have had to adapt existing products in their bid for business.
This has resulted in a number of low-cost cash plans – starting from around £1 a week – emerging on to the market in a bid to attract those watching their pennies. "The big challenge is communicating to people that don’t have cover. You’re competing with [things like] Sky TV and nights down the pub that people want to spend their money on," explains HSA’s Chadwick. And additional products have also been added to cash plans to make them more relevant to employees’ needs. These include cover for preventative measures such as health screening and allergy testing. Meanwhile, increased stress awareness has resulted in cover for stress counselling and psychiatric treatment being added to some plans.
Phillip Blackburn, senior economist at Laing & Buisson, believes the way providers conduct their business has also changed. "The cash plan providers are marketing to employers more aggressively now. The trouble is that there are a lot of schemes in place that employees pay for so employers are thinking ‘why should I bother when they are already happy to pay for it?’" New regulations from the Financial Services Authority (FSA), which came into effect in January this year, however, mean that providers have to be aware of how products are marketed. Compliance has affected some more than others.
Westfield Health’s Davies says: "[We’ve had to look at] our wording of terms and conditions as we’ve had a laissez-faire approach. It does mean we’re having to give people a lot of information upfront and it’s costing us more money. Regulation has impacted on costs, terms and conditions, and contracts we have with the customer." Others, however, report that the regulations have simply formalised processes that they already had in place. "For cash plans, the legislation is not as onerous as it may be for investment products as [they] are not advice-based," explains HealthSure’s Sankaran.
Smaller providers are the most likely to feel the impact of complying with the FSA’s regulations. This may lead to structural changes in the marketplace as further consolidation takes place. In turn, this could affect the products on offer. "Now that structural consolidation has taken place, [the market] will see some of the key players trying to differentiate between each other," says Cigna’s Dougan.
Future developments will be closely watched. As Sovereign’s Kitching concludes: "From a competitive point of view, you don’t want to see all the business end up in the hands of one provider."
What are healthcare cash plans?
Healthcare cash plans are schemes which pay policyholders tax-free financial contributions towards the cost of everyday treatments. Amounts typically range from 50% to 100%. A cash plan usually includes cover for prescriptions, optical and dental treatment, hospital stays, consultations with NHS-recognised specialists and physiotherapy. Depending on the provider, some will also include options for alternative treatments such as homeopathy and consultations with complementary therapists.
What are the origins of the product?
Healthcare cash plans have evolved from the hospital Saturday funds, which were first set up in the 19th century for the working poor before the introduction of the National Health Service.
Where can employers get more information and advice?
The British Healthcare Association (www.bhca.org.uk) represents most of the not-for-profit cash plan providers, the largest members of which are HSA, Medicash, HealthSure and BHSF.
What are the costs involved?
The majority of cash plans are still paid for by employees on a voluntary basis, which only incurs a small administrative charge for employers. For the increasing number of employer-paid schemes, costs will vary depending on the level of cover they choose to offer. According to Jeremy Chadwick, group head of PR at HSA, this type of scheme will typically cost between 1%-2% of payroll.
What are the legal implications?
Currently, there are no legal issues, although providers must comply with FSA regulations.
What are the tax issues?
Employees in employer-paid schemes are liable for benefit-in kind tax, but there are no tax issues for employee-paid plans. Some providers are starting to design employer-paid cash plan products that are exempt from the P11D charge.
What is the annual spend on the product?
According to a survey into the healthcare cash plan market by healthcare research firm Laing & Buisson, the annual spend on the product was £417m in 2003. Corporate-paid for cash plans accounted for £64m of this, up from £50m in 2002. Schemes which are paid for by employees, however, may also be included in the £353m that was spent in the individual cash plan market.
Which providers have the biggest market share?
HSA is the largest cash plan provider in the UK market and has recently extended its interests following a merger with HealthSure. Westfield Health, The Health Scheme from BHSF, HSF, and Medicash are among the next largest cash plan firms according to other providers in the market. As a relative newcomer to the market, First Assist is tipped as one to watch. Which providers increased their share the most over the past year? A number of acquisitions over the past few years have helped HSA to increase its market lead. HealthSure and Westfield Health are also reported to have increased their market share.