Buyer’s guide to healthcare cash plans

A range of wellbeing and sickness absence issues might be accounting for growing employer purchasing of healthcare cash plans, says Nicola Sullivan

The focus in the healthcare cash plan market remains fixed on the corporate sector as providers aim to grow their business by capitalising on employers’ interest in reducing sickness absence and promoting health and wellbeing in the workplace.

Providers are developing new products targeted at the corporate market that provide cash back for a range of medical expenses, including dentistry, eye care and physiotherapy. Not only are more employers offering staff access to the perk at a discount, there is also an increase in those paying for the benefit for staff, according to Mintel’s Healthcare cash plans UK published in 2007.

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This interest from the corporate sector is set to help turnaround the market as whole. According to Laing & Buisson, the number of people covered by cash plans fell in the years following the millennium, settling at 2.9 million in 2006. Mintel, however, expects that the number of people taking up the benefit, whether on an individual basis or through their employer, will increase steadily over the next few years. Mintel’s standard forecast model indicates income from premiums will grow from £485m in 2007 to reach £542 billion by 2012.

Increased interest from employers will help grow the market, according to cash plan provider Westfield Health, which claims 80% of its new business is from corporate clients.

Traditionally employers have offered access to the perk with employees paying for it, however, they now appear to be increasingly willing to fully fund healthcare cash plans for staff. James Glover, member services director at provider firm HealthSure, explains: “We are seeing growth in the area where employers are paying for the product. There is an increasing pressure on employers to put together an impressive package of benefits. There are all the issues associated with absenteeism, stress in the workplace. Healthcare cash plans include things that help people get back to work quickly.”

The continuing low cost of cash plans may be behind their appeal. Some employers are looking to provide a healthcare benefit for their staff, but are put off by the cost of private medical insurance (PMI) premiums, says Glenn Rhodes, head of B2B marketing at HSA. “A lot of employers can’t afford to pay for PMI but they can afford to pay for cash plans. [Cash plans] receive a positive response because the approach to everyday healthcare costs is what people can relate to,” he explains.

At the cheaper end of the market, policies can cost between £1-£2 a week per employee, therefore contributing to the product’s popularity among small and medium-sized enterprises, which are often constrained by tighter budgets.

Dentistry is another factor which will help to contribute to market growth. With fewer patients now being treated on the National Health Service (NHS) and gaps in the provision of dental care, it is perhaps not surprising a number of providers have introduced products that include dental cover in recent years.

Other providers have also extended the range of treatments covered by their cash plan products to include alternative therapies, access to scans and 24-hour GP consultation phone lines.

Further product development has stemmed from demand among employers, including the provision of cash back for minor operations. Westfield Health, for example, launched a plan called Surgery Choices in September 2007, which is available as an add-on benefit to its Foresight product. Surgery Choices covers 60 different non-urgent medical procedures used to treat conditions such as cataracts, gallstones, varicose veins and slipped discs.

Jill Davies, deputy chief executive at Westfield Health, says: “It represents a natural progression in an employer’s search for an affordable alternative to PMI to help cut sickness absence by providing staff with access to treatment when they need an operation. Waiting for non-urgent operations can be a long and stressful process, which is damaging to both the employer and the member of staff.”

As products become more comprehensive in terms of what they cover, Glover predicts it will soon be more common for cash plans to include minor operations and other “PMI-like benefits” to create hybrid healthcare products.

“There will be a blur in the distinction between cash plans on the one hand and private medical insurance on the other,” he explains.

Focus on facts

What are healthcare cash plans? Healthcare cash plans provide cash back for a range of medical expenses, albeit often up to a set percentage of the overall cost. The most popular treatments covered include optical, dental and physiotherapy, but plans can also include cover for stress helplines, complementary therapies and specialist consultations.

What are the origins of healthcare cash plans? The roots of healthcare cash plans can be traced back to the 1800s, when they were set up to help people meet the cost of medical treatment. Plans were often provided through employers or churches, with contributions collected on Saturday or at Sunday services, hence the names hospital Saturday funds and hospital Sunday funds.

Where can employers get more information and advice on healthcare cash plans? The British Healthcare Association is a trade body that represents many of the cash plan providers. It can be contacted on 0153 651 9960. The Association of Medical Insurance Intermediaries has a service on its website ( to help employers find a member.

Nuts and bolts

What are the costs involved?
Laing & Buisson reports that the average premium paid by employers was £114 per employee per year in 2006. Group schemes, whether fully funded by employers or paid for by employees, often tend to be heavily discounted. Based on current prices, the average cash plan premium will rise from £165 in 2007 to £171 in 2012, according to research conducted by Mintel.†

What are the legal implications?
If anything, cash plans could help employers to meet their obligations under the Health and Safety at work legislation to ensure the health and wellbeing of their employees.

What are the tax issues?
If employers cover the cost of the benefit, healthcare cash plans are treated as a benefit in kind and are, therefore, subject to tax and national insurance. If employees are paying for cover, the premium is not taxed because they are paying out of taxed earnings. Lump sum cash payments in the event of a claim are also tax-free.

If the benefits covered fall into the employer’s legal requirements, such as eye tests for VDU operators, they may be able to argue the case for tax exemptions. Some elements such as optical cover and EAPs may attract P11D dispensation.

In practice

What is the annual spend on healthcare cash plans?
Mintel expects that in 2008, 2.92 million people will be covered by healthcare cash plans, generating £494 million in premiums. This includes people taking up cash plans on an individual basis or through their employer.†

Which healthcare cash plan providers have the biggest market share?
According to Mintel, the Simplyhealth Group (which includes subsidiaries HSA, Healthsure and LHF), and Westfield Health are the largest cash plan providers, with 47% and 12% of the share respectively in terms of product sales. BHSF and Medicash both have 6% of the market share. Other major players include Bupa Cash Plans. Health Shield and HSF.

Which cash plan providers increased their market share the most over the past year?
Laing & Buisson figures show that in 2006, company-paid cash plans accounted for 8% of subscriptions but this is expected to rise. Although data does not exist for all providers, HSA, Healthsure, Health Shield and Westfield Health have reported a growing demand for company-paid cash plans. Westfield Health, for example, has reported that 80% of its new business has come from the corporate sector, including company-paid cash plans.