Buyer’s Guide to healthcare cash plans

Aggressive cash plan marketing is symbolic of its refusal to accept a role as private medical insurance’s poorer cousin, says Stephanie Spicer

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Business in the healthcare cash plan market is increasingly focused on the corporate sector as employers and individuals look to these products as a cheaper alternative to private medical insurance (PMI).

There is certainly scope for maximising sales as Datamonitor estimates only around 7.5 million people are covered by healthcare cash plans. So it seems providers are still tackling a lack of product awareness.

Liz Price, chief executive of not-for-profit organisation Paycare, says: “The market is battling a lack of general awareness of what healthcare cash plans are and the very fact they exist. We still regularly come across organisations which have never heard of them.”

This may change as more employers search for ways to ensure they meet any obligations to support employee health and wellbeing. Certainly, the development of healthcare cash plan products reflects the market’s focus on benefits such as helplines and other occupational health services.

Healthcare cash plan providers are not satisfied with garnering the crumbs from the PMI table and are recognising the demands of the market for a more proactive approach to healthcare. One could argue they were always ahead of the game on this one anyway, making sure cost was not a deterrent to individuals in obtaining eye and dental check ups. But the marketing approach is becoming more aggressive and centred around helping employers to keep their staff fit, healthy and working.

Dentistry is one of the core benefits that could lead to a further boost in business. Changes to UK dental charges are likely to focus attention on the market as people experience higher consultation charges and diminishing National Health Service (NHS) provision.

Raman Sankaran, director of strategic development at Healthsure, says: “We are just starting to see the early market demand in light of changes to UK dentist charges. This will impact on people’s needs and have a knock-on effect on organisations as well. People will be looking for more potential cover and organisations will be looking afresh at dental cover as it becomes more relevant to staff.”

The regulation of the insurance market at the beginning of 2005 raised question marks over the survival of many healthcare cash plan providers. But Price believes the storm, such as it was, has largely passed. “Regulation has meant more consolidation for those struggling with it, but a lot of regulation is good business practice and as long as you are running your business properly, it is not difficult to meet the regulations as long as they are proportionate. We have had additional costs but I wouldn’t say it is a business-threatening burden,” she says.

When looking at the market split between not-for-profit providers and PMI providers which have latterly tried to enter the market, the not-for-profits still claim to have the edge. They argue it is their focus and experience in the market that stands them in good stead for the long term. This also enables them to provide better services to employers as part of the overall proposition and better perks as more premium income can be fed back in claims and benefits.

“There is a particular focus on what we can do for the small- to medium-sized employer which doesn’t have a welfare or benefits manager or HR specialist on site,” says Paycare’s Price.

However, with all the extra occupational health features coming into the model, will healthcare cash plans become more expensive? Providers agree they need to keep the cost down.

Suzanne Clarkson, head of PR and corporate marketing at HSA, says: “We want to be able to carry on offering this low-cost benefit, and the area of the marketplace we want to target is individuals that probably haven’t had any paid-for health cover in the past. Those people aren’t suddenly going to want to pay a higher price.”

And employers may even find themselves cutting existing costs by going down the healthcare cash plan route. “A lot of organisations may already be providing a helpline or eye tests but no other benefits. They can consolidate that existing spend and for the same kind of cost with a healthcare cash plan can be providing eye tests and employee assistance programmes (EAPs) and a whole raft of other benefits to try and keep their employees healthy and at work,” says Clarkson.

The not-for-profit providers have another advantage when it comes to keeping costs down especially for small- to medium-sized employers. Peter Maskell, chief executive at BSHF, says: “When it comes to occupational health services, we have the advantage of being able to buy in bulk because we have a lot of member schemes, so we can buy relatively cheaply and pass those savings on to our clients.”

Getting the balance of benefits right is important. Sharon Jordan, marketing development executive at Cigna, says: “Recently, we have seen cash plans launch to the corporate market providing higher benefit levels on items such as dental and optical [cover], however, this increase has been offset by a reduction in the breadth of available benefits.”

But others argue there may be more pressing needs on the part of employers to provide occupational health benefits, especially those that can be used to tackle stress.

Bill Gaywood, chief executive at Medicash, says: “Stress can result in high staff turnover, poor work performance, bad time keeping and costly absence from work. Companies can use this facility as part of stress management and employee assistance programmes and, by doing so, possibly reduce the risk of fines by the Health and Safety Executive or legal action by employees.”

The value is not just measured by the number of claims met however. Stephen Duff, sales and marketing director at HSF, explains: “Staff incentives don’t always have to come in the form of a bonus cheque or cash, both of which are easily spent and forgotten. Traditional incentives like basic healthcare are effective in motivating workers and creating a team atmosphere that fosters loyalty.”

The Facts: What are healthcare cash plans?

Healthcare cash plans make lump sum payments out to the holder to pay for treatments, such as eye tests, dental care, some complementary therapies and expenses for stays in hospitals. Premiums are ususally low and payouts will cover approximately 50% to 100% of the cost of treatment, up to a set overall limit.

What are the origins of healthcare cash plans?

The origin of healthcare cash plans can be traced back to hospital contributory schemes, established in the late 1800s before the National Health Service (NHS) cam into being. These raised small weekly contributions from the public to help fund hospitals. Post-NHS some of these schemes remained providing low-cost benefits to the lower working classes. Many providers are still not-for-profit and charitable organisations.

Where can employers get more information and advice on healthcare cash plans?

The British Healthcare Association is the trade body responsible for not-for-profit healthcare organisations, which reinvest their surplus profits for the benefit of members. Visit or telephone 0153 651 9960.

Nitty Gritty: What are the costs involved

Most providers offer plans that can cost from ¨£1.50 per week up to about ¨£5 a week depending on the level of cover. Premiums can rise to ¨£12 with more flexible plans offering a wider range of occupational health benefits.

What are the legal implications?

If anything, because employers have a responsibility to ensure the health and wellbeing of their employees under the Health and Safety at Work Act, it could be argues healthcare cash plans help to meet this obligation.

What are the tax issues

Healthcare cash plans are a taxable benefit if employers pay the premium. If employees are paying it, the premium is not taxed because they are paying out of taxed earnings. Lump sum cash payments are tax free to the individual.

In Practice:What is the annual spend on healthcare cash plans?

According to Datamonitor, estimated premium income for 2005 is ¨£648 million. This is forecast to rise to ¨£667 million for 2006.

Which healthcare cash plan providers have the biggest market share?

According to figures from Datamonitor, HSA is the market leader with approximately 1.3 million policyholders, followed by Westfield with 330,000, Birmingham Hospital Saturday Fund (BHSF) with 230,000 and Medicash with 200,000.

Which healthcare cash plan providers increased their market share the most over the past year?

As a group HSA (comprising HSA and Healthsure, which joined in March last year, LHF and Simply Health), is likely to be the provider that has increased its market share the most.