What is driving the growth of health cash plans?

Employer interest in health cash plans is increasing, but what is driving demand? 

Growing interest in cash plans

If you read nothing else, read this…

  • The popularity of health cash plans can be attributed to their flexibility, affordability and suitability to employees’ health needs. 
  • Employers’ desire to fulfil their duty of care is also helping to drive health cash plan market growth.
  • Cash plans cover treatments such as physiotherapy and dentistry.

According to the Health cover UK market report 2013, published by Laing and Buisson in July, demand for employer-funded health cash plans increased by 15.4% between 2012 and 2013 to reach a total of 588,000 contributors. 

The report suggests that one of the biggest drivers of demand for employer-funded plans is the struggles of the National Health Service.

Report author, Laing and Buisson economist Philip Blackburn, says: “At a time when the economy is struggling to grow at all, solid demand for private medical cover offers the industry a clear chink of light that growth is likely to move forwards when the economy wheels start to turn faster.

“Examples such as standalone diagnostics and therapy care provide a raised platform for medical cover to penetrate further across all ages as more cracks in NHS performance are expected under its financial constraints.”

Increased employer interest in health and welbeing

But Andy Nicholson, senior product manager at Bupa, says that the cash plan market growth is also being driven by employers’ rising interest in supporting employees’ health and wellbeing .

“We have seen year-on-year [cash plan] growth, increasing by around 30% in the last two years,” he says. “This growth has largely been driven by the success of our WellBeing Health Expenses product and the ability to tailor products for larger groups.”

Bupa’s WellBeing Health Expenses is an employer-funded plan offering employees flexible cover for everyday health expenses.

Employers are increasingly interested in fulfilling their duty of care around workplace health while encouraging staff to become more responsible for their own wellbeing. Health cash plans offer a proactive and cost-efficient way to do this.  

David Castling, commercial sales manager at healthcare insurer Engage Mutual, says: “Although PMI [private medical insurance] covers things that are much more significant than you would ever see covered on a cash plan, it is a very reactive need.

“The potential benefit of a cash plan is that it picks up smaller [health issues] more regularly. There is an inferred benefit of doing that earlier on, in that it might help prevent some of those more serious things coming to a head.”

Value-added services to tackle absenteeism 

The value-added services offered with many cash plans, such as employee assistance programmes (EAPs), discounted gym memberships and staff helplines, help to prevent staff health issues developing and help employers to manage workplace risks, such as absenteeism and presenteeism.

Neil Carberry, director for employment and skills at the Confederation of British Industry, says: “Having healthy staff is an essential part of running a healthy business. Investing in the wellbeing of employees is not only the right thing to do, it has real business benefits too.”

Nick Bacon, professor of human resource management at Cass Business School, adds: “Many employers recognise that improving staff health and wellbeing has significant benefits, such as lowering the costs of sickness absence and improving on-the-job performance.”

Cash plans can substitute for a pay rise

Employers are also attracted by the value of cash plans as a substitute for pay rises, which are still thin on the ground.  

Bupa’s Nicholson says: “With employers increasingly recognising the importance of employee engagement and health and wellbeing, they are investing in cash plans to provide their wider workforce with a health benefit that improves the remuneration package.”

According to the Health cash plans report 2013 , a study by Taylor Nelson Sofres published in February 2013 on behalf of insurance broker and benefits consultant PMI Health Group, cash plans have gained popularity among staff who earn less than the UK average salary of £27,000. By contrast, only 8% of these lower earners value PMI highest among the benefits they receive. 

Mike Blake, director of PMI Health Group, says: “Although cash plans have become as popular as health insurance, the findings of this study also attest to the assertion that one size rarely fits all.

“They are also easy to sell to employees and are valued so highly because they are not deferred like other benefits, such as pensions.”

James Henson, sales director at corporate health insurance provider Health Matters, says cash plans are equivalent to a pay rise of about £1,500 because of the savings they enable staff to make.

“Cash plans are nice and cheap and easy to use,” he adds. “We use a plan ourselves, which includes treatments such as physiotherapy and dentistry.”

Chris Parsons, sales director at healthcare benefits provider Simplyhealth, says: “Employers are looking at giving something back to staff and cash plans are a low-cost option. Plans start at £5 per month and can be claimed throughout the year, so they are not forgotten about. 

“Plans are cost-effective, flexible and tailored to each employee’s needs. Staff can also update their plans themselves and get up to four children covered. Cash plans are simple, affordable and easy to understand.”

Howard Hughes, head of external communications at Simplyhealth, believes affordability is one of the most significant factors contributing to the growth in health cash plan take-up. “It’s a very low cost for a high-value benefit,” he says. “Cash plans provide fantastic assurance, given the gap in wages and living costs. They are so useful and versatile.”

The simplicity of health cash plans is another attraction for employees that want to take better care of their employees’ health and wellbeing. 

Market challenges 

However, the growth of the cash plan market could be hindered by the government’s plan to introduce a tax exemption on employer-funded medical treatment of up to £500, which was first announced in the 2013 Budget. 

At the same time, the government announced plans to extend the tax exemption to medical treatments recommended by employer-arranged occupational health services , in addition to those recommended by its new Health and Work Assessment Advisory Service .

The exemption, which was expected to be introduced this autumn, could negatively impact the cash plan market because employers would be able to claim up to £500 in tax and national insurance relief per employee for recommended medical interventions. 

But Clare Linaler, London portfolio manager at employee benefits consultancy Mercer, says: “I don’t think the tax exemption will drive a rise in spending immediately. We could see an increase in spend by employers, but I don’t think a change will occur instantaneously.”

For now, employers need to be mindful of the fact that the effectiveness of a health cash plan relies on them identifying employees’ healthcare needs and the benefits they value most. Staff surveys and sickness-absence and management data can help employers collect this information.

This is key for organisations that are keen to build staff engagement and loyalty with effective benefits packages, which must include an adaptable healthcare element.

Key statistics

  • 11% of staff rank cash plans as their most-valued benefit (Health cash plans report for PMI Health Group, February 2013)
  • The health cash plans offered by Simpyhealth comprise 28% corporate-paid and 72% employee-paid (Health cash plans supplement , Employee Benefits , February 2013)
  • Optical treatment was the top health cash plan benefit in 2011, accounting for 31.2% of all benefits claimed (Laing and Buisson Health cover UK market report 2012, August 2012)
  • 68% of employees believe their employer should take responsiblity for their general health at work (BHF research into the nation’s workplace health, British Heart Foundation, January 2013)
  • 69% of employers plan to develop health and wellbeing strategies in the next two or three years (Health, wellbeing and productivity survey 2012-2013, Towers Watson, March 2013)

Case study: Southern Water launches cash plan to meet staff demand

Southern water

Southern Water’s reward team launched yourHealth Cash Plan in July this year after internal research revealed that help with healthcare costs was high on employees’ wish list of new benefits.

Just over 68% of the utility’s employees have joined the scheme, which is funded by the organisation, with employees liable only for a small benefit-in-kind tax payment. 

Suzanne Gregory, reward manager at Southern Water, says: “The cash plan fits really well with our promotion of the wellbeing programme we are working on this year, and with employee engagement. 

“It promotes wellbeing as it offers cash back for routine everyday health needs, including optical and dental check-ups and prescription charges. So, regardless of whether staff choose to have NHS or private treatment, yourHealth Cash Plan gives them money back on the cost of treatments. I am delighted with the response rate, with over £10,000 worth of claims already made in the first two months.”

The scheme, provided by Bupa, was promoted through a communications campaign that included employee briefings, roadshows and drop-in sessions at several of Southern Water’s offices, as well as across all the employer’s sites, using emails, posters, internal newsletters and the intranet.