Cash plans heading up stream

2014 looks set to be the year cash plans shed their bargain basement image. But there are risks in going upstream, finds Sam Barrett 

With their high value and low price appreciated by employer and employee alike, cash plans have become the darlings of the corporate healthcare market. But while they have grown successfully over the last few years, with Laing & Buisson reporting growth of 15.4 per cent in the employer paid market last year, many providers are considering their strategy for the next 12 months.

For many, 2014 will be the year the product moves away from its £1 a week shackles. “The market has become over-commoditised and last year pricing started to bottom out,” says Engage Mutual commercial sales manager David Castling. “Employers are beginning to question what they get for £1 a week and many are prepared to pay more if it delivers value.”

As an example, Engage Mutual introduced a new level on its plan last year with a price tag of £25 a month. This provides employees with an annual fund of £1,850, compared with £1450 at £20 a month or £650 at £10 a month, and Castling says it is already proving popular with employers. 

Simplyhealth is also seeing a shift away from the bargain basement product. It beefed up its benefit levels and repriced last year to move away from the £1 a week. As a result its Simply Health Plan now costs £5, £10.75 or £17.50 a month for the core benefits with optional add-ons such as an employee assistance programme and PMI excess cover pushing the maximum monthly premium to £26.15. 

Advisers are keen to see some higher priced products in the market too. “There is a ceiling on a cash plan of around £5 a week: above this it becomes difficult for a member to get more value from the plan,” says Jelf Group healthcare director Iain Laws. “This means there is a need for a mid-market product that isn’t medical insurance but pays for more than a cash plan.”

A step closer to PMI? 

For some the solution may be for the cash plan providers to take a step closer to medical insurance and there are a couple of drivers that suggest this might happen. First, the NHS is undergoing a period of change. As cash plans have always complemented the NHS, if some surgical procedures become difficult to obtain, cash plan providers could fill these gaps.

In addition, competition in the market may lead to more providers launching options to cover surgical procedures. Currently just one provider, Westfield Health, has taken this step with its Surgical Choices product, but, depending on its success, others may look to develop something similar.

The Westfield product offers two levels of cover for corporate clients. Level one, which is available from £5.37 a month per employee, covers 61 procedures while level two, priced from £16 a month per employee, covers more than 1,300, effectively anything other than heart and cancer treatment that requires a local or general anaesthetic and an incision.

Westfield Health sales and marketing director Paul Shires says it was designed to fit customer demand. “The fastest growing areas of claims on a cash plan are for the outpatient elements such as consultation,” he explains. “As the NHS changes, people will worry about waiting lists and treatment rationing. Not everyone can afford medical insurance and Surgery Choices addresses this.” 

No go zone

But while Westfield reports steady growth on Surgery Choices, other providers are less convinced about taking this step. BHSF sales and marketing director Brian Hall says he wouldn’t go anywhere near medical insurance. “If cash plans try to go halfway there’s a risk of customer confusion. If they think they have full cover, it would be very damaging to the trust consumers have in cash plans if they then discovered it was a more limited range of procedures and it didn’t include the one they were having.”

Shires admits that this is a possibility but adds that Westfield has been very careful to ensure Surgical Choices is transparent and it isn’t perceived as a low-cost medical insurance plan. “It’s not medical insurance so we purposely gave the product a new name, hospital treatment insurance, to reflect the difference,” he says. “We’re also careful how it’s sold and are focusing on virgin business. We’d never go into a company with medical insurance and present this as a cheaper form of the same cover.”

Although Westfield has been careful to differentiate the two products, Engage Mutual’s Castling believes a foray into medical insurance style benefits could also backfire. “The danger for smaller cash plan providers thinking of dipping their toe in medical insurance is the pricing. It’s very different to the pricing on cash plans and there’s a huge risk of getting it wrong.”

Again Westfield has been careful to manage claims costs to avoid pricing pressures. In addition to setting caps on the cost of treatment it also negotiates fixed price packages with the hospitals, paying the bill up-front to secure further savings. As a result, it has maintained the same pricing since it launched six years ago, which compares very favourably with double-digit increases in medical insurance premiums.  

Filling the gap

Laws also feels uncomfortable about the cash plan providers stepping into medical insurers’ territory. “I think it is much more likely that the medical insurers will develop a lower cost option. They have the experience to deal with a medical insurance claim, which can be ongoing and costly, whereas cash plan providers’ expertise is with single, low value cash transactions,” he explains.  

This is something that is also noted by Simplyhealth head of employer marketing Howard Hughes. His company holds the unique position of being a traditional cash plan provider that branched out into medical insurance and he believes there is something of a no man’s land between the two products.

To illustrate this he points to the typical annual premium for the two products, £100 for a cash plan and £1,000 for medical insurance. “A product that would appeal to the mid-market would be priced between £300 and £400 a year but I don’t think it’s an easy market to reach. Cash plan premiums are rising but they’re still stuck at around £100,” he says. “The most attractive area of growth in the market remains among low paid workers such as care home and housing association employees, where a cash plan gives them real value at a low cost.”  

Although there may be little appetite for it, whether or not we do see more cash plan providers stepping into the medical insurers’ market may be down to how the NHS shapes up. Plans have traditionally stepped in to fill any holes in NHS provision, for instance dental, optical and more recently prescription charges, and a similar shift may occur if the availability of some surgical procedures come under pressure. “There’s been talk of charges for meals in hospital and GP appointments but whatever happens, cash plan providers are used to covering these shortfalls in NHS provision and can adapt products quickly,” says Medicash head of sales Paul Gambon.

Digital revolution

While it may be something of a waiting game to determine whether cash plan providers do get closer to medical insurance, product development departments are still busy filling their time.

One area where there could be changes in 2014 is the service proposition, with greater use of technology to streamline the claims process in particular. Laws says: “I’d like to see the providers really embrace digital and make their products entirely online. This fits well with their claims process and is also something that members expect.”  

Unsurprisingly it is something that some providers are working on. Medicash has recently made a £1m investment in its IT infrastructure with Gambon saying the provider has a number of ideas in development that will simplify the way the plan is run.

But, although a claims app might suit the switched on customer, not all of the providers are keen to go digital. For instance Hall has no plans to make the claims process electronic. “We do everything electronically except claims,” he says. “It’s very easy to detect fraud when you can hold a receipt in your hand. I don’t want to forfeit that.”

Rather than introduce a new claims app, Hall expects product development in 2014 to be more of an evolution than a revolution. “We tailor around 65 per cent of our business so employers can have the benefits they want for their workforce,” he says. “I expect we’ll increase the range of benefits available to employers this year and work on areas such as improving communications for the digitally excluded but I don’t expect any significant departures from the benefits already available.”

And while there may be room for new benefits, Laws says that providers should really concentrate on promoting their products. “If cash plan providers do anything this year it should be to market their products to a wider audience,” he says. “They have high quality products with broad appeal: there are plenty of opportunities for more growth in the market.”