When recommending healthcare benefits to a company, advisers often see healthcare cash plans and medical insurance fighting for their attentions. But while the two product types may claim to be able to offer all things to all businesses, the differences between them mean there shouldn’t be too much bloodshed.
“They are different products, meeting different need and aimed at different parts of the market,” says James Glover, member services director at Healthsure, “but in a fight to the death, I’d say that a cash plan would be the winner.”
That is not a surprising view from a cashplan provider and certainly in terms of value for money, cash plans are hard to beat. Starting from as little as £1 a week per employee, an employer would need to spend at least seven times this amount to provide an employee with medical insurance. “Not only are premiums smaller but, unlike medical insurance where price escalates each year, cash plan premiums are fixed for a number of years,” Glover adds.
Given the price differential it’s not surprising that the benefits are very different. Richard Halley, head of sales at HSA, explains: “Medical insurance covers the major health problems and the what if scenarios while a cash plan is there for the more day-to-day health requirements such as dental, optical and physiotherapy. While you’d hope not to have to claim on your medical insurance policy, we see an average of three claims a year from our cash plan policyholders.”
Stephen Duff, sales and marketing director at HSF, agrees: “One of the key advantages of a cash plan is that you don’t actually need to be ill to use it. It’ll pick up the cost of regular dental check-ups, glasses, contact lenses and it even covers laser eye surgery. This high usage means it can be a very highly appreciated benefit, which is good for the employer.”
The combination of price and claims frequency can affect employee perception in other ways too. When paid for by the employer, both products are taxed as benefits in kind. But, while the tax take on a cash plan is only small and offset by being able to claim on a regular basis, the tax due on medical insurance can be a major turn-off to employees. “One of the biggest complaints we hear from employers is that employees never use their medical insurance but still have to pay tax for receiving it,” explains Duff.
A further point in the cash plan’s favour, is that there can be some negotiation on the benefit in kind taxation. This is particularly the case on the new generation products where duty of care benefits such as employee assistance programmes and optical screening are exempt from benefit in kind taxation so, as the tax take is so small, this has led to some tax offices waiving the tax completely.
Even when offered on a voluntary basis, the cash plan is likely to have the upper hand. Duff says that where employers offer both products in voluntary schemes, take-up of the cash plan will exceed that for medical insurance with price and usability the key drivers behind their choice.
But cash plans don’t have all the muscle. Although some include cover for specialist consultations and hospital stays, the price means this is fairly limited. For example, on its £1 a week employer-paid plan, Healthsure includes £200 of specialist consultation benefit a year. Similarly, HSF includes £75 a night hospital benefit on its £6 a week plan. “With a cash plan you have a set limit that can be claimed any year,” says Chris Bromilow, head of company sales at Bupa. “But with medical insurance the ultimate indemnity is never known and this can give a lot of peace of mind. This does make it one of the most highly valued employee benefits, often just behind a pension.”
Because of this, when something major does happen, medical insurance is better equipped at returning the employee back to work quickly. For example if an employee suffers a hernia that prevents them from working, it could take many weeks before they are able to receive treatment on the NHS. With medical insurance they can be seen quickly, avoiding a long absence from work.
Some cash plans are evolving to pick up some of these treatment areas. As an example employers can add Surgery Choices to Westfield Health’s Foresight plan for an extra £1.24 a week per employee. For this they will get cover for 60 non-urgent surgical procedures including hernias, slipped discs and gall stones.
Cash plans can also step in where medical insurance might not want to venture. Mike Blake, group sales manager at PMI Health Group, says a key example of this is where someone has a minor injury that needs physiotherapy. “With medical insurance you’d need to get a GP referral for treatment but a cash plan will pick up the bill without this referral,” he explains.
He also says that a cash plan might be able to help with the cost of chronic conditions that would be overlooked by medical insurance. For example, where someone has a chronic back problem, a cash plan could pick up some of the cost of physiotherapy or acupuncture to alleviate the symptoms.
As well as product design, sometimes the make-up of the organisation will obviously determine whether a cash plan or medical insurance is more appropriate.
“Cash plans have traditionally been offered in manufacturing and blue collar environments while medical insurance is more geared towards professionals and white collar employees,” says Stuart Scullion, sales and marketing director at the Private Health Partnership.
Cash plans also tend to have an established track record in unionised industries due to the fact they support use of the NHS rather than promoting private treatment.
Age can also be a determining factor. Glover says that younger workforces tend to prefer a cash plan as they get more use out of it. “Statistically they’re less likely to need the sort of treatment that medical insurance covers,” he explains, adding that lower salaries and the need to clear student debts could make the benefit in kind tax take more unwelcome.
“Cashplans are generally for the entire workforce, whereas PMI is a BMW benefit for senior staff,” says Philip Wood, marketing director of Healthshield. “But I don’t see them as conflicting with each other. It is extremely rare for us to come across employers throwing out PMI when they are putting in a cashplan. These products complement each other rather than compete with each other.”
Against this backdrop it’s no surprise that the medical insurers are launching cash plans. In the last year Standard Life Healthcare has included a cash plan as an option on its modular Business Healthcare product and Axa PPP healthcare is in the process of revamping its Cashback product for a relaunch this July. Gavin Shay, SME sales manager at Axa PPP healthcare, explains: “It is a complementary product, especially now we’re seeing the shift away from NHS dentistry. Additionally we want to have another option in place for employers who might want to downsize their medical insurance as budgets get tighter.”
But it doesn’t have to be an either or scenario. Because of the differences in benefits, the two products can complement each other. As an example, in many companies, especially where there is a large manual workforce, it is common for the management or directors to have medical insurance while all the other employees are given cash plans.
Sometimes, employees will have access to both benefits. “We do have companies where a cash plan runs alongside the medical insurance,” says Halley. “The cash plan encourages employees to look after their health and go for check-ups and tests, which can be beneficial for the medical insurance policy.”
As an example an eye test will pick up early signs of serious conditions such as diabetes, elevated cholesterol levels and high blood pressure. Likewise, dentists will routinely check for mouth cancer and can help patients fight gum disease, which has been linked to heart disease and diabetes.
In some cases, the two benefits will be structured in such a way that any overlap is removed. Duff explains: “We’re increasingly suggesting that companies reduce the cost of medical insurance by removing benefits such as specialist consultation, which is covered on a cash plan, or by increasing the excess as the cash plan can pick up the cost of smaller items.”
But Blake isn’t convinced that this can always work. “A medical insurer gives a discount for an excess as they’d expect claims to be lower. Having a cash plan in place takes away this barrier, which may mean the excess isn’t as effective as it could be so the discount will be reduced. I wouldn’t recommend doing this, although it is perfectly acceptable as long as the client understands the implications.”
The two benefits can also be combined to create an effective retention tool. Scullion explains: “A client in the construction industry was having problems with staff turnover so we put together a stepped benefit using a cash plan and medical insurance to reward employee loyalty.”
With this, after six months employees were given a cash plan; after 24 months this was upgraded to medical insurance, with cover extended to the family after five years. Scullion adds: “It doesn’t have to be one or the other. As both products are flexible, once you’ve established a client’s demands and needs it is possible to build something that really suits them.”