Shaping the next-generation cash plan

With interest in cash plans amongst employees surging Sam Barrett finds providers adding more features

Business is buoyant in the healthcare cash plan arena. Figures from Laing & Buisson show that sales increased by more than 3 per cent in 2007. More importantly, Healthcare Research 2009, which was conducted by Employee Benefits and Simplyhealth,found that 14 per cent of companies now offer cash plans to employees, up from just 2 per cent in 2004.

Anecdotal evidence from the providers supports this. “We’ve added almost as many members in the last four months as we did for the whole of 2008,” says Phil Wood, marketing and sales director at Healthshield. One recent major new client was the electrical retailer Comet. It signed up to a basic level of cover with the option for voluntary top-ups for its 7,500 employees. “Employers like the fact they can cover all employees,” he adds. “A corporate scheme has group pricing advantages, and by offering a basic level of cover with voluntary top-ups the cost to the employer is low. By going for a salary sacrifice arrangement it could even be cost neutral.”

This appetite for cash plans means many of the providers are currently reviewing their schemes to be sure the benefits match customer demand. For example, Westfield Health has recently reviewed the benefits on its Advantage scheme, increasing the reimbursement levels with a modest price rise starting from just 6p a week on the first level. “We’ve increased the optical, dental and dental trauma benefits by an average of 5 per cent and the daily allowance on the day surgery benefit by an average of 10 per cent,” says Jill Davies, chief executive of Westfield Health.

As well as providing a decent level of cover for employees, cash plan providers are also conscious that they must appeal to the employer. For example, Davies says that Westfield Health has used the price review as an opportunity to encourage employers to pay premiums by introducing new benefits, such as scanning and an employee assistance programme, to the corporate paid plan.

James Glover, corporate sales and marketing director at Simplyhealth, says health and wellbeing will become increasingly important on cash plans as employers get a better understanding of the connection between employee health and productivity. “Employers are engaging more in an holistic approach to employee health and we’re looking at adding in benefits such as smoking cessation, exercise programmes and more preventative measures such as screening. It’s not just about reimbursing the cost of everyday health; we’ve been doing that for the last 50 years. People want more now,” he observes.

He does admit that while some employers are open to wellbeing benefits, the health insurance industry hasn’t really done enough to convince the more sceptical. “We’re going to be working on producing more evidence of the tangible benefits of these options,” he adds. “This will make it easier to sell these plans.”

The strong performance in the cash plan sector is also helped by the current economic climate. As many employers are forced to evaluate their healthcare benefits spend, private medical insurance can appear pricey. Because of this, there are opportunities for the cash plan providers to pick up business, and some are looking at including elements of medical insurance within their plans. “It’s not a complete blurring of the two models,” says Glover, “but we are looking at a hybrid product that would bring more medical insurance features into the cash plan model.”

Although the plan hasn’t been launched yet, Glover says it is likely to include full indemnity cover for consultations and diagnosis. While this can be expensive, he says there are ways to control claims costs. “By directing people to treatment through networks of hospitals and consultants it is possible to keep the cover affordable and bridge the gap between medical insurance and cash plans,” he argues.

Indeed, this approach is already becoming more common among the medical insurance providers as a way of controlling costs, and is in place with Simplyhealth’s sister company BCWA.

Another feature that Simplyhealth is considering for its hybrid product to ensure affordability is a moratorium. “We could offer individual underwriting, but this might add to the cost. Instead we’re more likely to consider a moratorium or some form of waiting period as this is easier and cheaper to administer,” Glover adds.

But while Simplyhealth is looking to launch later this year, some cash plan providers have already taken steps towards the medical insurance model. For example, Westfield Health offers a scanning benefit that provides access to MRI, CT and PET scanning facilities, and in 2007 it launched ‘Surgery Choices’ as an option on its ‘Foresight’ plan and has since extended it to its other company-paid schemes.

With this, any corporate-paid scheme with 10 or more employees can gain access to 60 different surgical procedures classed by the NHS as non-urgent. This costs £1.24 a week per employee covered. Davies explains: “These include operations for conditions that can commonly cause long absences from work, such as slipped discs, joint problems and hernias.”

Additionally, because the cash plan model means there’s a cap on claims, there isn’t a risk of increased premiums which could occur on medical insurance following a higher number of claims.

Zoe Lewis, senior sales consultant at PMI Health Group, says Surgery Choices offers flexibility, especially in the current climate. “Although we haven’t seen any evidence of this yet, there is talk of companies getting rid of their medical insurance. Moving from medical insurance to a cash plan is a big jump, but this gives another option,” she explains.

Although other providers haven’t launched a similar option yet, this is likely to change. Simplyhealth has hinted at some form of surgery cover and Health Shield’s Wood says that although he hasn’t looked into it yet, it would be wrong to rule it out completely.

However, not every provider wants to add this type of option. Medicash has looked at it recently and while it may still introduce something similar, sales and marketing director Peter Lauris does question whether it’s viable. “We used to offer a surgery-style plan but, with take up low, it was shelved. I also question whether cash plan providers have the necessary underwriting experience to do this. When we offered our plan we had to subcontract the underwriting and this adds costs into the scheme,” he explains.

There can also be risks of confusion when cash plans become more like medical insurance. The list of benefits available ballooned in the 1990s, making plans confusing and difficult to compare. For providers it also made plans uneconomical as the administration for a multitude of benefits was costly, and few would argue that the benefit-pruning exercise the market undertook wasn’t prudent.

“You can also get conflict if you get too close to medical insurance,” adds Lauris. “This can be the case where an employer already offers it and there’s crossover, or with some of the unions which are morally opposed to private healthcare.”

So, while some plans are moving towards the medical insurance model, there’s also an awareness that the more traditional cash plan still has a role to play – even in the 21st century.

Cash plans bespoken for

Over the last few years, bespoke schemes that allow companies to pick the benefits they want have become increasingly popular among the cash plan providers.

“Once you’ve got around 50 employees you can bespoke a scheme,” explains Zoe Lewis, senior sales consultant at PMI Health Group.

Some providers will go lower, too. For example, Westfield Health and BHSF allow companies with as few as 30 employees to design their own scheme. “We started bespoking schemes about five years ago, and we now have more than 200 schemes in place,” says Phil Wood, marketing and sales director at Healthshield. “The rules vary, but typically we like there to be at least 75 members and a reasonable premium, as we will bespoke all the literature for the scheme.”

Where smaller schemes are an option there are usually rules in place to minimise the cost of setting the scheme up. For instance, to go as low as 30 employees Westfield Health uses its flexible quoting system Mosaic. This allows an intermediary to help an employer put together a company-paid scheme from a selection of 14 benefits and services.

There are disadvantages to tailoring schemes though. Peter Lauris, sales and marketing director at Medicash, says that offering bespoke schemes can put pressure on provider margins.

“There is pressure from the large employers to cut back on the cover so schemes only focus on the big claim areas. This can almost become a pound-swapping exercise and, with some of the providers going very low on pricing to win market share, I do wonder whether they’re really adding value by bespoking,” he explains.

But with providers keen to meet employer demand and the current economic climate, making sales even more important, bespoking is certain to be a major trend in the cash plan market.