Cash plans – are providers listening?

Cash plan providers and intermediaries are torn over whether the sector needs more claims transparency. Sam Barrett finds the arguments evenly balanced

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Demands for greater transparency continue to echo around the corporate healthcare arena. Following requests for more detail on SME claims history in the medical insurance sector, intermediaries are now calling for cash plan providers to reveal all.

The calls reached full volume at Corporate Adviser’s Cash Plan roundtable in March, with intermediaries calling on providers to supply details of how much employees claimed each year by benefit type. Reasons cited for needing this information included improving sales potential, giving greater understanding of the benefit and its value and enabling the intermediary to revisit the employer, particularly important as cash plans don’t include an annual renewal.

Colin Boxall, corporate director at the Advo Group backs calls on cash plan providers to make this information available. He believes the current lack of disclosure has arisen because, until relatively recently, providers themselves have been responsible for the lion’s share of distribution in the corporate market.

“With many cash plan providers there remains a reluctance to work closely with the intermediary and to understand their role,” he says, citing claims disclosure as an example of this. “Claims disclosure is commonplace with corporate medical insurance where it not only helps to establish the correct price but also acts as a tool for HR, painting a picture of the health of the workforce. Cash plan providers will provide a breakdown of use by number and claim type but we need to go further to establish spend and more detailed claims summaries.”

But, while greater transparency might strengthen the intermediary’s relationship with their client, there is resistance from the providers to handing over this more detailed information. One of the main reasons cited is that it has little value. Jill Davies, chief executive at Westfield Health, explains: “Transparency is useful but a list of claims isn’t necessarily indicative of what’s happening with the scheme. Typically it takes three years to establish a proper claims pattern and even then the financial value of claims is only part of the story.”

Certainly claims do take time to settle down. In the first few years of a scheme awareness, and subsequently claims, can be low. As this rises there can often be a claims spike as those employees who have put off going to the dentist catch up on their treatment and others update their glasses. After this, claims will generally level out as plans kick more into a health and wellbeing maintenance product.

With many cash plan providers there remains a reluctance to work closely with the intermediary and to understand their role

Mike Blake, compliance director at PMI Health Group, agrees. “We see schemes that have high levels of claims one year, followed by much lower claims the next. Plans are designed to make it easier to budget and take these fluctuations into account,” he says.

As well as variation in claims from year to year, the return on investment of a cash plan goes beyond a simple premium paid versus benefits claimed equation. Many of the benefits available through a cash plan are preventative, for instance physiotherapy and employee assistance programmes, which deliver a much broader saving.

Even the more commonly claimed dental and optical benefits can help to reduce absence. If left untreated, dental and optical problems can result in painful problems. Even where no treatment is required, dental check-ups and eye tests can reveal more serious health problems such as oral cancer or glaucoma, which can lead to loss of vision.

Davies says that the benefits of a cash plan can also be achieved through other products that also would not be included on any claims data.

The says: “Some employers implement a cash plan to help stabilise claims costs on their medical insurance. For instance, an employee might use the physiotherapy on the cash plan rather than claim through the medical insurance. It’s about an employer’s health strategy rather than simply the return on investment.”

Further, employees may be able to use a cash plan to claim for treatment that’s excluded under their medical insurance. This might be the case where someone has chronic back pain and they require a course of physiotherapy to control their symptoms.

There are also cash plan benefits that wouldn’t appear on a claims graph. Blake says: “You can’t really quantify benefits such as the employee assistance programmes and GP helplines that are included in some plans. Buying these on a stand-alone basis can swallow up a reasonable chunk of your cash plan premium.”

While some call the usefulness of this information into question, others fear what greater transparency could do to the cash plan market.

Cash plans are about pooled risk,” says Jack Briggs, intermediary sales and marketing director at Simplyhealth. “It’s not fair or appropriate to make the connection with medical insurance where premiums are weighted to a greater or lesser extent on claims experience.”

Armed with information about claim spend, employers could chop and change their benefits so plans’ benefit schedules mirrored employee demand. “The good risks are there to offset the bad risks but if employers knew exactly what the claims spend was they would ask us to take out the unused benefits on their plans. That’s our margin,” says Lara Rendell, marketing manager at Health Shield.

Cash plans are about pooled risk. It’s not fair or appropriate to make the connection with medical insurance where premiums are weighted to a greater or lesser extent on claims experience

And, even where tailoring of benefits were not an option, the ability to see where claims are generated will allow employers to match their plan requirements with other plans, potentially creating a lot more movement in the market.

This type of churning would be a new phenomenon in the cash plan market. Although plans do switch between providers, commission structures are designed to make loyalty a viable option. Rather than being weighted towards new business acquisition, initial and renewal commissions are on a par to help foster this stability.

This approach would also have implications for pricing. Cash plans are well known for their pricing stability, with some having maintained their prices for the last decade and beyond. But Stuart Scullion, sales and marketing director at the Private Health Partnership, says this could go.

He explains: “At the moment an employer can pay £1, £2, £3 a head year after year. But if they were aware of their claims data we’d see the good risk dropping out of the market and prices would rise to reflect the increased claims ratio. It would almost create a mini-medical insurance.”

Additionally, and adding further to the cost, would be the expense of the annual repricing and rebroking exercise. “I have absolutely no desire to see cash plans evolve this way,” says Briggs. “The corporate-paid cash plan market isn’t yet mature and injecting extra costs could seriously damage it. If providers aren’t prepared to give this data, it’s not because they want to cause problems for intermediaries, it’s because they want to protect the market.”

Advisers may call for more transparency, but they have a way to go before providers are persuaded to give it a go.

BUILDING THE CLIENT RELATIONSHIP

Without an annual renewal process, there’s a danger that once a cash plan is in place that’s the end of the employer adviser relationship. But, as the providers argue, there are many more reasons to build the relationship.

For starters, although there are calls for more claims information, the data already provided can be used to good effect. “Clients can see whether the plan is working and whether they’re getting value,” says Jack Briggs, intermediary sales and marketing director at Simplyhealth. “If one benefit isn’t being claimed as much as it could be, they can work with the intermediary and the provider to promote it more.”

For example, with most people visiting a dentist at least once or twice a year, if the claims numbers didn’t reflect this it would suggest that this benefit needed more promotion.  ”We want employees to claim. Low claims are as much a risk as high claims and we would always work with an employer, and the intermediary where they’ve sold the plan, to ensure there’s good usage,” says Jill Davies, chief executive at Westfield Health.

Nor are providers totally against the idea of introducing a dummy renewal, which would give intermediaries a reason to revisit their cash plan clients. Davies adds: “Although there’s more stability around cash plans, there’s no reason why an intermediary shouldn’t go back and talk to an employer about their plan at least once a year. Employers’ needs change and an intermediary is well placed to recognise this and offer advice on their new requirements.”

Glen Smith, managing director of Healthcare Partners concurs. “There’s huge value in doing an annual review and seeing whether you can add value to the benefit. Innovation happens in the market in terms of benefits, price and service and there can also be change within an organisation, making a different plan more appropriate. Most plans don’t move but it’s a valuable exercise.”