Plan for the long term?

Is demand for workplace cash plans rising because they offer a cheap alternative in the downturn? Or is something more fundamental happening? Sam Barrett investigates

While most employee benefits have kept a low profile during the economic down-turn, cash plans have performed strongly. Laing&Buisson reports that employers have shown an increased willingness to fund this low ticket health and wellbeing product, with sales up bu 36 per cent to 339,000 during 2008 and 2009.

“We’ve seen lots of growth in the employer-paid market,” says Philip Wood, executive director for sales and marketing at Health Shield. “Eight years ago we didn’t offer any company paid products at all but, while it’s been tough on the voluntary side, company paid schemes have performed well in the last couple of years.”

Darling of the recession

But while the sales figures are looking healthy, is it possible that could simply be a result of the economic climate. Emma Exelby, sales manager for Bupa Cash Plan, doesn’t believe this is the case. “Interest has been steadily increasing over the last few years. Employers and advisers are more aware of cash plans and how they can be used in the workplace,” she explains.

While sales may have resulted from this growing awareness, some of the thinking behind implementing a corporate cash plan is surely driven by tougher budgets. “We surveyed HR directors earlier this year and 72 per cent said they had a freeze on pay and benefits but 44 per cent said they were increasing the health benefits they offer,” says Jack Briggs, intermediary sales and marketing director at Simplyhealth. “These figures indicate that some employers are looking at putting voluntary benefits in place. We’ve certainly seen more of this and a voluntary cash plan can work well where it’s promoted.”

Workplace cash plans help with risk mitigation, reducing absence and, in this of pay rises, give employees access to a pot of money. All for a relatively low premium.

As well as the totally free option, providers are also seeing an increase in the number of low cost schemes being put in place. These are typically at the £1 a week mark with an option for the employee to upgrade cover. “Budgets are being squeezed but the low cost, high return options are popular,” says Jill Davies, chief executive of Westfield Health. “It’s good for employees as they can use it, with most people going to the dentist and opticians every year or so. Employers also benefit as it helps with risk mitigation, reducing absence and, in this time of pay rises, gives employees access to a pot of money. All for a relatively low premium.”

The appeal of this low price is exactly what lead Bupa to launch its Cash Plan Fundamentals in September, giving corporates a £1 a week option alongside their existing, more expensive plans. “Businesses were telling us they wanted this price point,” explains Exelby. The plan has three levels of cover, providing up to £200 a year for optical care, £200 for dental and up to £400 a year for consultations, scans and diagnostic tests.

But, according to Stuart Scullion, sales and marketing director at the Private Health Partnership, the £1 a week price tag could be blown out of the water soon by an even cheaper plan.

“I understand that a cash plan at 60p a week is about to be launched. Benefits will be stripped down but providing they’re at a sensible level it would be impossible to ignore,” he says.

Cash plans can also be used to enhance pricing on other products. For instance Wood says it can be particularly effective when used alongside medical insurance. “An employer could introduce or increase an excess on the medical insurance and use some of the money they save to fund a cash plan. This will provide employees with benefits they can use while also helping to reduce and stabilise the medical insurance costs,” he explains.

Cash plans can also drive through cost savings in others areas. For instance, the employee assistance programme (EAP) can catch stress claims before they hit the income protection book and absence management tools available on some cash plans will have benefits for sickness absence levels.

Additionally, as cash plans include some of the duty of care benefits such as optical and EAPs it can sometimes be put in place instead of these individual benefits at no additional cost to the employer.

“I’ve seen employers spending as much as £40 a year per employee on an EAP,” Herbert says. “If you can put a cash plan in for £52 and offer employees all the additional benefits it’s a bit of a no-brainer.”

A reduced role after recession?

Although current sales may be driven by cost reduction, brokers and providers are confident that when the economy picks up cash plans will still have a place in the employee benefit mix. Scullion believes his company has underused them, both in the current climate and when the economy was more buoyant. “Cash plans are a great way to broaden benefits cost-effectively. I really don’t think we promote them enough but they should be part of an employer’s health and wellbeing strategy in any economic environment,” he says.

Certainly employee appreciation of the cash plan benefits will outlive the UK’s budget deficit. “Once an employer buys into cash plans they tend not to get rid of them,” says Herbert. “Employees really appreciate them. For them, it’s one of the few benefits where they don’t have to be ill or dead to use it. It’s really such a low cost, high return benefit that employers don’t look to cut it.”

Wood agrees. His company has hundreds of company paid schemes on its book but has lost very few of these. “Where we have lost a scheme it is usually because the company has gone out of business or, less commonly, they’ve moved to another provider. Once an employer has a scheme in place they do value it,” he explains.

Further, although the core benefits haven’t changed dramatically since they were created over 100 years ago, cash plan providers have responded well to customer, and particularly employer, demand. In the last few years additional benefits have included EAPs and absence management tools as well as medical information and GP helplines and subsidised gym membership.

The move towards economic recovery is likely to drive further changes, so will these work in favour of the seemingly all-conquering cashplan?
Davies says that cutbacks in areas such as welfare, child benefit and the NHS will push more of the responsibility for healthcare provision on to the individual. “Cash plans have always existed to fill some of the gaps in free healthcare provision so we’re watching NHS provision closely to see where provision is diminishing and cash plans may need to shift,” she explains.

As an example, she’s already seen an increase in waiting times for diagnostics in the NHS, which is a benefit already provided on many cash plans.

Solvency II, which comes into effect at the end of December 2012, will see providers having to implement more robust risk management and reporting systems

As well as adding in new benefits or increasing existing ones, some feel that cash plans will evolve further. “I think cash plans and medical insurance will become more hybridised,” says Briggs. He likens the healthcare market to the pensions arena, where defined benefit schemes have given way to the more affordable defined contribution schemes. “While medical insurance is like the defined benefit scheme, cash plans are akin to the defined contribution scheme, enabling employers to understand and manage their financial exposure,” he says.

A hybrid scheme could include some of the cash plan benefits such as optical, dental and physiotherapy alongside cover for some of the core PMI benefits for hospital treatment costs. Combining benefits in this way would create some of the cost stability that employers harness by using a cash plan to mop up the excess on a medical insurance scheme.

Already some hybrid options are available. For instance Westfield Health offers Surgery Choices to pick up the cost of 60 non-urgent surgical procedures such as hernia, varicose veins and slipped discs. Likewise Bupa’s Patient Cash, which was launched earlier this year, covers consultation fees, therapies, diagnostic scans and cash for hospital stays and in-patient surgery. Premiums start at £11.70 a month. “It’s a hybrid product offering the reassurance of early diagnosis and access to treatment,” says Exelby. “I do expect we’ll see cash plans evolving more in the future as they respond to changing customer needs.”

But, product development aside, there is another challenge on the horizon for the cash plan market. Solvency II, which comes into effect at the end of December 2012, will see providers having to implement more robust risk management and reporting systems. As many of the players in the cash plan markets are relatively small not-for-profit organisations, complying with the new regulatory requirements could prove tricky, with merger or acquisition a potential outcome.

But, while there is some uncertainty surrounding the future for the cash plans providers, their history demonstrates their staying power. Over the 130 years or so since they were introduced, they’ve survived the creation of the NHS as well as more extreme recessions, making most in the industry think it unlikely that the upturn in the economy will do them any harm.