- The desire to provide health benefits to those who do not qualify for PMI is driving growth in cash plans
- The trend to offer new elements to cash plans is continuing
- But it is unlikely cash plans will replace PMI in the near future
Cash plans remain a popular benefit offering for employers. Nick Martindale looks at the reasons behind this popularity and at how the market is evolving
In a world where employee benefits are under constant review against the backdrop of rising employment costs as a result of auto-enrolment, inflation and increases in the National Living Wage, cash plans have proved remarkably resilient.
Figures from LaingBuisson released in January 2017 revealed some 896,000 people had an employer-paid cash plan at the end of 2015; an increase of almost 10% on the previous year. In all, there were just over 2.5 million cash plan policies in existence, covering some 3.5 million people, of which 35.4% were paid for by organisations, with many more accessed through an employer scheme on a voluntary basis.
A separate report by Willis Towers Watson, meanwhile, gives an idea of why cash plans remain a benefit a lot of employers feel they need to provide. The survey found 12% of employees rate them as their most valued benefit, behind only contributory company pensions. "The great value of cash plans, unlike most other insurance products, is that they're designed to be used regularly to recover essential, everyday healthcare expenses such as optical costs or dental treatment," says Willis Towers Watson health & benefits director Mike Blake. "As a consequence, they can prove to be of particular value to lower wage earners and the newly-defined JAM (just about managing) population."
There are, says Aon Employee Benefits principal Rachel Western, essentially three types of company which make use of such plans: public sector organisations which use them as a cost-effective alternative to other medical benefits such as private medical insurance (PMI); large FTSE firms looking to complement other health and wellbeing offerings which would typically offer cash plans on a voluntary basis; and businesses with blue-collar workers who may otherwise receive relatively little in the way of benefits.
Thomsons Online Benefits practice lead for health and wellbeing Luke Prankard says the desire to provide those who do not qualify for PMI with some kind of health benefit is a driving factor in the continued popularity of cash plans. "We are seeing a lot of employers looking at how they bridge the gap from their senior population who are entitled to PMI compared with their other staff," he says. "With the NHS under extreme stress to deliver within the resources available to it, employers have an increasing vested interest in providing a solution to this problem."
In recent years, there has been a trend to offer new elements to cash plans, in addition to the traditional dental and optical benefits, including access to employee assistance programmes (EAPs), health screening and maternity benefits. As the range of services on offer has increased, so too has the ability for employers to build their own plan, tailored to their requirements or budget.
Health Shield, for instance, now offers a range of additional services including mental health provision, cancer screening and physiotherapy triage, and recently acquired workplace health screening provider Prevent with the aim of further extending its screening capabilities. "Health cash plans are flexible enough to allow us to introduce products quickly as market need and demand dictates," says chief executive Jonathan Burton.
"We still offer the core benefits that cover everyday aspects of healthcare such as optical, dental, chiropody and physiotherapy treatments, but we also reach out to members who need support in addressing stress, depression and anxiety and many other issues associated with a busy lifestyle." Many of these benefits are delivered through its online portal, he adds, including providing access to a virtual GP surgery, a counselling and support helpline and online health assessments.
In time, add-ons such as this should mean that more employees have access to a greater range of services, believes Burton. "This is driven by various aspects such as duty of care, the growing awareness of the importance of wellbeing and absence management, together with the need for companies to attract and retain staff."
The move into new areas is likely to make cash plans more compelling as organisations start to understand the value in keeping staff healthy in the first place rather than helping them once they become ill. "We see cash plans evolving into more wellbeing services and starting to provide wider wellbeing initiatives rather than just cash for treatment," says Punter Southall Health and Protection managing director John Dean. "The addition of EAPs, health screening and wider wellbeing initiatives might be a whole window of opportunity for cash plan companies."
Some are even going beyond offering access to health services. "A few of the cash plan providers are moving from the medical interventions into the lifestyle interventions," says Barnett Waddingham workplace wellbeing consultant Laura Matthews.
"The services available are classed as nice-to-haves rather than health necessities. Some of the bigger providers have moved into the occupational health space, providing one-off services to employers who needed medical advice around occupational issues within the workplace, and most cash plans have a discounted portal which allows staff to access discounts on restaurants, shopping and gym membership."
Paycare, for instance, has recently created an online discount platform, Paycare Perks, following conversations with corporate customers who were seeking to develop such a product for their employees themselves, says its commercial director Anthony Burns.
An alternative to PMI?
As cash plans become more complex and move into additional areas, it's possible some organisations may see them as an alternative to PMI, particularly as the higher rate of insurance premium tax kicks in. Health Shield's Burton, though, thinks this is unlikely. "Health cash plans complement PMI and are often sold side by side," he says. "Although the cost of PMI might become a barrier to some companies continuing to provide such cover, it is unlikely that cash plans would be introduced as a replacement as they provide very different benefits."
Punter Southall's Dean also believes the two are distinct products, serving different segments of the workforce. "Companies tend to provide cash plans for employees who don't have PMI," he says. "One important distinction is that you don't have to be ill to use a cash plan whereas medical insurance focuses on treating an illness. PMI, given its current tax status in the UK, will only ever be for a certain proportion of the workforce." He does, however express concern over the trend for cash plans to fund PMI excesses. "While some companies do it, it's not in my view an appropriate use of a cash plan," he says.
Aon Employee Benefits's Western believes the two products can work in a complementary manner, either to offer uninsured staff a health-related benefit or as an add-on to PMI policies to cover conditions that are often not included, rather than as an alternative to PMI. "To become strong enough in the benefit offering to compete with PMI the cost of provision would have to rise and it's the low cost of cover that remains a cash plan's strength," she points out. "The popularity of cash plans has always focused on the cost-effectiveness of the benefit and this will need to remain to ensure their longevity." She also stresses the need for plans to evolve, however, including moving to embrace digital healthcare.
Another area where improvement is needed is around how effectively cash plans are communicated to employees. "The real issue is that the product itself is often little understood or communicated poorly to employees," says Thomsons Online Benefits' Prankard. "A cash plan that is well promoted and used can really have an impact by keeping employees well and productive."
Barnett Waddingham's Matthews also believes more needs to be done to promote the benefit. "Take-up and usage rates are still not as good as they could be, which is more than likely due to communication and employees not understanding the benefit as well as they could," she says. "This can be increased by educating employees about the services and benefit embedded within the plan, through roadshows, real examples and employee communications."
In the short to medium term, though, the wider market for cash plans looks healthy, with the prospect of further growth to come, largely on the back of the push among employers to encourage and promote health and wellbeing at work rather than simply mitigate illness. "We expect the number of companies offering cash plans to grow in the years ahead, as more employers seek to improve the health of their employees and understand the role of cash plans in this," adds Thomsons Online Benefits' Prankard. "Employee wellbeing and health is rising up the agenda as employers look to influence and improve employee productivity, and this will increase cash plan uptake."
Paycare's Burns has also noted a rise in the number of company-funded schemes over voluntary plans. "This is very much down to the increase in employers recognising the strong link between healthy, happy staff and higher levels of productivity, lower levels of absence, and an increase in overall morale," he says. "This attitude is only set to continue, as we're now seeing areas such as workplace mindfulness really taking off."
For Health Shield's Burton, cash plans will always have a role to play in helping those on lower incomes to access and pay for basic healthcare; a tradition which dates right back to their roots as Saturday Funds in the late 19th century. "I'm a great supporter of cash plans as they fit well for a certain type of employee," he says. "While they may not be relevant for a high earner who probably wouldn't bother to claim back £40 for a dentist appointment, for people earning lower salaries a cash plan that can help them afford to look after their teeth, eyes and pay for physio can be really valuable."
When Louise Hazel joined West Midlands business Industrial Power Units in 2015, one of the first steps she took was to review its benefits package.
She quickly realised the benefit it derived from its cash plan, delivered through Paycare. "The benefits are that it provides in-the-moment returns," she says. "It's normal out-of-pocket expenses which allows staff to maintain a level of wellbeing and is something they get back instantly."
The company offers the plan on an employer-funded basis, meaning employees only have to incur a small P11d charge, and around 50 of the 70-strong workforce have chosen to take it up. The scheme itself covers a wide variety of cover, including optical, dental, health screening, professional therapy and chiropody, and even includes a payment of £100 when an employee has a new child.
The policy also gives employees access to a 24-hour GP helpline service. "Quite often employees can't get in to see their GPs but they're quite concerned so this allows them to call up and get some advice," says Hazel. "There's such a wide variety of cover, including getting reimbursed for hospital stays, and also private consultation, so we know that if someone needs quick treatment they can get an outcome. It's so varied that it's right for us because we have different types of employees, from shopfloor employees to field-based sales executives." The business has even used it recently to cover the cost of flu vaccinations; something it was previously paying for as a separate benefit.
Another important aspect is access to the employee assistance programme. "We've had a lot of benefit from that," she says. "One employee has gone through some life coaching, and our line managers are trained to use the EAP through Paycare to make sure employees are able to get advice and counselling support as necessary."
Hazel believes the key to getting cash plans to work is to communicate them effectively to staff. "Paycare has a set of posters that we display in the workplace, and we have a Yammer site which we regularly drip-feed Paycare benefits on," she says. "We also talk about the benefits at company meetings, and we often get employees saying they want to sign up then. It is something you have to promote all the time."
Feedback from employees has been overwhelmingly favourable, she adds. "There's certainly lots of anecdotal feedback, especially when people have been through a claims process. We can't avoid the dentist and if you wear glasses you can't avoid the costs associated with that. Just knowing that you're going to get that money back in a couple of days is appreciated."