The Healthcare cash plan is proving its resilience in the recession as contributors continue to increase. Peter Carvill asks if it will emerge at the front of this year's protection growth Click here to download pdf (PDF, 868KB)
For pretty much anything connected with finance, the last year has resembled a horror movie: banks have collapsed or had to go begging to governments, major retails chains like Zavvi or Woolworths have gone into administration and even whole countries such as Iceland have flirted with bankruptcy.
Yet sales of healthcare cash plans (HCP) have been surprisingly buoyant, continuing the trends of the last few years. Explaining away the decline in contributors that was reported in 2003 and 2004, Laing & Buisson's UK Health & Care Cover 2008 says that this dip was "... an artefact of the removal of dual-registration corporate policies by cash plan market leader, Simplyhealth Group. Previously, a Simplyhealth corporate family cash plan policy would have been measured as two policyholders, but it now reported as one."
It adds: "As such, in nominal terms, the figures show a significant fall in the volume of demand for HCP between 2002 and 2004. However, in reality, demand for the plans probably remained static over this period."
Since then, the report says that the product saw increases in the number of contributors in 2007, from 2,903,000 to 2,992,000, following: "... fairly static demand in 2006, a decrease in 2005, and static demand in 2004 and 2003, although an accurate growth rate between 2002 and 2004 is not available."
Alex Bennett, head of health consulting at Aon Consulting, is remarkably upbeat about the present state of the product: "The age of the HCP might finally be here. In these times, the relevance of the HCP is seeing a higher priority in the viewpoint of consumers. I think you have a couple of scenarios where you have employers that have been thinking about healthcare schemes not wanting to do that any longer, and you might have some wanting to offer it to new employees, and some that will no longer be offering. In those situations, a HCP becomes an interesting proposition."
While reluctant to make concrete predictions about the product, the Laing & Buisson report showed a positive disposition towards this sector in regard to 2008: "Prospects for future HCP demand are more optimistic following a strong pick up in 2007 after a sustained period of largely static demand." However, it added: "The economy's impact on HCP demand during 2008 and 2009 is also uncertain."
Basic cover
James Glover, member services director at Healthsure, says that the recession did have a marked effect on the sector last year: "In terms of observations," he says, "there was much more of a focus on the lower level of cover, the more basic of meeting the duty of care of the product we sell rather than the full-fat benefit. So a lot of the market, and this is in small and medium-sized organisations rather than larger companies, are sourcing new benefits. But the market remained buoyant throughout the year."
Unfortunately, recessions are generally not limited to just one calendar year - their influence snakes on and taints the future. So, in light of what Mervyn King, the governor of the Bank of England, referred to as a 'deep recession', how are sales of HCPs faring?
Matt Reeves, corporate channel manager for Denplan, says: "We're finding that companies are now looking to go to the market and see what's out there and, instead of cutting down on their own provision, they want to get better value for money. Although this is a challenging situation, it also provides an opportunity on the greater percentage of occasions. What we're expecting is to see companies look at what's out there and then hope that they make the best choice."
There are wide predictions as to how long the recession is going to affect the UK and the rest of the world. But there can be little doubt that climbing out of the current situation is unlikely - probably, impossible - within the next six months. It could be expected that this might filter down to the market in a negative fashion, with numerous policies being cancelled. Yet, the corporate side appears to be performing well, particularly around the concept of substituting private medical insurance (PMI) for the cheaper option of a cash plan.
Budgeting ahead
Peter Lauris, sales and marketing director for Medicash, puts forward the case that cash plans still have a place for budget-limited households. "In terms of economic hardship," he says, "people want to know where their family budget lies every month so being able to budget for those dental bills for twice a year check-ups, knowing that you're going to get a regular optical check and money towards spectacles is all part of the family budget. Because prices aren't dependent on claims experience, people are going to know where they are. And there is also the fact that we offer different membership levels within a plan. If people are feeling more affluent, they can trade up their levels and benefit levels can increase, but if times are tight they can trade down levels and get a smaller amount but still be covered for those key check-ups. Driving people towards cash plans, in a corporate and individual market, makes good budgetary sense."
Reeves concurs that the take-up on Denplan's schemes has increased this year, largely on the group side: "We had a very strong year in 2008 in terms of companies joining us and taking out a benefit that was useful to their employees."
He adds: "We've had an interesting outcome because the take-up on our schemes has actually increased. We have found that customers wanted to take advantage of the benefits that their employers have supplied them with and, although employers go into the market looking at what's out there, we haven't noticed a substantial drop-off in the number of customers."
Eventually though, says Glover, it may be that employers start looking away from PMI to the cheaper HCP product as a benefit for their employees: "Ultimately, it is difficult to separate the wider world and economic conditions at the moment. A lot of companies will start to do wider reviews of their overall benefits and, in the short term, they may start to ask difficult questions around benefits such as PMI."
Individual market
Individually, he adds, the story is less than rosy: "Last year was extremely difficult, particularly in the cost of going directly to customers. We did some research about people generically buying health insurance and the results revealed that something like up to half of people said they would not be making that decision because of the financial uncertainty they faced. It's probably around two-thirds of our sales that go to individuals; it's tough now and I think it's going to be tough next year."
Glover says that he doubts whether there is a definitive answer as to how long this recession will last but hopes that it may bottom out towards the end of the year, giving, he says, "some light at the end of the tunnel".
In the main, Glover thinks, corporate plans will fare well in the current climate and further on into 2009. "I think," he says, "the sector will continue to gain new business and become more important on the corporate paid side. I think the corporate paid sector will retain the levels of 2008 because of the value of the product and the range of employee benefits it provides."
Says Bennett: "In my view, the company paid plan is different from the individual. With the efforts that providers have made with offering what companies need, they can tailor some things for a lot of your business focus requirements. If you have a lot of musculo-skeletal-related absence in your workplace, you may think that getting diagnostics might be a good thing, in which case a cash plan might be within your grasp."
Laing & Buisson agrees, arguing in its UK Health & Care Cover 2008 that, "... the greatest opportunity in the HCP market is the scope for growth in the company paid sector."
"We don't get that much involved in individual markets," says Alex Bennett, head of health consulting at Aon Consulting, when asked about how the majority of cash plan business will fare, "but in terms of voluntary purchase, I think that the individual sector is where people are looking at how to manage expenses and costs."
He adds: "If you take it out in the first year, and see the dentist and optician in that time, you're quids in and then this evens out for the provider over the following years. Providers say that they make money because there is a low take-up of usage in subsequent years. To some people, there will be a clear financial benefits in year one and the benefits of managing that payment in subsequent years."
According to the report, only 10% of plans in this sector are funded by the employer. The remaining 90% are funded by employees because these plans have, "... traditionally been marketed to employees (through salary deduction) rather than employers since it is a low-cost product."
And in addition, there are taxation benefits, it adds: "Another factor that is likely to encourage more corporate demand is the opportunity to secure P11D income tax relief on health spending by employers, which can be shown to be duty of care."
When asked if he had to give one piece of advice to intermediaries, Bennett says that he would advise them to look hard and focus on the changing needs of their clients. If they do so, he says, they may see that the importance of the HCP has become heightened in these straitened circumstances, suggesting that, all in all, the HCP market looks to be the one thing that is going to grow this year and next.
NOTES TO TABLE 1
LHF Healthplan: Acupuncture, osteopathy, chiropractic and physiotherapy - the total that can be claimed for these benefits combined is £600/50% a year. Dental, dental check-ups, hygienist visits and dental examinations - the total that can be claimed for these benefits combined is £100 a year. Optical, sight testing, prescribed glasses and non-disposable contact lenses - the total that can be claimed for these benefits is £80 a year.
Westfield Health Scheme: The maximum therapy treatment benefit of £425 (75%) represents the combined total for all the treatment types - acupuncture, osteopathy, chiropractic and physiotherapy. The maximum benefit of £63 (100%) represents the combined total for all the treatment types - dental treatment, dental check-up, hygienist visit, dental examinations. The maximum benefit of £78 (100%) represents the combined total for all the treatment types - optical, sight testing, prescribed glasses, non-disposable contact lenses.
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