Cash plans are increasingly used in place of private medical insurance excess. Howard Hughes assesses the sustainability of this pricing model
Health cash plans are now an essential part of the corporate health benefit sector. The market is now seeing double digit growth year on year, even during these tough economic times, and cash plans now reach almost half a million people directly in the workplace.
Intermediaries have played a big part in this growth as they now recognise the exceptional value that cash plans can provide customers. In return, providers are much better at recognising the importance of intermediaries as a distribution point.
For advisers there is much to be gained from providing cash plans as they represent a sea change to employers investing in everyday health benefits.
The popularity of health cash plans can also be attributed to employers recognising the importance of health and wellbeing in the workplace and the impact it has on morale, productivity and absence.In addition, healthcare providers often talk about how cash plans complement private medical insurance (PMI) perfectly.
This is because the wider range of benefits can help people with everyday health matters and get treatment for the unexpected. However, there is a financial benefit to employers and intermediaries too.
It is now well known that PMI with excess alongside a cash plan can often cost less than private medical insurance with no excess on its own. Cash plans can be used to cover the costs of consultations and for recuperation benefits such as physiotherapy.
Some cash plan providers have made this use of cash plans explicit by introducing a specific benefit, with no corresponding increase in premium. However, there are questions inevitably being raised about the ongoing sustainability of this scenario.
Intermediaries will quite rightly look at the full range of product options available when offering advice to clients. As a result, the market is witnessing an opportunistic response by intermediaries who are waking up to the value of cash plans in offsetting PMI excesses.
What intermediaries effectively create is a hybrid product that fuses together the everyday benefits of a cash plan with the more comprehensive benefits of PMI. The impact of using a cash plan and PMI in combination will depend on the behaviours of the company purchasing the plans.
If the motivation for the use of the cash plan is to offset an insurance excess this raises a significant concern that the price of their policy (and possibly their cash plan) will rise over time.