Cash plans are increasingly used in place of private medical insurance excess. Howard Hughes assesses the sustainability of this pricing model
The purpose of an excess
It is understandable that in the current economic environment clients are looking closely at all their costs, including health and wellbeing benefits. The ongoing pressure of medical inflation continues to put year on year pressure on medical insurance premiums. Introducing an excess can provide tangible savings.
The mechanics of PMI excess improve the policyholder’s premium in two ways. Firstly it has a direct impact on the claims cost. For each claim that is paid in a year, the first part (usually £100) is paid by the policyholder, directly reducing the cost of the claim to the insurer.
Secondly, there is a behavioural impact, as a policyholder who has to pay out an excess they will have cause to consider whether the treatment is appropriate for them or the right route. If there is no personal financial impact, perhaps less thought will be taken.
Larger excesses are often coupled with larger discounts because of the impact a large excess will have on decisions made by the policyholder (as for smaller treatments they may go directly down the NHS route). However, if the policyholder can behave the same with or without an excess it has no dissuading impact, meaning that the maximum discount will relate purely to the financial impact on the claims.
If the combination of cash plan and PMI excess brings about a change in consumer behaviour then the current rates of excess discount available are clearly not sustainable in the market.
Pricing sustainability
The affordability of cash plans gives the industry a valuable tool in extending healthcare benefits throughout an organisation. Previously it was typical that only senior managers enjoyed company paid health benefits as a perk. The growth in company paid cash plan sales means that many employees are enjoying company paid health benefits for the first time.
We believe it is important that this growth remains sustainable and that cash plans continue to deliver excellent value for money to all employees. There is a danger that a hidden subsidy is emerging from the low paid to the high paid in an organisation. The majority of employees could arguably be paying p11d benefits in kind to pay for the medical insurance excesses of the management team.
The price points of company paid cash plans are highly competitive. With most schemes commencing at the golden price point of £1 a week for an entry level cash plan. The cash plan market has met the demands of customers with a combination of flexibility and simplicity.
