Cash plans are increasingly used in place of private medical insurance excess. Howard Hughes assesses the sustainability of this pricing model
For example, Simplyhealth makes it possible to add a number of choices over and above the essential level of cover. This currently includes additions such as an employee assistance programme, personal accident benefits, new child payment, and managing absence.
A challenge for the intermediary market is to promote the additional value of benefits available in the cash plan market. Cash plans provide attractive benefits at price points that are still highly affordable, especially when compared with the prices of traditional PMI schemes.
There is an old saying that if something looks too good to be true then it probably is. The displacement of cost from one plan to another plan is not sustainable in the longer run.
If the use of cash plans to offset the excess increases, this could undermine the basis on which excess discounts are calculated and we could find that these discounts decrease. This will disadvantage anyone who does not use a cash plan to offset their excess in this way.
Cash plans have enjoyed a sustainable pricing structure, which has been part of the attraction for employers. However, we need to be realistic about the sustainability of merely using cash plans to offset excess. If the use of benefits such as consultations and therapies increase to offset the excess on PMI this could affect pricing in the future.
The greater strengths of health cash plans
There is so much more to cash plans than merely meeting the cost of an excess. While medical insurance continues to reach the same people (namely the higher levels of management), cash plans are affordable for everyone. They also have benefits that can help employers meet their duty of care obligations.
The optical benefit includes eye tests, new glasses and contact lenses. They can also add an employee assistance programme to help manage stress in the workplace. Intermediaries should be aware of the strengths of health cash plans in the current market.
■ They have a high perceived value for minimal outlay.
■ When pay increases are low, cash plans can be used as a negotiation tool to show employees that they are valued.
■ Employees will regularly use their cash plan, giving them benefits that are of real use to them.
■ Cash plans are simple to implement with no medical underwriting and simple to use.
Of course, an intermediary’s role is to meet the needs of their client to the best product. It is true to say that many have caught on to the usefulness of a cash plan to mitigate the introduction of higher excesses. I have concerns over the sustainability of this approach, it is opportunistic and it may be benefitting some customers in the short term.
However, if intermediaries are only viewing cash plans as a tactical short-term solution they may be missing out on the real value of cash plans. This perhaps has the potential to reinvigorate the company paid health benefits market and provide real and sustainable year on year growth.
Howard Hughes is head of employer marketing at Simplyhealth
