What budget options are available to the man on the street?
Cash plans are normally accessed through the workplace, either on a company paid or voluntary basis. Harvey Jones looks at what is on offer to the man on the street
As hard-pressed clients battle to keep up with rising private medical insurance (PMI) premiums, brokers are inclined to forget there is a cheap rival out there.
It is called the healthcare cash plan, and providers sometimes like to market it either as an alternative to budget PMI, or a fallback for people who can not afford health insurance at all.
But in these uncertain times, cash plan providers are also having a thin time. The total number of individual and company plans fell 2.9% in 2010 to 2.65 million, the third consecutive annual drop, according to Laing & Buisson. That was largely due to a 5.4% slump in sales of individual and voluntary plans, to 2.21 million. The smaller employer-paid market is growing strongly.
Austerity Britain must take a dollop of the blame. As the double-dip recession stretches family budgets, some consumers have been cutting back on essential cover such as household insurance. Cash plans will be sacrificed first.
Another reason is the abject lack of broker interest in the individual cash plan market.
Cash plans are designed to help people budget for their everyday healthcare costs. Customers pay anything between £10 and £40 a month in return for regular cash payouts towards dentistry and optical costs, treatment such as physiotherapy, osteopathy, homoeopathy and chiropody, and hospital consultation and stays.
Plans reimburse 50%, 75% or 100% of the cost, depending on the policy and level of cover. Customers send their receipts direct to the cash plan provider. Payment arrives within days, direct into their bank account.
Clearly, it is not PMI. Cash plans do not cover hospital inpatient treatment, although a number of policies do make a contribution towards outpatient consultations and diagnostics.
Contributors to individual and voluntary cash plans now total 2.1 million. Most are happy to pay the premiums because they can make regular claims on the policy, and feel they are getting something for their money. They do not always feel that about PMI.
Families particularly like them, because up to four children can be added free to the typical policy.
HSA has long been the cash plan market leader, and has even advertised its plans on mainstream TV channels. Now it trades under the SimplyHealth umbrella, as do BCWA, LHF, HealthSure and Totally Active.
TWO DIFFERENT BEASTS
Cash plans and PMI are two different things, but they complement each other perfectly, says Howard Hughes, head of intermediary marketing at Simplyhealth, which provides both.
“PMI is there to deal with any medical problems that occur,” he says. “Cash plans aim to prevent those problems occurring in the first place.”
They do this by giving people a financial incentive to look after their health.
“To feel the true value of a cash plan, people should use them on a regular basis, by keeping up to date with their health appointments and claiming the costs on their plan,” Hughes says.
Cash plans offer benefits that are not covered by PMI, such as optical and dental treatment, says Paul Shires, executive director at provider Westfield Health. They can also fund treatment excluded by a budget PMI plan.
“Cash plans can cover the cost of, say, scanning and physiotherapy, which can then be excluded from the PMI scheme to reduce premiums,” Shires says. “As no pre-authorisation is required, access to cover is also quicker.”
Where the client opts to pay a large excess on their PMI policy, a cash plan can plug the gap by giving them money towards the cost of smaller claims.
“Customers can use their cash plan to cover their everyday healthcare requirements, and only claim on their PMI policy for more serious and complex treatment,” Shires says.
This may also help PMI clients protect or build a long-standing no-claims discount.
Any broker selling a cash plan alongside PMI must understand how these two very different propositions work together, says Brian Hall, sales and marketing director at BHSF, another provider.
“Cash plans do cover consultation test and outpatient treatment, but the cover isn’t as inclusive or open-ended as it is on some PMI plans,” he says.
Consumer confidence may be ebbing away as the eurozone crisis drags on, but Hall says the downturn is actually an argument in favour of taking out a cash plan rather than against.
“Plans offer vital financial help towards regular medical costs such as dentistry and optical bills, and cash for therapies to help people manage conditions such as back pain and muscular problems,” Hall says. “This allows them to reduce the time they spend away from their job or business.”
Hall cites his own experience of using his own cash plan to pay for osteopathy.
“It means I haven’t lost any time from work despite having an ongoing back problem,” he says.
Cash plans are a tale of two markets, the individual and corporate. It is the best of times for the corporate market, which grew 11% in 2010 and now boasts 450,000 policies worth £670bn.
But it is the worst of times for the individual market and some cash plan providers have even quit the field altogether. Health Shield has now closed its direct account book to focus purely on the company-paid market, of which it has a 20% share, says executive director Philip Wood.
While many brokers and intermediaries happily set up corporate cash plans, they remain sceptical of the individual market, says Michael Cooke, employee benefits director at Clear Insurance Management, the intermediary.
“Frankly, individual cash plans are not really on our agenda,” he says. “If faced with a request I would ask the client what they are really looking to achieve, then recommend entry level PMI if their budget can stretch to it.”
Gerry Mould, sales adviser at April Medibroker, has done a handful of group schemes, but almost no individual cash plans.
“Selling a cash plan is as complicated as selling a PMI policy,” Mould says. “The broker has to go to the minutiae of every policy benefit to do the job properly. It is an awfully big job for little reward.”
Stuart Scullion, managing director at brokers PHP, says his organisation only offers advice on cash plans to existing customers.
“We don’t actively go looking for this business because the premiums are very, very small,” Scullion says. “If somebody does want a cash plan, we direct them to a website where they can buy direct themselves, and get a discount on the premiums. That means they can buy it more cheaply than if they bought through us.”
But Simplyhealth’s Hughes thinks brokers who shun the individual cash plan market are missing a trick.
“Cash plans do offer relatively low commission rates compared to PMI and this could put off some intermediaries, but they also provide a steady and sustainable commission,” he argues. “The intermediary earns non-indemnity commission which is paid over a period of time so they can see income generated year on year.”
Better still, once the cash plan has been set up, there is little more for the broker to do.
“Claims are settled direct between the client and the insurer, and as it is a continual contract there is no renewal process,” he says.
BHSF’s Hall says cash plans are a good way for brokers to maximise the potential of their customer base.
“You can use them either to retain a lapsing PMI client, or to win a new customer who cannot afford PMI right now, but may in future, if you develop the relationship,” he says.
Westfield’s Shires is beginning to see a shift in broker attitudes.
“A combination of the NHS reforms, ever-increasing PMI premiums and PMI provider consolidation means that more and more intermediaries are now starting to recognise the importance of cash plans to their clients and business,” he says.
There is little money in selling individual cash plans, but money isn’t everything, says Gillian Campbell, broker at Medisave Independent Healthcare, an intermediary based in Northern Ireland.
“From a broker point of view, the money is in the corporate sector,” she says. “Selling large volume cash plans on a regular basis can be lucrative, provided you concentrate on actively targeting this market on an ongoing basis.”
The commission on individual sales may be relatively small, but commission isn’t everything.
“This shouldn’t feature as the sole reason for deciding whether to promote a product,” Campbell says. “What matters is whether it is the right solution for the client. But if you want to sell cash plans on any scale, you must actively market the corporate sector.”
As cash plan providers look to reverse the recent fall in individual and voluntary sales, they clearly have to look beyond the intermediary market.
Many are looking to boost their corporate cash plan offerings by introducing new benefits. Some providers, including SimplyHealth and Health Shield, have recently launched new cash plan modules on their corporate plans to cover PMI excesses, making explicit the complementary relationship between the two policies.
When it comes to the man on the street, as far as brokers are concerned, PMI and cash plans are two very different beasts. Most are only training their sights on one of them. PMI.
NEW CASH PLAN PRODUCTS HIT THE STREETS
Although the vast bulk of the cash plan market is through the workplace – either on a company paid or voluntary basis – there are products on the market that are aimed at the individual ‘man on the street’ market. Recent months have seen the launch of two such products – Medicash Wellbeing and Paycare Go.
Starting at £6.50 per month, Medicash Wellbeing provides individuals with a 100% refund on costs incurred for optical, dental, consultation and diagnostic tests (within an annual limit). As well as offering cover for one adult, with the option to add up to four children up to the age of 19 to their personal policy, Medicash Wellbeing also offers an option for dual cover – joint cover with a partner (including same sex partners) and up to four dependent children – from £13 per month. Across four levels of cover, the new plan also includes full access to the Best Doctors InterConsultation service, giving members the chance to request a second medical opinion from more than 50,000 consultants, 24-hour access to stress and support helplines providing medical counselling and other advisory services, and personal accident cover of up to £36,000. Other everyday healthcare needs such as complementary therapies, physiotherapy and chiropractic treatment, and specialist consultations, are also covered. Members also receive access to the Medicash Extras Discount Portal, offering a range of special offers and discounts on everyday purchases and discounted membership at over 2,500 participating health clubs across the UK.
This year has also seen the launch of Paycare Go, a cash plan aimed at young adults aged 18-24. The product offers a 100% refund (up to an annual limit) on dental, optical, physiotherapy and other treatments commonly covered by other cash plans including acupuncture and osteopathy. According to Paycare, the product is an ideal gift and also includes an inoculation and vaccination benefit, which could prove useful for young people planning a gap year. Paycare Go also includes a 24 hour counselling helpline. Two levels of cover are offered for Paycare Go at £5 or £10 per month giving annual cover valued at £235 and £470 respectively.