The ‘£1-a -week’ mantra has been one of the key marketing messages used to sell cash plans in the past, but it is beginning to pose challenges for a large number of providers.
While cash plans will always be pushed as the cheap and cheerful alternative to big ticket perks such as private medical insurance, there are fears that over-emphasis on low premium products will prevent the market from innovating to suit the requirements of employers.
Pete McAndrew, sales director of cash plan provider Health Shield, says: “The £1-a-week premium is a glass ceiling. Our customers are asking for more creative ideas and more innovation in terms of product development. I feel as though £1-a-week schemes are stopping that innovation.
“There is only so much profit that can be made from a £1 a week scheme. Providers wanting to innovate and change products to fit current markets will find it very difficult when they are playing with such small figures.”
According to James Henson, sales director of specialist intermediary Health Matters, cash plans will remain low-cost products but premiums will rise as more employers and employees become aware of how they work. He says: “[On a £52-a-year plan] if 70% of staff do their dental and optical there is a deficit straight away. If that is what is happening over providers’ books then there is only one way that the prices can go.”
The challenge for providers is that cash plans have become synonymous with being very low cost. Paul Gambon, head of sales at provider Medicash, says there is an expectation for providers to offer £1-a-week products since the cost of premiums starting falling around five years ago and plans were simplified and tailored to offered benefits designed for the corporate market.
“Any lower than a pound does strain the value of the proposition. It has reached a plato and I can’t see premiums going any lower than that. There is a lot of scope for the price to move up – not significantly – but allowing it to move up a little will mean that we can offer a lot more value to the benefits proposition”, explains Gambon.
The provider’s £1-a-week plan Medicash Proactive offers number of benefits including £55 cashback on optical and dental, as well as £150 cashback on complementary therapies. By way of comparison an extra 25p provides £80 back a year on both dental and optical treatments.
On a similar note, Health Shield had to start premium on its Elements plan, designed for organisations with three or more employees, at £1.35 rather than a £1 to make it commercially viable. The benefits include dental, optical, chiropody, specialist consultations, health screenings and online health risk assessments and a 24-hour GP helpline.
McAndrew says: “Commercially we wanted to sell onto the SME market. It is a big market but we knew that we had to move the £1-a-week [premium] up to do that.” He adds: “It is very difficult when you have got all the main competitors sticking at £1 to be innovative and move that figure.”
Providers such as Engage Mutual have decided not to operate at the lowest end of the market. In fact the provider has added a higher premium level to its main corporate offering One Fund, which provides access to a single pot of money that employees can use to claim money back on a number of treatments, including optical, dental, consultations, counselling and health screenings. The premiums range between £10 and £25 a month, providing an annual pot of between £650 and £1,850 which they claim as little or as much as they like on a number benefits, apart from optical and health screening, which are subject to caps.
David Castling, commercial sales manager, Engage Mutual, says: “Cash plans have been £1-a-week products for a long time. This has commoditised the product and pulled clients away from what should be the messaging around value for money, not just how cheap it is. I think cash plans have probably been a victim of their own success over the last five or ten years to the point where they are unsustainable.”
VALUE FOR MONEY
So, are cash plans starting at a £1 a week just inexpensive or do they actually offer value for money?
Paul Shires, sales and marketing director at Westfield Health, another provider, certainly believes that £1-a-week plans are worthwhile.
He says: “The big question is: can you get an appropriate level of cover at £52 a year? I think the answer is yes although things are changing.
“For a £1 a week [Westfield Health’s plan] covers two dental check ups on the NHS or eye checks and it does pay £250 for a mixture of therapies. People can achieve a lot for their pound a week.”
But Howard Hughes, head of employer marketing at Simplyhealth, is less convinced. He says: “There is a value equation here – part of its cost and part of its benefits. The reality is how long can we provide valued benefits for £1 a week? You have got to raise the game a little bit.”
McAndrew says that the demand for low-premium products is partly driven by an increasing number of intermediaries that use cash plans for the sole purpose of covering excess on private medical insurance schemes.
He says: “One of the biggest selling points for brokers at the moment now is that several cash plans cover excesses for PMI. A broker put a PMI policy in, put a £100 excess on it and then put a cash plan to cover that excess.”
He adds: “The problem with that is that cash plans start being sold in as excess cover and they are a lot more than just excess cover.”
Brokers can be reluctant, says McAndrew, to move the premium up because they will not achieve the saving required to justify the excess cover on the PMI scheme. Like many cash plan providers, Westfield Health offer plans that cover excess on PMI schemes, but they don’t choose to aggressively market that fact to brokers and intermediaries.
Shires says: “Over 90% of the business we write is virgin business. It is for a wider population that is not necessarily insured on PMI. We are looking to franchise a wider population – we don’t necessarily see cash plans as an add-on to a PMI scheme.”
While brokers and intermediaries are coming under pressure from clients to reduce the costs, some are reluctant when it comes to selling cash plans on an excess cover basis.
Henson says: “I don’t particularly like selling cash plans as excess vehicles because I think it is not really sustainable. All you need is a number of claims for excesses and you have already blasted out what you have paid in premiums.”
It is common for brokers, setting up or managing private medical insurance (PMI) schemes for clients, to use cash plans to cater for the large proportion of employees who may not have access to private cover. This is particularly true in the context of medical inflation and tight cost margins, which make it increasingly difficult for employers to provide more widely across the workforce.
Laing and Buisson’s Health Cover UK Market Report 2012, which was published in August, shows that during 2011 the number of employer-funded PMI subscribers increased marginally by 1.2%, following falls of 3.3% and 4.7% in 2010 and 2009 respectively. This growth was overshadowed by a 13.5% increase in the number of subscribers to employer-funded cash plans.
Cash plans are also increasingly likely to contain PMI-style benefits, such as cover for minor surgical procedures and a second medical opinion service, as well as more serious medical complaints associated with stress or musculoskeletal disorders.
Castling says: “There is definitely a middle ground which could be a new burgeoning market. We are starting to see that with hybrid plans major medical expenses plans and beefed up cash plans in their own right.”
Another way in which providers can increase the profile of more sophisticated higher costs is to offer employers a choice of different levels of cover, meaning products can be easily tailored to suit different budgets and healthcare requirements. In January Simplyhealth revamped its employer paid package to now include a core plan that provides a choice of three cover levels. It costs £5, £10.75 or £17.50. The benefits include dental cover, health screening, optical diagnostic consultation, tests and scans.
Hughes says: “We wanted to provide customers with choice to suit their different budgets. Cash plans do provide valuable benefits but if companies pay more they can provide even more valuable benefits and it is so much simpler that private medical insurance. As private medical insurance becomes increasingly expensive maybe there’s just more room for cash plans to be more of a premium employee benefit than they have been in the past.”
NOT JUST AN ADDED EXTRA
Cash plans providers want their products to be seen as an integral part of wellbeing and not just an added extra. This has led to some providers adopting a two-pronged marketing approach, targeting both brokers and HR departments.
Providers are keen to ensure that employers are aware that cash plans can help employers meet their duty of care requirements, such as optical care for drivers and VDU users, as well improve productivity and reduce absence.
“Cash plans are an inexpensive way of covering off several of the duty of care issues that HR have,” explains McAndrew.
Castling adds: “With brokers it is about moving cash plans to the forefront of the conversation. They are not just an add-on to everything else. They have value. That value is real and needs to be recognised.”
Cash plan providers are also keen to promote the fact that they offer an umbrella of benefits, aside from healthcare treatments. For example, many providers offer retail discount portals.
Medicash’s Gambon says: “It is about looking at cash plan as an umbrella of benefits – it is an employee benefits package rather than just a cash plan.”
So, while there will always be a demand for cash plans that are low cost, providers will also focus on pushing increasingly sophisticated and extensive products that have higher premiums.