Growing demand for health cash plans has little to do with their original purpose – defraying the cost of a night in hospital – and everything to do with recent developments in healthcare.
The advent of the welfare state and dramatically shorter hospital stays might well have killed off the 18th-century idea. Far from it.
Instead, the deliberate roll-back, often collapse, of state services in all peripheral healthcare areas has triggered the renaissance in cash plans.
State-run dental and optical care, convalescent beds, physiotherapy, domestic nursing and community mental health services are in disarray. So more than six million people seek cover in these areas with cash plans.
Hospital cash plans have thus become health cash plans. The Hospital Savings Association, which holds almost half of the market after its recent merger with Leeds Hospital Fund, is conveniently abbreviated to HSA. The sector, still dominated by not-for-profit mutual societies, but increasingly under threat from commercial insurers, has increased turnover by 45 per cent in five years. It is now worth close to £400m.
The changing scope of plans and the plethora of new providers – there are 25 in the mutual sector alone – have increased the opportunities for misunderstanding in the public mind.
There is little doubt that many people buy cash plans believing they are buying cover for elective surgery.
Stephen Walker of Brighton-based Medical Insurance Services thinks most intermediaries will have encountered several confused victims.
“We have certainly seen people who’ve realised their mistake only when they’ve come to make a claim. In one instance they’d picked up an advert for HSA. Eventually they realised a cash plan wasn’t what they thought it was, but too late.
“To be blunt, it’s up to individuals to understand what they’re buying and this is the problem – dare I say it? – of buying direct. Quite often people buying direct through advertisements in Sunday magazines don’t know what they’re buying. One provider recently set out in bold type that it was not offering private medical insurance (PMI) – that helps.”
Much of the confusion stems from the big marketing budgets deployed across all forms of media by major PMI providers. People tend to assume that all health insurance is PMI.
Walker draws a parallel with the 1990s when Norwich Union Healthcare (NUH) made its initial foray into a market dominated by Bupa and PPP healthcare. He recalls: “Bupa has been for some time the generic name for PMI. It even appears in the Oxford dictionary as such. When NUH came in with a nightly campaign on television, Bupa began receiving phone calls from prospective purchasers who were actually inquiring about NUH products.
“Bupa was benefiting from the money NUH was spending. I would suggest that much the same is happening with cash plans. People see HSA as a form of health insurance and think, ‘Oh, yes, it’s Bupa, I’ve been thinking about that for some time.’ It gets automatically tied in. They get the bumph, they don’t particularly bother reading it and pay up. Incidentally, it has been much the same with budget PMI plans in the past.”
Much of the confusion could be removed if cash plan providers made as much noise about what they were not offering, as Medicash does.
Another major provider, HealthSure, formerly Manchester & Salford Hospital Saturday Fund, dating from 1872, recently moved in this direction. It overhauled its brochures with the aim of eliminating misunderstandings.
Raman Sankaran, marketing communications manager at HealthSure, which covers close to 500,000 people, argues that plan benefits for hospital stays are to blame for the confusion.
He says: “Once you start talking about hospital benefits, people start thinking PMI. It’s the biggest barrier we have in terms of marketing cash plans. With cash plans you can get across very easily the concept that you can go to your dentist, go to your optician, get a receipt, you send it in, we send you a cheque, no hassle.”
The link between the levels of premiums and level of benefits is also easily grasped. But according to Sankaran: “Where people get into trouble with the concept is in terms of hospital benefits. People think, what is this benefit being paid for? Is it going towards treatment?
“The cheque still comes to you if you have to go into hospital. It’s more to do with compensation for inconvenience. What you do with that money is up to you. It could go to loss of earnings, expenses incurred in going into hospital – all kind of things, but it is not going to the hospital, it is not paying for treatment.”
Sankaran sees the future in non-hospital benefits: “The hospital benefit is still one of the main benefits but it’s the other areas – dental, optical and physiotherapy – that are drawing people in because of the reduction in free treatments. There is also a general increase in the cost of healthcare treatments.”
The increasing importance of cash plans outside hospital is pushing some providers to increase the total of benefits on offer. This trend is most evident in new market entrants, mainly commercial. Critics have accused these concerns of window dressing.
The argument runs thus: the more benefits you boast, the better you look. People won’t spot the slim likelihood of ever claiming, and if they do they won’t get much anyway.
Another wheeze, say critics, is to split a single benefit so it becomes two. Typically, accident benefit is hospital benefit, but why use one benefit when two will do? This too won’t help clarity, if only because it adds to the volume of paper faced by prospective enrollees.
That said, healthcare is changing and benefits need to reflect demand. Complementary medicine has gone largely respectable and is booming.
Medical technology gives us new types of contact lenses. Allergy testing can be done a lot quicker privately than through the National Health Service (NHS). “Zap and flap” laser eye surgery is well established.
London-based HSF (Hospital Saturday Fund) claims to be pulling in new members quicker than other not-for-profit societies. It currently has 350,000 people under cover.
With 34 benefits, and a brochure on a par with the Hampton Court maze, it could said to be over-egging the pudding. Not so, says sales and marketing director Stephen Duff.
He says: “We’re trying to give people what they want. We’re always prepared to look at new things, some of them suggested by members.”
Duff points out that HSF facilitates claims by allowing members to claim 100 per cent of bills, which cuts down paperwork. Another feature is that it lumps together dental and optical. Thus a member could claim for a whopping dental bill, which is common in the Southeast, where NHS dentistry is as rare as a filling-free sweet sucker. Alternatively, the member could claim the limit (£400 a year on the middle tier costing £26 a month including spouse and children under 18) for eye laser surgery.
Confusion over the roles of cash plans and PMI may simply be due to bad English. Duff says: “Use of certain phrases can mislead. ‘Covering medical expenses’ may make people think the cost of surgery is covered if you go into a clinic, which is not the case.
“So we say ‘nightly benefits’ when people go into hospital. Then we talk about everyday costs that PMI certainly doesn’t cover. We emphasise we are about everyday costs, not the costs of surgery.”
The temptation not to read sales brochures, however well written, means misunderstandings will always arise. The small commissions picked up by intermediaries means a chance to explain is lost. And the lack of carrots for intermediaries also explains why sales, while rising, are not going through the roof.