The entry of Boots the Chemist into the cash plan market earlier this year elicited a cautious response from many intermediaries. While concern was expressed about buying health insurance over the counter, it was grudgingly accepted that association with a leading brand could do much to raise the profile of a relatively little-known product.
But even before the recent publicity boost, the past 10 years have seen the rise and rise of the cash plan. Figures released last month by the British Health Care Association (see table) chart the remarkable increase in revenue in this area.
The BHCA estimates the market for healthcare cash plans is now worth over £200 million, showing a growth in sales of more than £70 million over five years. Last year alone witnessed a £ 10 million increase. And, judging by the number of providers extending their cash plan product ranges, the insurance industry has finally realised this low-cost product’s potential.
But should PMI providers be worried about the mounting popularity of the cash plan? Do these policies pose a real threat to a medical insurance sector that has remained static for years?
Sue Richmond, publicity executive at market leader HSA Healthcare is well placed to weigh up the influence of cash plans. HSA Healthcare was established in 1922 and now covers nearly three million people.
“Traditionally cash plans and PMI cater to different markets and on this basis shouldn’t really impact on each others’ custom. Despite this, the healthcare cash plan sector has recently attracted much attention. And a number of major PMI providers have started using cash plans as a ‘bolt on’ to their traditional products.
“It would appear, therefore, that cash plans do not present a direct threat to PMI, but they are a product of the future and have a vital role to play in the country’s ever evolving health system,” she says.
Richmond is convinced of the longevity of the cash plan and has an interesting point to make about new policyholders: “There are those additional new entrants that are joining a cash plan as the first step into the healthcare market. However, judging by the number of new members enrolled each year, few `cash plan first timers’ take the second step into PML” It is true that many policyholders find cash plan benefits suit their healthcare needs, but a trend is emerging which has extended the traditional role of the product. As Richmond highlights, more providers are introducing cash plans to complement existing PMI schemes.
Paddy Swann, general manager of the personal protection division at WPA, says 25% of its Health and Sickness Plan is sold as an add-on to the budget PMI plans.
“Some subscribers find the combination more powerful than the fully comprehensive PMI. These people aren’t necessarily looking for lower cost premiums, just a better option. The cash plan can cover what the PMI policy is missing, in that it concentrates on outpatient cover.
“And policyholders get a cash sum for every night they’re in hospital,” says Swann.
But not every insurer’s experience of “bolt-on” cash plans is the same. Elizabeth Price, chief executive of the 124-year-old Patients’ Aid Association, comments that the vast majority of its cash plans are sold as stand-alone, with more and more policyholders choosing to upgrade their cover.
“Most people purchasing are at an earnings level where PMI premium levels are beyond their reach. Their motivation for purchasing cash plans is different. They want cover for more routine healthcare costs, like eye checks and dental checks.
“They can cover their whole family and maybe use part of their cash plan to see a specialist privately and get on to the NHS waiting list much quicker,” says Price.
She adds that many people use their policy as a way to replace lost earnings: “A long hospital stay means the cash benefits can mount up, especially at the higher level which is £60 a night. It’s especially useful for women who have children to look after.”
The BHCA distills the appeal of cash plans into one phrase: “Cash when you need it most.” And with premiums starting from as little as 55p a week, the product is hugely accessible.
“Healthcare cash plans used to be the health industry’s best kept secret,” says BHCA’s president, Sir David Perris, “but, as the dramatic rise in sales shows, people are fast coming to regard them as a necessity rather than a benefit.”
Cash plans have come full circle. Again, people are looking to use them to pay for treatment not provided by the NHS. And there is no reason why these schemes and PMI plans can not enjoy a close and complementary relationship.