Employers’ healthcare cash plans and other medical provisions
Employers are increasingly interested in using healthcare benefits for absence management purposes. In this report, we look at their provision of healthcare cash plans, health and lifestyle checks, disability insurance, critical illness insurance, and similar schemes.
On this page:
Introduction
The business case for providing healthcare cash plans
Around one in five employers offer a healthcare cash plan
Employers do not usually pay for employees’ healthcare cash plans
Cash plans cost £4.75 a week
Employers’ cash plans are usually open to all staff and their families too
One in four employers make one-off payments for private medical care
Employers’ other healthcare arrangements
“Back to work” medical insurance
NHS-first private medical insurance
Disability insurance
Critical illness insurance
Well-man and well-woman health screening
Flu vaccinations
Our research
Table 1: The proportions of employers that provide healthcare cash plans
Table 2: The ways in which employer-sponsored healthcare cash plans are funded
Table 3: Employers’ other healthcare arrangements
Resources
Key points
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Introduction
The differences between healthcare cash plans and private medical insurance (PMI) are blurring. Employers are increasingly interested in using both of these healthcare benefits to improve their absence management. Providers are meeting them halfway by changing the nature of their products and emphasising their attendance management role in their marketing messages.
But essential distinctions remain. A healthcare cash plan provides a cash payment, usually of a fixed sum, when a plan member uses a healthcare service. In particular, payments are made for routine dental or eye check-ups, physiotherapy and treatments for medical conditions.
“Private medical insurance” insures the policyholder against the cost of treating injuries, illnesses or other medical conditions, usually via the private healthcare sector. PMI generally has a much higher ceiling on repayments than a cash plan and might cover the entire cost of an expensive course of treatment.
Cash plans are much more limited in respect of their coverage of treatments, but they enjoy an advantage over most PMI schemes in that they offer benefits to healthy people for routine optical and dental check-ups and care. These are services that involve regular visits by most people: up to twice a year for dental check-ups and every two years for eye tests. And these are services that are either excluded from the NHS or where NHS provision is increasingly difficult to find.
Even so, cash plans are much less commonly offered by employers than PMI, although they tend to be much cheaper to provide.
To investigate the nature of healthcare cash plans in the workplace, IRS undertook a research project involving 211 employers. Its findings are reported here, and look at employers’ rationale for offering cash plans and the way in which they operate them.
Our study also covers six related health schemes that employers can use in absence management and as an employee benefit:
- “back to work” medical insurance;
- NHS-first private medical insurance;
- disability insurance;
- critical illness insurance;
- well-man and well-woman health screening; and
- flu vaccinations.
Findings from our research about employers’ private medical insurance schemes.
Back to topThe business case for providing healthcare cash plans
Employers provide a healthcare cash plan primarily because it is a cost-effective benefit. It is affordable, costing as little as £1 a week, yet often highly valued by staff. Obviously, plans that are funded or substantially subsidised by their employer are likely to be viewed most favourably. But plans in which employees bear the cost can also be seen as a perk where an employer has negotiated advantageous terms from a cash plan provider.
Cash plans, as we noted above, are seen primarily as an effective staff benefit (a rationale cited by 71% of employers taking part in our study). Linked to this, they are offered because they enhance the employer’s image as a caring organisation (cited by 50%), and for their low cost (cited by 42%).
In terms of absence management, plans are also offered because they can contribute to the general health and well-being of staff (cited by 62%), and can help staff return to work as quickly as possible after sickness absence (cited by 41%).
However, relatively few employers provide a healthcare cash plan because it helps them recruit (27%) or retain (24%) staff.
It is instructive to compare this business rationale for healthcare cash plans with that of private medical insurance (PMI).
Out of 14 possible business-related reasons, in only three do cash plans score more highly than PMI. In other words, the business case for healthcare cash plans is generally weaker than that of PMI. This, no doubt, reflects or explains the much greater provision of PMI by employers in the UK than that of healthcare cash plans.
To illustrate this, of the top three reasons why employers provide a PMI scheme, recruitment and retention lie in second and third place, being cited by 67.5% and 58.9% of employers, respectively.
In terms of cash plans, recruitment and retention fall to eighth and ninth place overall, with only 27% and 24% of employers, respectively, citing them. These proportions are considerably under half of those relating to PMI.
In fact, PMI received higher scores than cash plans in 11 of 14 possible business reasons. Even in the three instances where cash plans have the edge, the difference is a marginal one of a few percentage points in each case.
Around one in five employers offer a healthcare cash plan
Estimates vary about the proportion of employers that offer a healthcare cash plan. Broadly, though, it seems that between one in seven and one in five employers in the UK make a cash plan available to their workforces.
It is often believed that cash plans are more common in the public sector and manufacturing than among service sector organisations. Some surveys suggest that this might not be the case.
For example, according to a special analysis of the detailed findings of the March 2007 IRS survey of employers’ benefits and allowances practices (this was the latest at the time of writing), the opposite appears to be true. The survey finds that cash plans are least common in the public sector, slightly more so in the manufacturing and production sector, and relatively most prevalent in private sector services organisations. The results of our analysis of this survey are shown in table 1.
However, on whatever basis the findings are drawn, there is no doubt that cash plans are much less common than private medical insurance (PMI) as a scheme that is offered or sponsored by employers in the UK. Around 50% provide PMI against 15% to 20% that offer a cash plan.
Conversely, cash plans are much more popular than PMI among the population at large, no doubt because of the significant price advantage of cash plans and the fact that most of them cover routine dental care while PMI tends not to do so.
According to study by market intelligence company Laing & Buisson (PDF format, 94.3K) (external website), total expenditure on PMI by individuals and employers in 2006 was some £3.65 billion, while only £465 million was spent on cash plans. However, while 12.2% of the UK population had PMI in 2006, the figure for cash plans was closer than this expenditure gulf would suggest at 8.1% of the populace.
Employers do not usually pay for employees’ healthcare cash plans
Employees are typically required to meet the full cost of a healthcare cash plan’s payments, according to our research. This is the case in three-quarters (76%) of employers that offer a cash plan. The cost is shared by the organisation in a further 4% of employers. In only 15% of employers with a plan are its basic benefits offered cost-free to the workforce.
Table 2 provides more information about these arrangements, as well as those relating to the membership by employees’ spouses, partners and immediate families of healthcare cash plans.
Cash plans cost £4.75 a week
Healthcare cash plans are a more affordable means of helping to pay for healthcare than private medical insurance (PMI). According to our research, the median (range mid-point) payment is £4.75 a week. This is almost exactly half the cost (49% of it) of the median PMI payment under employers’ schemes (£247.95 a year compared with £506).
Employers often negotiate discounts or arrange tailored schemes from cash plan providers. The likely number of plan members that such a scheme can deliver to a provider can play a part in boosting an employer’s negotiating ability, as our findings suggest. Among the largest employers (those with at least 1,000 employees), the median weekly payment is just £2.50 against £5.25 for organisations with between 250 and 999 employees.
However, some smaller employers are able to enjoy the kind of discounts obtained by very large organisations by virtue of their membership of an employer’s association.
Rochdale Boroughwide Housing, for example, uses the cash plan that the Greater Manchester Chamber of Commerce has negotiated for its members with a Sheffield insurer. It costs £52 per person a year for the basic plan benefits.
At roughly £1 a week, this cost is not uncommon in terms of employers’ schemes. Others cost around £2, £3 or £4 per person each week. These payments are noticeably lower than our £4.75 median figure, and may reflect an element of gold-plating among the employers taking part in our study.
Cash plans include limitations about the amount of money that will be reimbursed for various treatments and check-ups, and these can be eased through the payment of a higher level of fee. Many plans also offer optional extras for which there are additional charges.
Employers’ cash plans are usually open to all staff and their families too
Unlike private medical insurance schemes, cash plans usually involve the employers that sponsor them in little or no cost. There is, therefore, no pressing financial reason why the plan should limit its coverage in terms of employee groups or their immediate families.
Eight in 10 (80%) employers, according to our study, allow everyone in their workforce to take part if they so wish. And in almost three-quarters (71%) of employers, employees’ spouses, partners and immediate families can join as well.
However, alongside this 71% of employers, a further 13% will admit employees’ spouses and partners, but not their families. This means that only 16% of plans are restricted to current members of staff.
In none of the employers taking part in our study are the fees of additional members paid by the employer. In 95% of employers, an employee must pay the full cost of their spouse, partner or any family member that joins their cash plan. In the remaining organisations, these costs are shared between employer and employee.
Table 2 provides more information about these arrangements.
One in four employers make one-off payments for private medical care
For an employer, offering a private medical insurance scheme or healthcare cash plan can help its employees keep in better health and recover more quickly should they fall ill or have an accident.
But what about should an employer do if an uninsured employee is unwell and their condition could be treatment more quickly or effectively through access to private medical treatment?
In one in four (26.3%) employers, our research finds that they have been prepared to intervene and make discretionary payments so that one of their absent staff can obtain private medical treatment.
The likelihood of an employer making such payments is the same regardless of whether it does or does not offer private medical insurance or a healthcare cash plan, according to our study. There is, therefore, no indication that employers have a policy of never funding private medicine where their staff could have chosen to take up existing healthcare arrangements on offer to them.
There are five main circumstances in which an organisation will pay for a member of their staff’s private medical treatment, according to our research:
- where private medical treatment would help the individual return to work more quickly after an absence (79% of employers that make such payments);
- compassionate reasons (44%);
- where private medical treatment would improve the performance of someone who is still at work (eg, as an alternative for a long wait for NHS treatment) (42%);
- for conditions that are excluded from private medical insurance, eg alcohol and drug abuse (25%); and
- where the NHS will not provide treatment that the individual needs in order to return to work or return to full performance (17%).
Employers’ other healthcare arrangements
Employers have access to a range of other insured and non-insured healthcare arrangements alongside their use of private medical insurance, one-off payments for private treatment and the sponsorship of healthcare cash plans. To give a rounded picture of employers’ practice, our research has also investigated six such options, which are discussed in the following sections. These are:
- “back to work” medical insurance;
- NHS-first private medical insurance;
- disability insurance;
- critical illness insurance;
- well-man and well-woman health screening; and
- flu vaccinations.
The overall results of our study for these arrangements are shown in table 3. This gives the proportions of employers using or offering each one, broken down into those doing so selectively and those providing it across the board.
“Back to work” medical insurance
Some healthcare insurers are developing products that might appeal to employers as alternatives to traditional private medical insurance because they are more explicitly targeted towards absence management or are simply easier to afford.
For example, at least one provider has launched a healthcare insurance product that provides no benefits apart from under strictly limited conditions. An insurer employee must first be absent from work on sick leave and must also be assessed by a medical practitioner as having a condition that would benefit from access to private healthcare. Such access must have a reasonable likelihood of ensuring the person’s more rapid return to work than if they were to wait for NHS treatment.
So far, such policies remain at the margins of employers’ healthcare arrangements, according to our research. Out of almost 200 organisations, only 4.7% have taken up this type of healthcare insurance, split fairly evenly between those that provide it to all employees and those that restrict it to some staff groups. In most of the examples we found, the employer pays the full cost of this insurance.
NHS-first private medical insurance
Insurers and employers are constantly seeking ways of controlling or reducing the costs of private medical insurance (PMI). One of the more radical options involves policies that only pay out when the NHS is unable to provide treatment within a specified length of time, such as six weeks.
At present, though, this more limited form of PMI lacks appeal among employers, according to our research, and is almost as rare as back to work PMI schemes. We found only 6.2% of employers that offer it, made up of 4.1% that offer it to all staff and 2.1% that do so for some groups only. In most cases, the employer meets the cost of this type of health insurance.
Disability insurance
Permanent health insurance, also known as PHI, disability insurance or income protection, has a long history in the UK. Such schemes provide a means of assuring that a policy holder who becomes unable to continue in their usual occupation will still receive more or less the same amount of take-home pay as if they were still working normally. Payments begin after a specified waiting period, typically six months, and continue until the policy’s limit is reached. This is usually the person’s normal retirement age.
There are some legal considerations for employers in respect of their provision of disability insurance to employees, and these may have led to a reduction in the popularity of such schemes. Changes to the state incapacity benefits scheme to restrict entitlement that are expected during 2008 are also likely to lead to a review by employers of their own disability insurance, according to the December 2007 issue of Health Insurance & Protection magazine (external website).
National surveys indicate that between three in 10 and four in 10 employers now provide disability insurance. Our own study finds that 44.4% do so, of which 25% cover all their employees and the others restrict it to just some groups of staff. Overwhelmingly, the employer meets the full cost of this insurance, according to our research. In just 2% of employers are employees expected to pay its premiums.
Critical illness insurance
Critical illness insurance provides a payment when the insured person is diagnosed with a life-threatening illness. Usually, the payment is based on a predetermined figure rather than being a multiple of the person’s salary, and is generally paid as a lump sum to the individual themselves, rather than their employer or nominated beneficiary.
Surveys show that this type of insurance is rarely offered or funded by employers: only around 12% do so. In our research, the figures are 7.1% of employers with schemes covering their workforces as a whole and 5.6% that cover only some groups of staff. In just over half (58%) of such schemes, the employer pays the full cost of the premiums.
According to Health Insurance & Protection magazine (external website), employers are more inclined to offer this form of insurance via flexible benefits and voluntary benefits schemes, rather than as a core benefit funded by themselves. It argues that:
“Possibly the biggest stumbling block for company-paid group CI [critical illness insurance] is the employer’s perception of it. Unlike products such as IP [income protection or disability insurance] or medical insurance, which can deliver benefits to the employer, group CI has very little to offer the employer, favouring the employee almost entirely.”
Well-man and well-woman health screening
Many employers routinely undertake health assessments of their recruits, and have a statutory duty to undertake health surveillance of some types of worker and those performing roles that are exposed to particular hazards.
There is, however, a broader form of health screening that takes a more holistic approach to individuals’ lifestyles and health. As well as highlighting potential medical problems, such health checks can provide advice about how health and well-being can be improved. They have the potential to contribute to effective absence management in a preventative way.
Our research finds a growing interest among employers in this type of health screening. Many of those taking part in our study mentioned that they are interested in increasing the focus on prevention in their existing private medical insurance and healthcare cash plan schemes. Others are interested in introducing such schemes because of their potentially preventative role. Still others would like to offer health screens to their staff independent of any medical insurance or cash plan provision.
Between one in four and one in three employers offer health screening, according to various surveys. Our own study produces a much higher figure of almost 50%, made up of 21.2% of employers that offer them to their whole workforce and 27.3% that do so to certain groups only.
In most cases (74% of employers), we find that the employer pays the cost of these health checks.
Flu vaccinations
Upwards of one in 10 people catch influenza each year, according to the National Institute for Clinical Excellence (NICE) (PDF format, 105.2K) (external website). Although not a life-threatening illness for most people, its symptoms can be severe and require a week or more off work to recover.
Many employers, therefore, offer flu jabs to their staff as a means of helping to prevent absences from work, which could have a serious impact on their organisations in years when the infection is particularly prevalent.
According to our study, just over one in three employers offer flu immunisation: 28.1% do so across their workforce as a whole and 7.1% target particular groups of staff.
Employers that restrict immunisation tend to focus on their employees who are either most exposed to the risk of catching the infection, or those who if infected with the illness might represent a significant risk to their vulnerable customers or clients.
In almost all cases (89% of employers), the employer meets the cost of the flu vaccination.
This article was written by Neil Rankin, editor, Attendance and Absence, Employment Review.
Our research
This article is based on original research that Neil Rankin and Ed Cronin of IRS conducted in November and December 2007, supplemented by a literature review. The research obtained information from 211 employers about their organisations' healthcare benefits and related schemes. The employers taking part in our research have a combined workforce of almost 675,000 people. The breakdown by economic sector of the employers is as follows: 60.2% are private sector services organisations; 30.3% are manufacturing and production organisations; and 9.5% are public sector organisations. Broken down by workforce size, the employers comprise: 30.3% that have 1 to 249 employees and are classed as small and medium-sized enterprises; 34.1% that have 250 to 999 employees and can be considered as large employers; and 35.5% that have 1,000-plus employees and can be considered very large employers. Few public sector employers offer their staff private medical insurance or healthcare cash plans, and our analyses of their practices have of necessity been restricted in this research report.
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Table 1: The proportions of employers that provide healthcare cash plans | ||
|
|
% of employers offering a plan |
Sample size |
|
All employers |
15.3% |
222 |
|
BROAD ECONOMIC SECTOR | ||
|
Private sector services |
16.9% |
118 |
|
Manufacturing and production sector |
14% |
63 |
|
Public sector |
12% |
41 |
|
NUMBER OF EMPLOYEES | ||
|
1–249 |
11% |
79 |
|
250–999 |
16% |
73 |
|
1,000+ |
18% |
66 |
|
Notes: Decimal places are shown for samples of at least 100 organisations. n = 222. Source: Findings from IRS’s annual survey of benefits and allowances, March 2007, specially analysed for this report. | ||
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Table 2: The ways in which employer-sponsored healthcare cash plans are funded | ||||||
|
|
All employers |
Broad economic sector |
Number of employees | |||
|
|
|
Private sector services |
M&P1 |
1–249 |
250–999 |
1,000+ |
|
IN RESPECT OF EMPLOYEES THAT JOIN A PLAN | ||||||
|
The employee pays the full cost |
76% |
71% |
90% |
64% |
74% |
82% |
|
The cost is shared with the employee |
4% |
5% |
0 |
0 |
9% |
3% |
|
The organisation pays |
15% |
19% |
5% |
27% |
17% |
9% |
|
Other arrangements |
4% |
5% |
5% |
9% |
0 |
6% |
|
n = |
68 |
42 |
21 |
11 |
23 |
34 |
|
IN RESPECT OF EMPLOYEES’ SPOUSES, PARTNERS AND IMMEDIATE FAMILIES THAT JOIN THEIR PLAN | ||||||
|
The employee pays the full cost |
95% |
96% |
100% |
Note 2 |
92% |
96% |
|
The cost is shared with the employee |
4% |
4% |
0 |
Note 2 |
8% |
4% |
|
The organisation pays |
0 |
0 |
0 |
Note 2 |
0 |
0 |
|
n = |
44 |
24 |
15 |
Note 2 |
12 |
26 |
|
Notes: 1. Manufacturing and production sector. 2. Some breakdowns of results are not shown because fewer than 10 employers supplied data; this includes all the results for the public sector. % of employers. Percentages may not add up to 100 because of rounding. Decimal places are shown for samples of at least 100 organisations. n = 68. Source: IRS. | ||||||
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Table 3: Employers’ other healthcare arrangements | |||||||
|
|
All employers |
Broad economic sector |
Number of employees | ||||
|
|
|
Private sector services |
M&P1 |
Public sector |
1–249 |
250–999 |
1,000+ |
|
“Back to work” medical insurance (where private care is only funded where an individual on sick leave would be able to return to work more quickly as a result) | |||||||
|
For some staff groups |
2.6% |
4.3% |
0 |
0 |
3% |
0 |
4% |
|
For all employees |
2.1% |
0 |
7% |
0 |
0 |
3% |
3% |
|
No |
95.4% |
95.7% |
93% |
100% |
96% |
97% |
93% |
|
n = |
195 |
117 |
59 |
19 |
57 |
68 |
70 |
|
NHS-first private medical insurance (where private care is only funded if NHS treatment cannot take place within a specified period) | |||||||
|
For some staff groups |
2.1% |
2.6% |
2% |
0 |
2% |
0 |
4% |
|
For all employees |
4.1% |
1.7% |
7% |
10% |
5% |
4% |
3% |
|
No |
93.8% |
95.7% |
91% |
89% |
93% |
95% |
93% |
|
n = |
193 |
116 |
58 |
19 |
57 |
66 |
70 |
|
Disability insurance, also known as income protection or permanent health insurance | |||||||
|
For some staff groups |
19.4% |
22.0% |
20% |
0 |
14% |
13% |
30% |
|
For all employees |
25.0% |
30.5% |
20% |
5% |
24% |
30% |
21% |
|
No |
55.6% |
47.5% |
59% |
95% |
62% |
57% |
49% |
|
n = |
196 |
118 |
59 |
19 |
58 |
67 |
71 |
|
Critical illness medical insurance | |||||||
|
For some staff groups |
5.6% |
6.8% |
5% |
0 |
5% |
0 |
11% |
|
For all employees |
7.1% |
6.8% |
10% |
0 |
3% |
10% |
7% |
|
No |
87.3% |
86.4% |
85% |
100% |
91% |
90% |
82% |
|
n = |
197 |
118 |
60 |
19 |
58 |
68 |
71 |
|
Well-man and well-woman health and lifestyle checks or screening | |||||||
|
For some staff groups |
27.3% |
27.7% |
30% |
16% |
10% |
18% |
49% |
|
For all employees |
21.2% |
18.5% |
20% |
42% |
21% |
23% |
19% |
|
No |
51.5% |
53.8% |
50% |
42% |
68% |
59% |
31% |
|
n = |
198 |
119 |
60 |
19 |
57 |
68 |
73 |
|
Flu vaccinations | |||||||
|
For some staff groups |
7.1% |
5.1% |
3% |
32% |
3% |
1% |
16% |
|
For all employees |
28.1% |
30.5% |
29% |
10% |
26% |
31% |
27% |
|
No |
64.8% |
64.4% |
68% |
58% |
71% |
68% |
57% |
|
n = |
196 |
118 |
59 |
19 |
58 |
68 |
70 |
|
Notes: 1. Manufacturing and production sector. % of employers. Decimal places are shown for samples of at least 100 organisations. n = 198. Source: IRS. | |||||||
Resources
- Health-related benefits: fit for purpose? Employment Review 865, 16 February 2007.
- Buyer's guide to healthcare cash plans, Employee Benefits, April 2007.
- Information about healthcare cash plans, critical illness insurance, disability insurance and other schemes using the “categories” button on the Health Insurance & Protection magazine website.
- Healthcare research 2007, Employee Benefits and HSA, 29 May 2007.
