Cash Plans: A New Use Jan 08

Cash plans have been around for over 100 years beginning their life in the late 19^th century as hospital contributory schemes a forerunner of private medical insurance. These days cash plans exist as reimbursement schemes and are a simple and affordable way to meet the cost of everyday medical expenses. For instance for £1 a week an employer can provide £45 of dental benefit, £45 optical benefit, £120 of physiotherapy and £200 towards the cost of private consultations.  

 

Cash plans have become increasingly popular in the corporate market recently as many organisations find that traditional PMI plans are becoming prohibitively expensive and are looking for cost effective healthcare solutions.

 

There are some key reasons why Cash Plans have enjoyed recent success as an employee benefit:-

 

·         Cash plans are low cost, but they have a high perceived-value and are, therefore, a valuable aid to recruitment and staff retention.

·         Pre-existing conditions are covered in the majority of cases, meaning members can claim benefit straight away. 

·         There is no age rated pricing.

·         Premium increases on cash plans tend to be lower than those on private medical insurance schemes and they are not applied annually.

·         The optical benefit provided under a cash plan fulfils an employer’s obligation to pay for eye tests for VDU users.

·         The cost of a corporate-paid cash plan may be offset against Corporation Tax.

·         Although a very valuable benefit tax burden is negligible.

·         Claiming is easy and claims are normally settled within 5 working days with the reimbursement being paid directly into the members account.

 

As Private Medical Insurance has become increasingly expensive more and more schemes apply an excess to the cover to control the cost. In many cases the company will reimburse the excess to the member should they need to make a claim as they do not want to discourage the member from receiving treatment.

 

Although a noble sentiment this could have tax implications for the employee as this is a further benefit. Also it drags the company into the claims process which as an employer can be uncomfortable, it also increases administration.

 

There are better ways of handling this situation. Many companies are beginning to run a cash plan alongside a PMI scheme in order to cover the excess. By using a cash plan in this way:-

 

·         The employer is removed from the claims process reducing administration; the member also regains their anonymity.

·         The tax issue surrounding reimbursing excesses to members is resolved. Although cash plans are a taxable benefit the tax burden is negligible.

·         The optical benefit provided by the cash plan fulfils an employer’s obligation to pay for eye tests for VDU users.