Special Report on Private Health: Watch out for the exclusions and excesses: Understanding the limitations to cover is essential before buying a policy, Alison Eadie writes

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PRIVATE medical insurance (PMI), as with all insurance, does not cover the policyholder for all eventualities.

The basic principle is that if an illness is treatable it is covered. If it is chronic, it is not covered. The proliferation of different types of policies, particularly budget schemes, has added to the list of exclusions and introduced excesses requiring the subscriber to pay an initial sum towards treatment. Claims can be rejected and it is essential that the limitations of cover are fully understood before the policy is purchased.

Standard exclusions include pre-existing conditions unless accepted by the insurer, primary care, routine checks, out-patient drugs, cosmetic surgery, convalescence, normal pregnancy and childbirth and HIV and Aids treatment. Some insurers exclude psychiatry, dangerous sports injuries, out-patient treatment, drug and alcohol abuse and dental treatment.

Bupa says that the main area where disputes can occur is when subscribers misunderstand what they are covered for. Peter Jacobs, Bupa's chief executive, said: 'Insurance schemes need to be presented more clearly, with the extent and the limitations of cover clearly spelled out.'

He added that the expansion of the product range, while widening the accessibility of PMI, had led to differences in cover which could cause misunderstandings between consultants, patients, subcribers and insurance companies. 'It is important that the industry sets itself aside from the somewhat unfortunate image of the insurance industry generally and does not rely on small print or misleading statements to sell its products.'

Confusion can set in because of the wide range of schemes available. At the top end, and for the top price, most things are covered. Norwich Union's 'Premier Care' includes routine dentistry, private ambulance, general practice consultations, normal pregnancy after two years membership and overseas cover and emergency repatriation. It excludes HIV and AIDS treatment, pre-existing conditions and cosmetic surgery.

At the bottom end many budget schemes are based on the six-week principle - they will cover treatment if the NHS waiting list is more than six weeks. Private Patients Plan's 'ValuePlan' pays a cash benefit of pounds 50 a night to subscribers who elect to wait more than six weeks for a NHS bed. It imposes a ceiling on the total payout per year of pounds 10,000 rising to pounds 15,000 for heart surgery. The ceiling can be increased by up to pounds 5,000 if unforeseen complications arise during surgery. The plan limits physicians' daily rates to pounds 34 for inpatient care and pounds 80 for intensive care.

Bupa's 'EssentialCare' also caps the fees payable to specialist doctors and places cash limits on treatments like physiotherapy. As a result the costs of the policy are 30 per cent to 45 per cent lower than the comprehensive Bupa Care. Further discounts are available if the subscriber pays the first pounds 100, pounds 150, pounds 200 or pounds 250 towards any claims.

Norwich Union's 'Personal Care' low cost scheme does not set annual monetary limits on the amounts claimed, but it excludes outpatient consultations and treatment other than radiotherapy and chemotherapy.

According to Peter Bye, a partner of Private Health Partnership, the independent specialist broker in Leeds, the limitations on budget schemes cause the most problems. The public is not aware that there are 30 insurers selling 400 variations of PMI policy, he says.

'All too often people buy a scheme and assume it covers all things in all circumstances. They respond to a cut price offer and fail to realise that the benefits are diluted.'

He adds that people think of medical insurance as like motor insurance, assuming that if they have not made a claim they should get it cheaper and they can transfer the equivalent of a no-claims bonus to a new insurer, if they switch. Medical insurance, however, is costed on age bands based on actuarial assumptions.

The actual terms used are also sometimes misunderstood. Mr Bye said some people confuse outpatient with casualty, not realising that consultations with specialists fall under outpatient care and may not be covered under all policies.

Mr Bye takes issue with the insurers over their literature, which he says is glossy and designed to sell. He believes insurers do not take a responsible enough attitute to the negatives and concentrate on the positives. But it is the negatives which cause the problems.

He suggests people take proper advice so they are fully aware of the exclusions and if possible pre-authorise treatment with insurers before going ahead and finding out later the insurer will not pay.

Peter Dalby, executive director of Prime Health, agrees the key points, particularly exclusions, must be spelled out in the insurer's brochure; the language should be plain and there should be a back up if misunderstandings arise. Prime Health has won the Plain English award for its policies, he says.