Private medical cover is due for a shake-up

The Office of Fair Trading plans to investigate this lucrative market. Chiara Cavaglieri reports

Expensive and too complex are just two of the jibes made at private medical insurance (PMI).

No wonder PMI has been viewed as the underdog of the insurance world, partly because of the dominance of the NHS but also because Britons are not used to the concept of paying for health cover.

Now the world of private healthcare is in for a shake-up with news that the Office of Fair Trading (OFT) will launch an investigation next spring into the £6bn market. For consumers looking for the best cover now, what are the options?

The main areas of concern are whether there is a lack of competition, or barriers preventing providers from entering or expanding in the market. "The areas that we're proposing to look at are the level of concentration among providers not only at a national level but also at regional and local levels and whether that limits the extent of the competition in the market," says Frank Shepherd, an OFT spokesman.

One crucial issue will be the network agreements between private medical insurers and private healthcare providers which result in patients being referred to a limited number of independent hospitals. This, in theory, has kept costs down by avoiding low use of hospital capacity. For insurers, a network agreement allows them to demand larger discounts from participating hospitals which they can pass on to customers.

The counter argument, however, is that providers which aren't members of one of these agreements could be closed out of the market. Circle, a staff-owned social enterprise founded in 2004 which now runs five hospitals, has already complained to the watchdog that smaller groups are excluded from these networks.

"There have been reported complaints that some of the network arrangements between private medical insurers and private healthcare providers might be restricting smaller providers from entering and expanding," says Mr Shepherd.

The biggest healthcare providers in the market include Spire Healthcare, Netcare General Healthcare Group, HCA, Nuffield Health and Ramsay Health Care. On the insurance side, four providers dominate: Bupa, AXA PPP, Aviva and PruHealth.

If the OFT does decide to change the way the private healthcare market operates, we could see PMI become more affordable. In the meantime, how can you cut costs without sacrificing cover?

PMI is designed to supplement the NHS and cover the cost of private treatment for acute conditions, defined by insurers as a disease, illness or injury that is likely to respond quickly to treatment. PMI will not cover pre-existing or chronic conditions, defined as incurable, long-term illnesses such as infertility, kidney dialysis and organ transplant.

The benefits of PMI are that patients get treatment quickly and can choose when and where this treatment takes place, with access to more comfortable, private rooms. The types of costs covered are in-patient tests, surgery, hospital accommodation and nursing, but the most comprehensive policies will also include dental, optical and even alternative therapy.

Check if you have any cover in place already. For example, you might have access to medical benefits from your employer. If not, opting for moratorium underwriting can be a cheaper way to start a PMI plan as this automatically excludes cover for treatment for pre-existing medical conditions. No full medical history is required, and as long as you do not have any symptoms or receive treatment for two years, these conditions may automatically become eligible for cover. Promotional deals can also help to reduce premiums, but many of these are short-term incentives.

"PMI providers are competing for limited business so they tend to offer special deals on a permanent basis," says Ben Heffer, an insight analyst at Defaqto. "Later on, more sustainable business will be achieved by providers offering better long-term rates and encouraging customer loyalty."

Once you've found a policy that you like, you should be able to strip away various aspects of cover to save money. Previously, PMI was bought at fairly rigid levels and priced accordingly, but nowadays providers often start with a comprehensive policy and allow customers to pare it back. For example, you can choose a different grade of hospital accommodation, or agree to use the NHS when treatment is available within six to 12 weeks.

"Many products now are modular, which means that you can deselect some elements of cover to reduce the premium. But consumers should be careful that they do not end up with a policy that fails to cover all their needs," says Mr Heffer.

Other ways to save include adding an optional excess. Look out for no-claims discounts or extra incentives such as the Vitality programme from PruHealth, which rewards customers with credits for a healthy lifestyle.

Specialist brokers such as allow you to compare prices and refine your search. Armed with this price information, you can speak to the ActiveQuote team of advisers or go to a registered PMI broker to get the right policy for your needs. Age will have a big impact on price. A family of four with parents aged 40 and children aged 10 and five, living in Pontefract, might pay £99.46 a month for Aviva's Healthier Solutions PMI, while a couple aged 65, living in Cardiff, might pay £147.32, according to ActiveQuote. Whichever end of the price scale, it's vital to check for any exclusions or conditions to cover. Cancer cover, for example, varies widely with some insurers covering costs at every stage of the disease and others stopping payments after two years, or placing limits on the length of time you can receive treatment.

"Cheapest is rarely the right decision. Choose a policy that fits your monthly budget and don't just choose the cheapest. Otherwise you won't be covered for the most important things," says Richard Theo, the director of ActiveQuote.

Expert View

Ben Heffer, Defaqto

One of the main ways that consumers can reduce the cost of their PMI cover is to shop around for special offers.

The PMI market is competitive and many insurers are looking to match (or beat) their rivals' premiums by offering some free cover for the first year. The downside to this is that consumers will be obliged to search around again the following year to ensure they continue to get the best deal.