Private medical insurance: Is it a wealth risk?

Tailoring your cover to meet your needs can significantly cut premiums

Private healthcare caught the unwanted attention of the Office of Fair Trading (OFT) last week with the watchdog referring the industry to the Competition Commission. Concerns have been raised that nationally there aren't enough providers and insurers to ensure healthy competition in the market and that costs aren't always transparent for private patients.

The news could mark a potential victory for consumers. "More often than not the public is not exposed to the actual cost of treatment and that's not a very healthy situation for any consumer," says Neville Koopowitz, the chief executive of the insurer PruHealth.

"Most private medical insurance [PMI] policies have got limits on the various types of procedures and if prices were more transparent consumers could manage their product more effectively so they are not exposed to shortfalls".

The main benefit to holding PMI is that you can jump the NHS queues, but with the best policies you can take your pick of the best hospitals and doctors, and receive treatment at a time and place that suits you. You may even gain access to drugs and treatments not available on the NHS, but PMI is only designed to cover the cost of short-term, curable illnesses or injuries known as "acute conditions". It won't cover pre-existing, long-term illnesses such as diabetes and asthma, but otherwise will pay out for in-patient tests, surgery, hospital accommodation and nursing. You can also include dental, optical and even alternative therapies at an extra cost.

If you go private without insurance you can expect to pay through the nose – a private MRI scan can cost up to £1,000 and a hip replacement up to £10,000 – but if you want comprehensive cover, premiums can also be steep.

We asked the comparison site Activequote.com to look at the best buys available for a 34-year-old male, non-smoker, living in Birmingham. These ranged from £10 a month for a basic policy from WPA up to £50-plus a month for a policy with no limits on outpatient cover from PruHealth.

The main factors that affect premiums are medical inflation (in particular advances in technology for heart and cancer treatment) and age, simply because as we get older we rely more on healthcare.

One problem for insurers is that when times are tough and people are looking to curb their spending, it is often seen as luxury. Mr Koopowitz says: "The problem is that it's the young and healthy who leave first and insurers are left with the older population who are claiming more and using those high-tech treatments more. Put that in the mix, and if more and more people pull out, you're only left with the really ill who won't be able to afford their premiums."

There are still ways you can save money, including making the most of any discount schemes on offer including optional excesses, no-claims discounts and voluntary six-week waits (meaning you only go private if the NHS cannot provide treatment within six weeks) which can reduce premiums dramatically without reducing your cover to a significant degree.

PruHealth offers its Vitality scheme, giving you reward points which can save you money on travel, your mobile phone bill and gym membership, and eventually to cut premiums on the proviso that you have regular health screens, eat healthily and keep fit.

You can find quotes on the usual comparison websites such as Moneysupermarket.com and Comparethemarket.com, or go through specialist brokers such as PMI Partners and ActiveQuote.com.

The devil, as always, is in the detail so check the limits that apply to each type of benefit when you're comparing policies. For example, there may be a limit on the amount the insurer will pay for a single condition or how long it will continue to cover it.

Cancer cover is one feature that will vary considerably from one insurer to another, with some offering full cancer cover and others limiting the length of time for which you can claim. You may be able to tailor the policy so that you are only covered for surgery or advanced cancer drugs.

Mark Didehvar, a 35-year-old, self- employed IT consultant, is typical of those who have taken up PMI.

"I think the NHS is great if you have a medical emergency, but sorting out less serious issues through the NHS can take a long time as you are subject to lengthy waiting periods for tests and results," Mr Didehvar says. "Being self-employed, I need to fix any medical issues as quick as possible in order to minimise time off work and get back to full health as quickly as possible."

Although he pays a fairly hefty £117 a month with Pruhealth, this includes cover for his wife and three sons, full cancer cover and no excess to pay.

Most PMI policies are modular, meaning you can start with the most comprehensive policy and then deselect elements of cover to cut the premium according to your budget.

Get to grips with how good the NHS is in your area and then base your priorities on this. So, if you have short NHS waiting lists you could save money on this, and if your main concern is in-patient cover – for lengthy stays in hospital – make sure you have comprehensive cover for this. You can also restrict your hospital choices to ensure that you don't pay for hospitals you will never use.

Never take shortcuts with your medical history, though, and always declare pre-existing conditions.

Shared responsibility or co-payment policies are another way to slash your premiums. With these you share the cost of treatment with the insurer: typically you pay 25 per cent and the insurer 75 per cent, subject to an agreed annual limit. Once the limit is reached the insurer will cover further costs.

Another option is a healthcare cash plan. With these you pay a monthly premium and can claim cash back on NHS or private treatment, up to an annual maximum limit.

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