A spoonful of sugar to help pay for the medicine

Cash plans are cheaper than medical insurance, but don't treat them as a substitute, warns Laura Harding

Healthcare costs can add up unexpectedly, even if your treatment is carried out on the NHS. Charges for prescriptions, optical tests, physiotherapy and alternative therapies mean that healthcare is not as "free" as we like to think.

Medical insurance covers the full cost of going private but can be expensive. Healthcare cash plans are a far cheaper alternative and will help you recover at least some of the cost of NHS or private treatment. In contrast to a private healthcare policy, these plans do not require you to have a medical examination. But be warned, they are rarely an insurance panacea.

The main difference between the two is that cash-plan customers have to arrange the treatments, pay the bill and then reclaim some of the cost back, rather than having everything automatically covered by an insurance policy. Following the treatment, you send in a claim form, with receipts, for some or all of the cost. How much of this you get back will depend on the plan you choose. A cheaper, basic scheme will pay out less then a more expensive, comprehensive one.

All cash plans offer varying levels of cover and limits on how much they pay out, depending on how much you contribute. If you have a lot of prescriptions or frequently have costly alternative therapies then you should look for a plan that will cover as many of your costs as possible. If you have little idea of how much you will need, start off with a cheaper plan – there's no point paying a high premium if you rarely make a claim.

The best-known provider of healthcare cash plans, HSA, offers schemes to meet the cost of dental care, sight tests, glasses (including prescription sunglasses) and contact lenses, physiotherapy, osteopathy, acupuncture, homeopathy, chiropody and allergy testing, as well as giving you cash back if you go into hospital. Premiums start from less than £10 a month but the amount you can claim decreases if you are over 60.

HSA is by no means the only company out there, and there are various plans available for different age ranges. The Birmingham Hospital Saturday Fund value plan, for those under 35, costs £9 a month and allows you to claim £500 of medical expenses. The same provider's family plan for two adults and two children, all under 35, costs £17.50 a month or £210 a year but allows you to claim up to £1,210 a year.

Alternatively, there is the Bolton & District Hospital Saturday scheme, which costs £9 a month and offers an annual cash repayment of £458, including money for every night spent in hospital, maternity expenses, dental and optical care, as well as physiotherapy, osteopathy, acupuncture and chiropractic treatments. The Westfield Good For You plan is also a strong contender; it costs £10 a month and allows annual expenses of £499.

The Birmingham Hospital plan is not the only one available for families; schemes for one adult and one child, both costing less than £10 a month and offering costs of up to £620, are available from Healthshield and from Westfield. Both companies also offer family cover for two adults and two children for less than £20 a month with returns of more than £1,000. Most cash plan operators are non-profit-making organisations, allowing them to maximise payouts, especially when a large number of their customers neglect to make claims, leaving them with healthy cash reserves.

However, Peter Chadborn, from the independent financial adviser CBK, says that healthcare cash plans should be approached with caution. "They may be the right thing but then again you have to consider if that is really what you want. There could be other areas of protection that are more important and would be a better choice, so I would suggest people consider the wider implications.

"More relevant products [might include] private medical insurance, or income protection insurance for those most worried about replacing their income if they fall ill," he adds. "You should consider what it is that keeps you up at night and make sure you choose the product you really need."

And David Kuo, head of personal finance at the money website fool.co.uk, says it is important to remember that, if you take out a healthcare cash plan, you will still have to meet some of your own costs – you should not be lulled into a false sense of financial security. "Healthcare cash plans are a bargain-hunter's answer to private medical insurance," he says. "For some people, though, this is the difference between seeing a specialist immediately and being put on to the end of a specialist's long waiting list.

"The [plans] should not be seen as a cure-all, but as an aspirin to numb some of the financial pain."