Is private health cover really worth the cost?

The creaking NHS has sparked a rise in the popularity of medical insurance

Thousands of Britons will give up cigarettes for good tomorrow, as new laws banning smoking in public places kickstart a health drive across much of the country.

But even the most healthy of us occasionally need to call on the services of a doctor or hospital. And in spite of billions of additional pounds having been pumped into the National Health Service since New Labour came to power 10 years ago, it is still often difficult to get appointments and treatment as and when you need them.

The Government's latest guarantee to the public is that all GP referrals will be dealt with inside 18 weeks (four months).

This promise is simply not good enough for some. As a result, the number of people taking out personal private medical insurance (PMI) policies increased for the first time in six years in 2006, as increasing numbers of people decided to arm themselves with a back-up in the event that the NHS lets them down.

"People are concerned about the cleanliness of NHS facilities, and they're not impressed by the idea of an 18-week wait," says Phil Taylor, the chairman of the Association of Medical Insurance Intermediaries (AMII). "We're seeing a lot more younger people applying too."

The problem, however, is the cost. Medical inflation – the cost of buying treatment in the private market – has increased significantly over the past few years, and is currently running at around 7.5 per cent a year, which is twice the rate of normal inflation. This has sent PMI premiums soaring – particularly on comprehensive policies.

In a bid to ensure consumers are not priced out of the market, insurers have been busy working on ways to reduce the costs of PMI policies. The result has been the launch of growing numbers of co-payment and cash plan policies, which contribute towards medical costs, but which also leave the patient to pick up some of the bill.

Others have begun offering customers the chance to opt for bigger excesses or to exclude certain conditions from their policy. However, Taylor warns customers to be careful before agreeing to exclusions.

"BCWA has a very competitive plan which has an option to limit cancer payouts to £50,000," he says. "This is a more sensible way of keeping the costs down."

Although there are a growing number of comparison sites, such as moneysupermarket.com, which allow you to shop around for PMI policies online, it makes sense to buy from a broker if you have had any previous medical conditions – because this is likely to affect who will and won't cover you.

"People are never going to be able to get around the whole market on their own," says Taylor. "And it's an incredibly complex market."

He warns that customers need to understand whether their insurer offers fully underwritten PMI – which means they will not be covered for any pre-existing medical conditions – or whether they have a moratorium, which means they will cover you for a condition if it has not recurred over the past two years. Most insurers offer both types of cover, but different plans will suit different patients, depending on your medical history.

Richard Mason, the director of insurance at moneysupermarket.com, says some people may be better suited to taking out a critical illness, income protection or life insurance product, rather than PMI, because the NHS still meets most patients' basic needs.

Mason also suggests seeing a financial adviser, who should understand the market and can offer you professional advice.

To find an independent financial adviser in your area, visit www.unbiased.co.uk

Private matters: The cost of going under cover

CASH PLANS

These tend to provide the cheapest cover, but are the least comprehensive. They work by paying out a lump sum, up to a certain limit, whenever you make a hospital, dentist, optician or physiotherapist visit, and can cost as little as £1 a week. Unlike regular PMI policies, cash plans will not pay for you to have an operation in a private hospital, but they will make a payment for every night you spend as an in-patient, and will help with the costs of one-off healthcare needs. Ultimately, these are not much use if you discover you must wait four months for an operation and want to go private. But they give you financial support for minor and routine health issues. Bupa, Westfield and HSA are amongst the organisations that offer the plans.

CO-PAYMENT

The next step up the chain is to consider a co-payment plan, which keeps premiums low by only agreeing to pay a percentage of any claim you make. Exeter Friendly Society and WPA are the only two providers to offer these types of PMI plans. WPA's shared responsibility plan leaves the patient to pick up 25 per cent of any claim, up to a limit of between £500 and £5,000 a year. The higher you set your annual claims limit (i.e. the maximum amount that you are prepared to pay), the lower your premium.

Exeter Friendly Society offers a similar plan, but also has a 50-50 option, where you pay half of a claim, up to a certain limit. The 25 per cent plan is subject to an annual cap of £5,000, while the 50 per cent plan has a limit of £10,000 – after which the insurer will pick up the rest of the bill. Exeter also lets you stay at the age you join. "Many insurers put up your premium each year as you get older," says Chris Barkell of Exeter. "But with us, if you join at 40, you'll always be charged the premiums of a 40-year old." Customers can further reduce their premiums by paying by direct debit.

COMPREHENSIVE

To be sure you'll receive a payout to cover your costs in a medical emergency, opt for a comprehensive PMI policy. But these can cost upwards of £1,000 a year. The easiest ways to reduce your premiums are to opt for a larger excess or to accept certain exclusions – such as cover for cancer – from your policy.

Prudential recently launched an innovative product which allows you to reduce your premium by leading a healthier lifestyle. "If you do no activity, your premium will gradually increase each year," says Shaun Matisonn, the chief executive of PruHealth. "But if you do a lot, you get a material reduction – as much as 100 per cent." Customers get credits by going to the gym, having health check-ups or making changes to their lifestyle – such as giving up smoking.