Special Report on Private Health: Innovations in medical insurance: Rising hospital costs and more claims have led insurance companies to tailor their policies. Alison Eadie reports

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THE RECESSION caused the number of people covered by private medical insurance (PMI) to fall from a peak of 7.5 million in 1990 as companies made employees redundant and individuals tightened their belts. More than six million people remain covered and the market is growing again, if slowly.

Bupa, market leader with 46 per cent share, enjoyed a resurgence of enquiries and new members last year. Shaun Astley, director for member services, said demand was coming from new quarters with young people now joining straight out of university. 'Healthcare is being pushed up the dinner party agenda. It is being talked about because of the changes in the National Health Service,' he said.

New recruits are opting for new products. Bupa, in common with other medical insurers, has diversified its range of products in recent years to appeal to all ages and all income brackets. The most popular options are LocalCare and excess clauses, whereby the subscriber agrees to pay the first pounds 100 or so of medical bills before insurance kicks in. LocalCare ties a subscriber to treatment in a specified local hospital and cuts the price of the policy by about 15 per cent.

Mr Astley said consumers were becoming more discerning about medical insurance. Some 1,500 to 2,000 Bupa members switch to other Bupa policies each month, some going up and some down the price scale.

The proliferation of products and entry of new players has led to a market with some 30 insurers offering more than 400 variations of PMI. The market is still dominated by Bupa and Private Patients Plan with 28 per cent share. Although some insurers have quit - most notably London and Edinburgh and Eagle Star - new ones are still entering. Clinicare linked up with a French insurer, Strasbourgeoise, to market three new plans last June and Cornhill joined the fray, via brokers only, in September.

Stanley Browne, managing director of Private Medicine Intermediaries, the Cheshire based independent healthcare adviser, believes the arrival of new insurers is very healthy. Continental insurers have a good track record of writing health insurance so that the premiums do not rise precipitously, he said. He adds that insurers have come closer to meeting the needs of the market in recent years, particularly through the introduction of helplines allowing subscribers or would-be subscribers to ask about existing medical conditions or other areas of uncertainty.

The choice available to consumers is wide. In the de luxe bracket is Clinicare's Carte Blanche. It is unusual as it is designed to be used for health maintenance purposes rather than as a conventional insurance product. As well as in-patient care it covers primary care including dental and opthalmic fees, spectacles and contact lenses, alternative therapies, private GP fees, prescription charges and private (normal) maternity care.

A family of two adults in their early thirties with two young children living outside London would pay pounds 1,226.64 annual premium. Clinicare estimates that without insurance the family would pay out pounds 889.25 a year on dentists, opticians, prescriptions and osteopaths.

In the no frills bracket is PPP's Valuehealth. Exclusions are outpatient care, unless linked to a stay in hospital, psychiatric treatment and oral surgery. There is an annual ceiling of pounds 10,000 on treatment and only the cheaper hospitals (bands C and D) can be used. Two adults of 35 would pay pounds 11.90 a month each and pounds 4.30 a month for each child.

Increasing competition between insurers and between NHS hospitals and the private sector for patients has caused insurers to tweak their policies to make them more responsive to changes in the marketplace. Norwich Union last summer launched its Trust Care policy, giving private patients access to NHS pay-beds in 63 'preferred hospitals', but excluding treatment in a private hospital. Cover includes in and out-patient consultations, minor surgery performed by a GP, hospice care up to 10 days and hospital accommodation for a parent with a child under the age of nine. A family of two adults aged 34 with two children living in Norwich would pay pounds 64.92 a month.

Prime Health, which targets the individual market, has thrown several extras into its Universal Health Plan, launched last month. Marian Slater of Prime Health said the aim was to produce one product incorporating what consumers most wanted, as revealed by market research. Universal includes private consultations to the value of pounds 250 a year, dental treatment up to pounds 1,000 a year and up to pounds 5,000 for dental injuries, cash of pounds 50 a night for a hospital stay, private hospital treatment subject to a six-week wait on the NHS, personal accident cover of pounds 50,000 for permanent disability and pounds 250 maternity benefit per live birth. The cost for a family with adults in their thirties would be pounds 60.10 monthly or pounds 667.10 annually.

Medical insurers are trying to formulate new policies to overcome past sources of grievance. No claims bonuses are now offered by a few.

Exclusions of existing medical conditions are another bone of contention. Clinicare, through loading the policy, believes it offers full cover to more than 80 per cent of those individuals declined by other insurers. It recently covered a woman aged 35 suffering from Crohn's disease, subject to 150 per cent loading. She had been turned down by several other insurers.

The way through the minefield is not easy. Consumers are becoming more knowledgeable and have a better chance of finding the right policy at the right price.

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