Just what the doctor ordered: free cover from the company

Just what the doctor ordered: free cover from the company

Difficulties over the funding of the National Health Service are likely to continue regardless of which party wins, providing a cue for private insurance.

But while private medical insurance (PMI) offers the potentially strong attractions of being able to queue jump and a greater choice on care (a private room rather than a ward, for example), a decent policy for a family now costs the best part of pounds 1,000 a year.

However, half of those covered by PMI do not have to cough up for the premiums because the employer pays. The standard deal on medical insurance offered by an employer also provides cover at preferential rates for spouses and families, with the most generous covering them without charge too.

In most cases turning down such a medical insurance policy is looking a gift horse in the mouth. The "free" bit needs qualifying, however. While most employers do not charge their staff anything in premiums (even if they charge for families), you do pay tax on the perk. If you earn more than pounds 8,500, you pay tax on this benefit-in-kind at your highest rate, with the value of the benefit being what the company pays on your behalf.

But even for higher-rate taxpayers the cost is normally well worth it. Given the competitive terms offered, premiums are low for the cover provided.

Paul Johnston of Alexander Clay, an employee benefit consultant, says: "Broadly, people are getting a 40 per cent reduction in premium via a company-paid scheme as opposed to a private plan on a like-for-like basis. [Typically, they then pay just the tax on this 60 per cent.] This is largely because the insurer can spread the risk more effectively."

On the whole, the larger the scheme membership, the greater the potential for premium reductions, he adds. But even with very small schemes involving three or four members, cost savings of as much as 25 per cent are available.

Company-paid PMI scheme take-up rates are often as high as 95 per cent; a significant proportion of those who refuse to take part do so on ideological grounds, feeling that PMI cover provides an unfair advantage over others in society.

Nevertheless, schemes can vary from one company to another and employees should check exactly what is and is not covered to avoid disappointment at the claims stage.

Comprehensive cover at the top end of the market meets virtually all requirements for both in-patient and out-patient treatment. Some schemes, on the other hand, cater only for in-patients or provide cover only if treatment cannot be obtained on the NHS within six weeks. Some are also more restrictive about which hospitals can be used.

The size of a scheme can make a significant difference as to how individuals are treated in terms of premiums, the "underwriting". Most large and some medium-sized schemes cover pre-existing conditions, which privately bought insurance generally does not, and charge the same flat rate for all members, regardless of their age or medical history.

Both of these features can be a big advantage compared with taking out insurance for yourself.

Small schemes (under 50 people), on the other hand, normally use a similar approach to that employed in the individual insurance market. Pre-existing conditions are excluded and premiums are determined according to the age and medical history of the individual.

People offered membership of a small company scheme that excludes pre- existing conditions could therefore find themselves with a problem if they already have an individual plan and their health has deteriorated since this was taken out. They could cancel their individual plan but this might involve cancelling cover for a condition that will be excluded from the new company policy, because it has now become a pre-existing condition.

Those whose employers do not have a group PMI scheme could do worse than suggest they start one. In theory, there is little reason why any company offering a group pension scheme should not be willing to offer a group PMI scheme.

In practice, however, under half do so. Employers can offset the cost of PMI schemes against corporation tax and stand to benefit from them in a number of ways. Employee benefit consultants talk of PMI as being a valuable tool for recruiting and retaining staff and helping to ensure that a business suffers minimum disruption when staff are ill.

An employee treated privately for a simple hernia operation, for example, can normally be back at work within 10 days of having it diagnosed by a doctor if private treatment is available. Someone receiving the same operation on the NHS, on the other hand, could be off work for three months.

Furthermore, employees in private wards, unlike those in NHS wards, can use phones and faxes, thus offering the arguable benefit of enabling them to make a contribution even while convalescing.

The main insurers in the company PMI market are Bupa 0345 515515), PPP (01892 512345), Norwich Union (0114 253 9820), Prime Health (0800 779955), Cigna, (01475 492222), Royal & Sun Alliance (01202 292464) WPA (0500 414242), Guardian Health (01303 853409).