With private medical insurance premiums continuing to rise, Johanna Gornitzki finds out what options are available to those on a budget
Sales of private medical insurance (PMI) have remained relatively stagnant over the past few years, with the number of subscribers decreasing by only 1% in 2003 following a 0.4% fall the previous year, according to Laing & Buisson's latest annual survey. It is expected this trend will continue in 2004.
While medical innovations and the perceived complexity of the product have to an extent dampened the take-up of PMI, cost is still the main factor behind low sales figures.
"Cost is the biggest hurdle," says Stephen Walker, chief executive at Medical Insurance Services. And most consumers seem to agree, with the vast majority seeing PMI cover as an added luxury rather than a necessity.
If that's not enough, double-digit increases in average premiums during 1999 and 2000 - brought on by a rise in the cost of claims - have only added insult to injury.
On the backdrop of this, only 11.2% of the UK population currently have PMI. Even more discouraging is the fact that of those, less than 4% have bought their own cover; instead, it has been provided by their employer, says Nye Jones, distribution development manager at AXA PPP healthcare.
These figures clearly reflect the need for a more affordable option if low and middle income earners are ever going to be able to afford PMI. However, although this need may have become somewhat more exacerbated over the past couple of years, the concept is hardly new. In reality, for nearly three decades, providers have tried to develop and promote less expensive alternatives to the more comprehensive PMI traditionally on offer.
As Walker explains, budget PMI has always been around and it has become one of the most popular products within that genre. And it does sell. Out of total sales of PMI products, Walker says one in two products he recommends is a low-cost option.
Shared responsibility
In terms of product structure, there are several different approaches to budget plans. The traditional and, by and large the most common way of cutting cost, is to exclude any outpatient cost in the cover. This could reduce cost immensely as some 40% of the total cost is derived from these kinds of treatment, says Derry Andrews, director of UK PMI at Goodhealth.
Cutting out some of the 'fringe benefits' can also reduce the cost of a PMI policy. For example, a policy could cover inpatient and outpatient specialist fees but will not have additional benefits such as psychiatric cover and alternative medicine. These benefits will be the main difference between budget and comprehensive policies, says Claire Ginnelly, national sales manager at Standard Life Healthcare.
That said, there are also several other cost-cutting options available. Shared responsibility, excess plans, and premiums focusing on specific medical conditions are three alternative routes available for people looking for a low cost PMI product.
In April 2002, WPA introduced its shared responsibility cover. This concept forces the policyholder to take responsibility for a part of his or her treatment by linking them to the cost, explains Charlie MacEwan, head of communications at WPA. The client shares the cost of the treatment by contributing 25% towards every eligible claim, which will be capped to an agreed maximum limit. By sharing the burden of any potential cost, a premium could be reduced by up to 60%-70%.
Andrews also believes the concept of shared responsibility is a good one. "Shared responsibility is an extremely effective method of letting people know what they are doing. However, this approach has so far been much more successful in South Africa and the United States. This is because people in the UK still think the NHS can step in whenever they become ill," he says.
Another way of lowering premiums is by taking out an excess policy. This effectively leaves the client to pay the first part of a claim up to a certain limit, typically £1,500, £3,000 or £5,000, with the insurer covering any costs above that. This method is fairly easy to understand, and the higher the limit, the lower the premium.
While this method could slash costs by up to 90%, the high limits somewhat defeat the budget purpose, says Colin Boxall, director of e-xcellenthealth. "For someone on a budget, the excess is a lot of money. In that sense, a rich man is the only one that could afford a budget policy," he says.
Another way of getting around the cost issue is to focus on specific medical conditions. BUPA is one provider that has launched a policy that only pays out if a client suffers from either heart disease or cancer. By focusing on these two medical conditions, BUPA has managed to keep subscription costs down.
Looking ahead, it seems further product development is high on the agenda. AXA PPP healthcare is, for example, launching a new product in Q1 2005, which it hopes will fill the gap between what is currently offered by critical illness cover and PMI.
"Overall, you will see a lot of product development over the coming years, and insurers will have to adjust their products," says Walker.
However, no matter what new inventions may be launched in the market, BUPA's head of product development, Wojciech Dochan, warns that while PMI on a budget is a very practical proposition, it is a case of getting what you pay for. "Don't expect a deluxe all singing and all dancing product at a bargain basement price," he says.
Practical proposition
Needless to say, someone opting for a budget alternative will be looking at getting the most value for money. To do so, a bargain hunter will seriously have to consider what they want.
"When someone is looking for PMI cover and they have a limited budget they need to think about what they want the policy to do for them. Do they want to be able to see a specialist privately for an outpatient consultation, or are they happy to go via the NHS for this?" says Ginnelly.
"Once they have seen the specialist, do they want to be able to choose when they go into hospital? Are benefits such as physiotherapy and alternative medicine important to them?" she adds.
This may not seem as easy as it sounds, as there are a huge number of different policies currently in place. For example, Goodhealth's budget plan, Primary Three, would cost £53.02 per month for a single individual between the age of 25 and 29, whereas AXA PPP healthcare's soon-to-be launched PMI plan will cost £15.11 per month for someone between the age of 18 to 36. This stresses the importance of shopping around before making a decision. It also highlights the perceived complexity and confusion that surrounds budget plans.
"The problem, of course, is in the eye of the beholder - private medical insurance is rightly or wrongly regarded as fairly complex. There is a danger that consumers don't fully appreciate what they have bought," Andrews says.
Other insurers agree and emphasise the importance of advice when opting for cover, arguing that people must understand what they buy. And they must understand that insurance doesn't come cheap, whether it is a budget option or not.
While budget PMI was created to offer consumers a less expensive alternative to more comprehensive cover, very few consumers would treat it as a low-cost product. "A traditional budget PMI policy may not be regarded as budget by many people," Andrews adds.
"By and large, the general public has no concept of how much private medical treatment costs. Therefore insurance cover is often seen as an expensive luxury even when offered on a budget," he continues.
Take Goodhealth's budget product for example. A person between the age of 25 and 29 would have to pay £53.02 per month on a budget plan. While this may seem a lot, it is only one third of what that very same person would have had to pay if he had opted for the company's most extensive plan, which costs £135.15.
All in all, providers seem to agree that PMI on a budget is possible. There are already more than a handful of these products on offer, and more are likely to be launched in the near future as budget PMI seems to have become a success story in terms of sales. Whether or not consumers will find it cheap is another matter entirely.
COVER notes
• Only 11.2% of the UK population currently have PMI.
• Of these, less than 4% have bought their own cover, instead, it has been provided by their employer.
• The traditional and, by and large the most common way of cutting cost, is to exclude any outpatient cost in the cover.
