Safeguarding healthcare needs is crucial, but it comes at a price. Claire Ginnelly explains the ways to cut costs while remaining covered
Taken in isolation, private medical insurance (PMI) is actually less expensive than most people think.
Potentially, there are a vast number of benefits available for less than the cost of a meal out once a month.
But unfortunately, life is not as clear cut as that and taking one cost in isolation when there are so many demands on our money is not viable.
Most people do not have a lot of spare cash, which means ways to cut PMI costs are also being explored.
But why should people miss out on vital protection because of it? How many people in their thirties thought that saving for choices in their childrens' education would become as commonplace as it is in many households? And who could have predicted how the age of deference in healthcare would so rapidly fall away as ordinary people assumed control over when, where and even by whom they were treated? In short, things that were once seen as isolated incidents in financial planning have become much more commonplace, which means the budget gets squeezed further and money must be saved - but benefits must be protected.
Of course, one way to cut the cost of PMI would be to simply not have any.
Similarly, there are people who argue that saving what they were paying in PMI premiums for a rainy day is the way forward.
But how many people start with the best of intentions, only to then realise that the funds required to pay for the treatment is not there when most needed? Motivator Recent research conducted for Standard Life Healthcare among more than 2,000 adults, found that one in two people think they ought to have made adequate provision so they can get any medical care they want by the age of 30, so cutting out PMI, and not knowing what to replace it with might not be the ideal move.
One answer, for those thinking of saving money by cutting out PMI altogether, might be to switch plans.
Since Standard Life Healthcare pioneered an ongoing switch option for individual PMI just over a year ago, 6,500 people have utilised the service.
In most cases cutting costs may have been a major motivator, but improved benefits has also been important to switchers.
Other insurers are following suit and people can now make informed choices about saving money by changing insurers, without necessarily losing the benefit of previous underwriting.
For many, it can be a liberating experience to be able to look at something they are paying for, add greater value to it, get more benefits and still pay less money each month.
For those people who want a straightforward swap, it is almost like transferring a credit card balance and just as easy too.
Following on from the idea that some people might want to 'self insure', there is a mixed approach to saving and protection that really does fit in to some people's lifestyles.
For many, finding £1,000 or even £5,000 to cover medical costs is achievable, especially at a point where family or business commitments mean that having choices about when and where they are treated is critical.
An option where people can put away some money, almost like a self-administered health fund, and arrange back-up insurance with a higher than usual excess, is a viable choice.
Standard Life Healthcare's latest annual Attitudes to Healthcare survey (see box below) demonstrated how much people would be willing to pay towards their healthcare if it gave them the choices they wanted.
With the right back-up insurance, this is a modern piece of financial planning that keeps healthcare close to the centre of people's finances, just as health is close to the centre of their concerns.
Because of the nature of the UK healthcare system, as users of the service we rarely get to see how much things actually cost.
Many people know that a prescription may cost a little over £6 but that the drug may cost the NHS, £50.
But when it comes to medical care, and thinking twice about how affordable PMI is, most people do not know the true cost of medical procedures.
Modest excess The typical cost of a coronary artery bypass is around £13,500.
The Attitudes to Healthcare research found, however, that just one in four people knew this, while 69% guessed figures much lower - with 16% thinking it would be as low as £5,000.
Just 13% of people knew that a knee replacement would be around £9,500, but 81% guessed lower.
So, if self-insuring or selfpaying is considered, then back-up PMI insurance with a higher excess might be an ideal way of keeping cover at a reduced cost.
Other PMI options available for advisers to offer include different excess levels on comprehensive plans, or less comprehensive plans that still provide essential cover.
Even a modest excess level of a few hundred pounds, which many people are used to paying for home and car insurances, can shave off the pounds over a year.
Those considering private treatment will pay a consul tant's fee of around £100 from their own pockets even before they have thought about how they would fund the eventual treatment.
So an excess of around this level may not be a worry if it is saving them money on the premiums.
No-claims discounts can also help save money over time, and even more so if an introductory discount is offered at inception.
Finally, like all financial planning, it is about cutting one's cloth to suit.
Not everyone wants an all-singing, all-dancing plan with every conceivable bell and whistle.
But some people do.
For those, a top of the range plan gives them comfort and reassurance as well as a full-refund for treatments.
Some comprehensive plans offer a halfway house: loads of benefits including health and wellbeing advice, 24-hour advice lines, parental accommodation and private ambulance.
And then there are the plans that cover the essentials.
For many, it may not be essential to have travel insurance built in for example.
But being able to decide the date of an operation can be essential if there is child care to think about, jobs to worry about and teenagers left unattended if it is not all planned like a military operation.
That is where lower cost style plans can fit in.
Still offering robust cover, but for just a fraction of what some plans cost, they can be an entry-level plan for people to move up from, or the ideal plan for all their family, for all their needs.
Rather than worry about people constantly looking to get more and better PMI cover for less, the PMI industry must see it as a real compliment.
People want cover, they want to plan correctly to afford it, and they want innovation and ideas on how to make it affordable.
It is an opportunity for the market, and for intermediaries who see holistic financial planning as the way forward.
Claire Ginnelly is head of intermediary sales at Standard Life Healthcare °Ω The majority of people (58%) would pay up to, and in many cases much more than £1,000 for treatment.
• One third would pay £2,500 or more, one in five would pay £5,000 or more and 11% of people would pay up to £10,000 out of their own pockets rather than wait for the NHS.
• Three quarters (74%) of 16- 24 year olds would pay up to £1,000.
One in four (24%) of people would not pay for their own medical treatment.
• A sample of 2,036 of the adult population aged 16+ were interviewed by TNS using random digit dialling to incorporate unlisted numbers.
Interviewing was conducted during October 2004.
Facts and figures
COVER notes
• Since Standard Life Healthcare pioneered an ongoing switch option for individual PMI just over a year ago, 6,500 people have utilised the service.
• For many people, finding £1,000 or even £5,000 to cover medical costs is achievable, especially at a point where family or business commitments mean that having choices about when and where they are treated is critical.
