There are a number of points young families must consider when taking out private medical insurance, says Dermot Cox
Young families do not represent the core market for private medical insurance (PMI), particularly on individual rather than company schemes. The correlation between ageing and falling ill is so strong that medical insurance is bought predominantly by middle-aged and older people. Although premiums are much higher for older people, the perceived need becomes more obvious and in many cases financial resources are less constrained as mortgages have been paid off.
Rapid access
A substantial proportion of young families are saved from having to make choices about PMI because it is a benefit provided by their employers. One important category where this does not apply is for the self-employed, who cannot afford any delays in receiving medical treatment. Similarly, public sector workers are less likely to receive PMI as a benefit than those in the private sector.
The Government's reforms of the NHS have the potential to change the balance of the factors to be considered when deciding whether to buy PMI. Currently, the main benefit people are buying is rapid access to treatment compared to an NHS alternative that is free but suffers from severe systematic delays.
The Government's Choices initiative is being underpinned by substantial investments in new diagnostic and treatment centres and, in the short-term, bulk purchases from the private sector. If waiting lists do disappear as a consequence, many people, including young families, will decide that PMI is not essential. While older people sense that they may become less of a priority to the NHS, young adults and children know that they have a good chance of receiving high levels of attention.
However, the reality is that waiting lists still exist and some young families without access to a group scheme will want the security of rapid treatment and the high standards of service PMI provides. For the minority of wealthy families, the choice of policy will not be difficult as they can select the most comprehensive cover available. For the majority however, there will be more complex decisions to be made regarding how to balance the financial commitment against the type of cover needed.
What it boils down to is taking the maximum theoretical level of cover and deciding which approaches to limiting that cover are acceptable. One of the first questions a young family will have to decide is whether to cover all the members of the family or certain members only. This part should be simple. If it is important that one parent has medical insurance, it is hard to see why the same should not apply to the other parent. The additional premiums for covering children are so low, because their claims rates are low, that the small saving from excluding them is unlikely to be worthwhile.
Different options
The most common conditions for which children require treatment are in the field of ear, nose and throat disorders - specifically tonsils, adenoids and grommets. For babies and very young children, any hospital treatment is likely to be as an emergency case and it is important that PMI subscribers know that they and their children are not covered for emergency treatment.
It is also worth reminding a young family that if they have plans for any more children, most PMI policies do not cover private treatment for pregnancy and childbirth. Most will however, pay the accommodation costs of one parent staying in hospital with an insured child up to a certain age, usually 11 or 14.
PMI providers offer many different options to try and get the costs down to levels that more people are willing to pay. These include paying an excess or restricting the range of hospitals covered, often excluding major NHS teaching hospitals and private hospitals in London. Other options include cover for treatment in hospital only, leaving the subscriber to pay for consultations and tests before or after treatment. Another common option is paying for treatment only if the NHS fails to provide it within six weeks and covering certain conditions only, such as heart disease and cancer.
Potential PMI buyers should remember it is unwise to select a cheaper policy that restricts the choice of hospitals. This applies particularly to a family with children. Paediatrics is a specialist field and many of the hospitals run by the private groups do not have these capabilities and exclude children up to the age of eight or 12.
The restricted networks operated by some insurers or for certain policies tend to exclude the NHS Trust hospitals that do have paediatric units, especially in London. Great Ormond Street Hospital is, of course, the most famous, but there are others. A common misconception about private medical treatment is that it only takes place in private sector hospitals. Potential subscribers need to be informed that the large NHS Trust hospitals have private patient units that offer an attractive combination of high level expertise and resources with the comfort of private facilities.
Similarly, cutting out cover for consultations and tests before or after hospital treatment is not recommended. This phase can be remarkably expensive. By choosing this option subscribers are making an ill-informed gamble about the number of tests and consultations they might need. In order to reduce premiums, it may be better to pay an excess and have all consultations and treatment covered.
Comprehensive
One recommendation is to choose a basic comprehensive policy, with maximum coverage of hospitals, both private and NHS, including the specialist London teaching hospitals. As it stands this will be an expensive option. To reduce the cost, one option is to accept an excess. Several insurers offer high excess policies and the philosophy is that most people who are in the market for private health can absorb a financial hit of a few hundred pounds and perhaps one or two thousand pounds. However, they would value being protected for medical conditions requiring treatment costing many thousands of pounds.
Let's look at some options based on a family of four where both parents are aged 35 and there are two children, aged four and seven. They live in Beaconsfield, outside London, but within easy access of London hospitals if necessary. For each policy a zero excess option and a high excess option is illustrated. Some policies do not go above a low excess level. Some specifically high excess policies have options as high as £5,000. That may be considered too extreme and a range of £1,000 to £3,000 is more realistic. It is also recommended that the excess applies to the parents only. Children's premiums are so low that the benefit of applying an excess to them is small. All premiums stated were only correct at the time of going to press.
WPA pioneered high excess PMI with XS Health. It has a very comprehensive hospital coverage, with almost no network restrictions. The lowest excess option under XS Health is £1,500, which has to apply to the children as well, and would cost the monthly equivalent of £34.78, although it has to be paid annually in advance. Other policies give a 5% discount for annual payment.
The competitiveness of this policy can be seen in the comparison with the rates for WPA's flagship policy, Flexible Health. Here, the standard and outpatient option must be chosen to obtain comprehensive cover. There is a no excess option, which would cost £156.59 a month. A £1,000 excess for the parents only would cost £109.43 a month and a £3,000 excess £95.99. Compared to XS Health, that is nearly three times the premium for a policy requiring you to pay twice as high an excess.
AXA PPP healthcare's Premier is a conventional comprehensive policy that offers competitive rates: £132.69 monthly with no excess, falling to £79.24 with the highest excess option, which is still fairly low, of £500. AXA PPP healthcare's network is smaller than many, at around 300 hospitals, but it includes key London NHS hospitals such as Great Ormond Street.
BUPA's Heartbeat Healthcare Select 2 option is £171.21 with no excess, £91.48 with £1,000 excess and £69.83 with £2,000 excess. These rates are for their full nationwide hospital network.
Competitive
Exeter Friendly Society's Exeter Care has a selling point that is highly attractive to our young family: premiums remain at the age level at which you join. People joining at 35 are therefore locking in at low rates. Perhaps not surprisingly, initial premium rates are fairly high compared to some others. Exeter's Preferred Plan with full hospital coverage is £252.63 monthly with no excess or £164.21 with £1,000 excess. This policy is included even though it is not fully comprehensive within our definition, as there are cash limits on outpatient consultations and tests.
Standard Life's Primecare Saver with full hospital coverage is £151.31 with no excess, falling to £113.48 with the maximum, but low, £250 excess. These rates include a no-claims discount and if you actually claim they will increase substantially.
Norwich Union's Select Care is £228.90 a month with no excess. Adding a £1,000 excess does not have a great impact however, reducing the premium to £176.25.
For young families looking for cover, it is important to know what to look for. Where cost is a deciding factor, it may be better to take an excess to reduce premiums than limit the coverage of hospitals or the cover for consultations and tests. After all, safeguarding the health of the family is the most important factor.
Dermot Cox is a director of carehealth.co.uk
Cover notes
• It is worthwhile paying an additional premium for children as the cost to include them is very low.
• Choosing an excess is a good way of reducing the cost of premiums rather than restricting access to hospitals.
• Cutting out cover for consultations and tests before or after hospital treatment is not recommended as this can be expensive.
