Pay and go

With hospital waiting lists growing and private medical insurance (PMI) premiums increasing faster than inflation, patients are now looking for more flexible treatment alternatives. Patients want to feel more in control and have some kind of choice and certainty about their treatment.

The pay-as-you-go healthcare market has matured in the last two years and with increasing awareness it is now seen as the third option for patients needing urgent routine operations.

In 2000, approximately 200,000 British patients chose to pay for their own medical treatment as opposed to waiting for the NHS or using PMI to cover the cost of treatment ' an increase of 20,000 patients from 1999. Approximately 20% of self-pay admissions were for cosmetic surgery, the remainder included elective surgery such as hip and knee replacements, hernia repairs, wisdom teeth extractions and cataracts.

The revenue created by self-payers has been particularly strong over recent years, but is lower than in the early 1980s when PMI started to take off.

The proportion of people in England and Wales who paid for their own treatment fell from 28% in 1981 to just 13% in 1992/93 rising again to 19% in 1997/98. In 1999, this generated an estimated 22.5% of total private healthcare revenue.

These figures are set to increase further over the next couple of years, for several reasons. To start with, PMI premiums increased by an average of 30% in 2001, with the knock-on effect of pricing some individuals out of the market. This increase has made it difficult for many individuals to afford the hefty premiums, particularly those aged over 60.

However, once an individual has decided to stop paying insurance premiums, it can be more difficult for them to obtain cover again, not only due to the high premiums attributed to the older age groups, but also the cut-off age for new entries. Not many insurers provide cover for those aged over 75 and the likelihood of personal exclusions being included due to a greater chance of pre-existing medical conditions is also larger.

The individual market has remained static with only company and group schemes still on the increase. Many people are now opting to pay for private treatment as and when needed, rather than buying an insurance policy they may never use.

Last year, it was reported that £4bn of healthcare was paid for by credit card. For those patients who choose to finance their own treatment, they are likely to be charged less than an insurance company ' on some occasions the difference can be as much as 30%. One reason for this is that if a patient is self paying they are required to pay the hospital in advance, prior to the admission date or on admittance, whereas insurance companies make payment to the hospital upon receipt of the invoice, which can take several weeks. With a self payer the hospital will not have to wait and therefore most hospitals may be willing to negotiate a better price.

Saving money

For those cancelling their PMI policy in favour of self pay, there are several saving options available to finance their future healthcare.

There are vast arrays of savings plans available through banks and building societies and other financial services providers ' including internet banks ' that offer a favourable interest rate for investors. However, for those who wish to save on a tax-free basis an Isa or a mini-cash Isa are feasible options.

Yet not all accounts offer instant access and by choosing this route it can make it more difficult for individuals who want or need to have treatment and need to get their hands on their money. If the Isa has a notice period of 30, 60 or 90 days it may not be possible to have the treatment as quickly as initially thought, unless payment is first made by credit card. Other accounts also state a maximum amount that can be invested into the account, for example a mini-cash Isa only allows a maximum of £3,000 to be invested in any one tax year.

Even if medical care is not needed immediately, plans for funding future healthcare should still be a consideration, ensuring the funds are available as and when required.

However, how do you know how much to save and how much treatments will cost? The majority of the public are unaware of how much private treatment costs and then struggle to find the full amount when treatment is required. This is where problems may be encountered with Isas or mini-cash Isas due to the financial restrictions. In such cases, some individuals have come to rely on family to assist financially or, on occasion, approached banks and building societies for loans.

Loans for treatment are available through either a bank or a building society. Often these will charge high-interest rates and patients may not feel comfortable discussing their state of health with their bank. Alternatively, there are other companies who offer loans (subject to status) specifically for health purposes.

Additionally some private hospital groups offer interest-free credit arrangements, although there are certain restrictions, such as age. However, the interest-free credit may only be for a certain period, such as six months, after which you will also have to pay interest on the loan.

Combining the two

If torn between insurance and the self-pay route there are PMI providers that combine the two, making premiums more affordable. The market is now full of high excess schemes where a member chooses to pay a certain amount towards their claim, in order to receive a reduction on their annual premium. High excess schemes have become more popular over recent years, especially since the abolition of tax relief for the over 60s.

Excess levels range from £100 to £5,000 sometimes higher, offering discounts on premiums of 50% or more. However, excesses are applied per person per year or, in some cases, per claim or medical condition and so it is essential to know how these excesses work as they do differ from insurer to insurer.

It is also important to know how the excess works so the funds needed are in reserve. Once the excess has been paid in full, the insurance policy should then provide you with full cover for possible eventualities that may occur in the same year ' depending on how the policy works.

Some insurers are now introducing 'co-payment' plans, sometimes known as 'shared responsibility' where a percentage of each claim is paid up to a certain limit. So for example, for each claim made the policyholder may be responsible for 25% of costs up to a certain maximum agreed limit by the insurer, such as £1,000. The insurer will thereafter provide cover once the £1,000 has been paid.

Asking the right questions

The average cost of an operation is between £2,000 and £3,000. For a major or complex major operation the cost could be four or five times this amount (see table).

The cost of going private can vary from hospital to hospital and can even depend on certain parts of the country ' research has previously shown that prices differ considerably depending on the area. How can the consumer know the quoted price is fair or the 'going rate', or if there may be other hidden costs? For example, not all hospitals include pre and post- operative tests and further charges for extra nights spent in hospital may not be included within the initial 'package' price.

As a result, patients, who thought everything was included in the original price, could be faced with another bill. This can prove bewildering for those who do not know which questions to ask.

Patients may also be unaware of the choices available. More often than not the patient will go to the private hospital where their consultant works. Not many patients are aware that some NHS hospitals now have private patient units, or accept private patients on NHS wards. Sometimes the price difference between a private and NHS hospital can be a fair percentage for the same procedure and even the same consultant.

There are now several companies throughout the UK that can assist the patient when making these decisions and provide information about which hospitals will perform the operation they require, at what price and what this includes. Help is also at hand to assist with co-ordinating treatment and making the initial arrangements.

Package prices can often be negotiated ' these particular companies have found the 'self-pay' market is a very competitive one and some hospitals negotiate on cost in order to increase occupancy.

The initial legwork will be done for the patient with recommendations for all areas of the UK, and sometimes details on hospitals outside the UK being provided.

Neil Armitage is marketing director at Go Private