Picture this - Mr and Mrs Peterson come to you seeking advice. They are growing older and are concer...
Picture this - Mr and Mrs Peterson come to you seeking advice. They are growing older and are concerned about their health and long-term security should one of them fall ill. For many years they have protected themselves by taking out private medical insurance (PMI), but their premium has risen so much they now pay more for PMI than they do their utility bills. Since the Petersons have not had to use independent healthcare so far, they are seriously questioning the value of continuing with their current insurance scheme.
The Petersons are determined that they want to retain the security of knowing they could be treated privately should the need arise but their PMI premium is a larger financial commitment than they are prepared to make. What can you advise?
Self-pay, whereby patients who do not have PMI can pay for individual treatments in the independent sector, has traditionally been viewed warily by IFAs. As an alternative to PMI, self-pay schemes have been construed as a threat to the normal business of insurance brokers. However, with a new wave of high excess, low premium insurance products meeting the demands of 21st century consumers, self-pay options play a crucial supporting role to PMI and can be used in tandem with it.
IFAs can approach them with confidence rather than caution, and the combination of self-pay and high excess insurance can be an ideal alternative to traditional PMI for people such as the Petersons.
Changing attitudes
The demand for more accessible PMI has been great. Attitudes to health are changing, with healthcare increasingly becoming a consumer issue. People are now far more interested in looking after their health and are willing to pay more to maintain their health than ever before, whether it is for vitamin supplements, gym membership or treatment in the independent sector.
Perhaps due to the money they are spending, this increasing investment in health is accompanied by a willingness to make lifestyle changes, but above all, by the desire to make informed decisions. Witness the raft of consumer magazine articles and television programmes that address health matters, and the vast number of websites offering information about ailments, guidance on prevention and sources for cures.
One of the latest products aimed at making the most of the burgeoning interest in healthcare is Standard Life Healthcare's 'Choices' launched last month. It is just one of a growing line of high excess products being made available to consumers who are facing higher premiums for PMI.
Choices can slash premiums by up to 80% (see Cover April 2000) for policyholders willing to pay the first £5,000 of any treatment. For the timid who do not want to go quite so far, smaller discounts are available if the first £2,500 or £1,000 is paid by individuals.
Customer excesses
Standard Life is not the first to put a high excess health insurance product on the market. Since last September, WPA has offered big premium reductions to customers who are willing to pay the first £1,500. BUPA's Fixed Price Plus offers savings on premiums if policyholders agree to pay excesses of £1,000 or £2,000.
By asking patients to pay as much as the first £5,000 of the cost of treatment, insurance companies effectively encourage the use of self-pay. Many of the most common conditions treated at private hospitals cost less than this. As a rough guideline, it is estimated that most cataracts can be treated for £1,950-£2,600, hernia operations £1,350-£1,700 and varicose vein treatments in the area of £1,300- £1,725. But it must be stressed that prices can and often do vary outside the stated parameters, given that each individual is different and every person's needs and case history must be taken into consideration.
Given the cost of treatment for less serious conditions, people who have taken out high excess policies will use self-pay schemes, but if people's worst fears come true and severe illness strikes, the high excess products offer the assurance the necessary treatment will be available. For example, if a heart operation is needed or if major cancer treatment required, insurers will pick up most of the bill.
To help people budget for self-pay or high excesses, many products include an optional money management aid such as an interest-free loan. Patients usually have to put down a deposit to qualify for interest-free borrowing and they must repay within a set period, say 12 months. Loans over a longer period will be charged interest 15.9% but the interest-free option allows people to budget effectively and reduces financial worry at a time when they are already facing great concerns.
A question many people who are considering using self-pay ask is, "What if something goes wrong? How much extra will I have to pay?" To alleviate concerns and give people an honest statement of how much money they will have to spend, many providers offer a fixed guaranteed price for treatments.
Each individual undergoes a personal assessment by a consultant and, based on that, will be given a figure that will include every part of their treatment. There are no hidden costs - accommodation, nursing care, operating theatre fees, drugs, dressings, x-rays, tests and consultant fees are all included. The price is usually guaranteed, even if patients have to stay in hospital longer than was expected, and the guarantee extends to 30 days after leaving hospital, so that even if there is a complication there will be no extra charge.
Several of the high excess insurers offer policyholders the option of including a savings element in the premium, where money is invested in a dedicated bank or building society account or in the company's unit trusts. This is all part and parcel of the consumer-focused approach, making it easy and affordable to access independent healthcare.
Meteoric growth
Even before any impact by the new insurance products becomes evident, self-pay is growing at a remarkable pace. It now accounts for approximately a quarter of our revenues and the increase shows no signs of slowing - in fact, quite the opposite.
One of the factors stimulating the meteoric growth of self-pay is the same driver as the one which provided the incentive to offer the high excess products in the first place - rising premiums. An ageing population is taking its toll on the industry and forcing premiums up. There are many examples of patients who, preferring not to wait for treatment and concerned about rising premiums as they get older, choose to take an alternative route to PMI, opting instead for the simplicity of self-pay. Abolition of tax relief on private medical insurance has been another motivating factor encouraging people to switch from traditional PMI.
Dilemmas such as Mr and Mrs Peterson's, whereby their PMI premiums have risen more than they are willing to pay and yet they do not want to wait for treatment, could be resolved by a series of options, including policy excesses and self-pay.
The new-style PMI products will undoubtedly prove popular with many, especially when combined with self-pay. For others self-pay alone will be a simple alternative. Both enable people such as the Petersons to find new ways to budget. They are therefore likely to attract increasing numbers of customers who, while conscious of their long-term health, also retain a balanced approach to their lives and expenditure.
Geoff Benn is national business development manager at Nuffield Hospitals
