Happy new year, and some potentially good news on PMI premiums.
The OFT has provisionally decided to refer the market for private healthcare to the Competition Commission. They are running a consultation exercise on this and the closing date for comments is 30 January 2012. This decision is the culmination of a detailed market report, and a literature review on competition methodology in the sector.
In essence, the OFT believe that they have identified four aspects of the market that can restrict competition and can prevent patients, GPs and PMI insurers choosing between competing service providers, including new entrants, on the basis of quality of services and value for money.
Their first concern is the lack of accessible, standardised and comparable information on the quality of private healthcare hospitals and consultants. There is simply no information available for a patient and insurer to differentiate between consultant performance and fees in order to judge whether they represent value for money. For PMI patients this can make it difficult for them to estimate the risk they take if their consultant's fees could be bigger than the maximum amount the insurer will allow.
The FSA is working with the ABI to ensure that insurers make clear the possibility of a top-up payment because of limits they apply to their policies. While this is welcome, the market may respond in a different way. It is quite possible to envisage a new cash plan market arising for top-ups in exactly the same way as has happened for excesses. Many customers prefer peace of mind and knowing that they will not have to pay for treatment, whichever consultant they go to see.
Second, the private hospital market is dominated by a few big players at national level, often with little or no choice of facilities at local level. This is exacerbated by patients' desire to be treated locally, regardless of the quality of service provided there. This is also a feature of the NHS and is illustrated by campaigns to keep local hospitals open even when they are not fit for purpose.
The effect on insurers is that they are forced to buy from a large number of hospitals to get nationwide coverage. And, because it is GPs that usually recommend consultants to patients, insurers have limited ability to send patients to different hospitals.
Third, consultants are often members of groups that negotiate for all their members. The report gives the example of anaesthetists - 44% of anaesthetists are part of the Anaesthetist Group. The OFT have received a number of complaints from patients who have not been able to find a local anaesthetist who will charge within their insurer's limits. The OFT suspects that the existence of such groups can reduce price competition in local markets.
Fourth, there are barriers that stop new entrants to the market. Here the OFT has quite a list. For example: existing hospital groups impose price rises on an insurer if they recognise a new entrant; and many consultants treat most of their private patients at one main hospital facility. Since patients are insured by different insurers, new entrants need to be recognised on all of the main PMI networks in order to attract a sufficient number of consultants to practice at their hospital.
Then there are incentives paid by private hospitals to consultants or GPs to encourage them to treat or refer higher numbers of their patients to their hospitals. This promises to be a very interesting process and the OFT have already flagged up their intention to impose information requirements and bans on hospitals using contracts that restrict new entrants.
Richard Walsh is a director and fellow of SAMI Consulting
The news that the ABI and British Medical Association (BMA) agreement on GP report (GPR) fees has broken down will usher in a period of uncertainty.
Lack of innovation investment in the UK insurance market has been highlighted by recognition of RGA's work in the US.
Protection business in 2012 and 2013 will be affected by events this year and some fundamental changes to the way customers policies are priced into the next. Richard Verdin explains.
Employee assistance programmes are in the spotlight due to a schizophrenic approach by government. But as Sue Weir points out, they are backed by solid research.
How will people buy insurance in future? Greg Becker visits the US for developments in online distribution.