What is the cost of your health?

Read the front pages of the national newspapers and it seems clear the NHS is in crisis. Certainly it is the victim of some classic bad management.

Critically ill patients have had operations cancelled, while the government has wasted half its first term in office without tackling the deep seated problems.

No wonder, then, that people seem to be tripping over each other in their hurry to buy private health insurance policies. The insurers report a big increase in policy take-up since the new year when the winter beds crisis hit the headlines. PPP, the second largest player in the market, has increased sales by 20% in the first half of this year compared with 1999.

But there is a financial health warning here. When I was a boy, a man used to appear on our television each night demonstrating that you could buy identical groceries in different stores at wildly varying prices.

His catchline at the end was always, ‘It pays to shop around, don’t it.’ No product illustrates the adage more effectively than insurance. The financial intermediaries Health Care Plus have compared the cost to a young family of taking out private healthcare. Where the cheapest comprehensive policy was offered by Permanent Health, at #87.36 monthly, the most expensive was from leading insurer Norwich Union with their similar Express cover at a mammoth #191.14. Neither of the two largest health insurers, BUPA and PPP, were particularly competitive.

The Association of Medical Insurance Intermediaries has carried out its own survey, looking this time at service standards. AMII members voted the best health insurers overall to be Permanent Health, OHRA and Clinicare.

It also reviewed how quickly the insurers responded to telephone and letter enquiries from clients. The best here were Permanent Health, Clinicare and OHRA – the worst were PPP, BUPA and RSA.

Not that this is the end of the story. Customers should also consider, says the association, whether insurers run free-phone services. If they do not – and many don’t – the client could pick up a hefty bill if left hanging on the line waiting for a decision on their desperately needed treatment. Not really the thing that a worried and ill person should have to face.

Even more important, the policies themselves have some major variations in cover. Where Permanent Health, for instance, includes overseas cover of up to half a million pounds, most of its competitors exclude periods abroad.

Meanwhile, BUPA is buying up hospitals – partly with the aim of using its own hospitals for its own patients. It is essential to recognise there is no guarantee that purchasers of some policies will be recompensed for private treatment in hospitals outside their insurers’ network.

Health insurance is a market likely to grow further, with more conventional insurers moving in. This should make pricing more competitive, while perhaps also driving down costs in the private hospital market. Hopefully this will not damage standards, though it would be pleasant to be reassured the government will focus on improving regulation of the growing private sector alongside modernising the NHS itself.

Not that private healthcare is the only product people should consider when protecting themselves against illness. At least as important is taking out a permanent health insurance (PHI) policy – more accurately termed income protection cover.

Here, the surprise is that more people do not take out the policy – only about three million out of a working population of 28 million have cover either through a personal or group scheme. Is this a rare case of the insurance industry underselling its products?

It is a question that is beginning to bother the providers too. Some simply do not offer PHI. Others say that customers are too worried about the cost. Another suggested that clients are generally unaware of PHI and are seduced by intermediaries into buying alternative but less suitable products – such as mortgage protection, credit card protection and critical illness cover.

While it is attractive to think of a payment of #100,000 if hit by one of the dreaded diseases – the type of benefit offered under a critical illness policy – this dwarfs alongside what is available from PHI cover. Someone aged 30 may only have to pay #24 monthly for a potential income out of the policy until retirement of over #1m. Many of those worried by cost should consider deferring payouts at the onset of illness rather than rejecting the insurance. For a young person without dependents, PHI is a far more relevant product than life assurance.

Insurers themselves are looking at how to reduce costs in operating PHI policies. One option is to focus less on paying the victims of illness or injury to be idle, instead picking up the bill for retraining them or even placing them into private healthcare to get them back into some kind of work.

Let us hope that when people consider private healthcare insurance they don’t ignore the other side of the illness coin – maintaining their income.

– Paul Gosling is the author of Changing Money published by Bowerdean

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