People who signed up to a private medical insurance policy to get free gym membership have been enraged by a second change to the terms and conditions in two years which mean they will end up paying hundreds of pounds extra to keep fit.

The latest change means PruHealth, part of the insurance group Prudential, has diminished the discounts on gym membership every year since the launch of its policies in the spring of 2007. The insurer, which promoted its policies with the slogan "Why pay for the gym?", initially rewarded policyholders with discounts on the cost of gym membership: those who worked out a lot could wipe out the entire cost.

Then last year PruHealth switched the straightforward discounts for Vitality points, which could be earned through having health screens, buying healthy food and visiting the gym. Those earning enough points could still substantially reduce the cost of using the gym, while those attaining Platinum status would still get free membership.

PruHealth also introduced additional, more leisure-orientated benefits, such as free cinema tickets.

But last month the insurer wrote again to policyholders to tell them the maximum gym membership discount they will soon be able to get is 25% of the total cost. The move will apply from the next renewal date of their policy.

Dave Priestly, sales director for PruHealth, said the change was to keep premiums as low as possible for all private medical insurance policyholders. "If we were to keep the gym offer unchanged, premiums for all PruHealth members would go up by between 5% and 15% depending on the policy, the policyholder's personal circumstances and their level of engagement in our range of health and wellbeing activities. And this figure would again increase year on year to allow for age and medical inflation changes," he said.

He added the proportion of policyholders getting discounts on their gym membership was small, and that such discounts were expensive to provide in comparison with other benefi ts off ered by the policies.

"Only 12% of our policyholders take advantage of discounted gym membership, and the percentage of members within that group who benefit from sizable discounts is much smaller than that," he says.

"It means that the other policyholders [who don't belong to a gym] are subsidising them." He pointed out that the flat-rate 25% discount means 23% of gym members who haven't earned many Vitality points, and are therefore classed as having Bronze status, will be better off under the new terms.

But this is no consolation to those who will pay more.

Gerry Elias, a member of the PruHealth PMI scheme, said: "I am exasperated that they are again moving the goalposts on gym membership fees and, in doing so, abandoning their fundamental marketing position – the more you visit the gym, the lower fees you will pay because you should be healthier and therefore a lesser claim risk.

"[The latest change] will mean an extra £540 a year for me, which isn't a paltry amount by any measure."

Another policyholder, who preferred to remain anonymous, said his Virgin Active fees would go up by 400% as a result of the changes, forcing him to quit his gym and his PruHealth policy.

He adds: "Why, when the government is desperate to promote exercise and wellbeing, and therefore cut down on National Health costs, is [PruHealth] single-handedly undermining the government's health policy for thousands of citizens?"

Alan Lakey, of independent financial adviser Highclere Financial Services, says the initial concept of the policy was very strong: to encourage those buying it to maintain their health and thereby keep claims low by going to the gym. But now "they have taken a very good contract and are muddying the waters".

Lakey says that he recommended the PruHealth policy to his biggest corporate client three years ago, because many of the client's staff were gym members and could benefi t from the discounts.

But the policy is up for renewal in six months and he is already looking to see if other policies may be more suitable for the company now the gym benefit has been altered again.

PruHealth members posting on a MoneySavingExpert.com forum expressed confusion over how many points were needed to attain each level of benefits, and how they could be earned, and many were angry that the terms were changing yet again. One website user, using the moniker The Silver Surfer and who describes himself as a PMI insurance broker, criticised PruHealth for continuing to advertise the policy on the basis that customers could get free gym usage.

"When PruHealth agreed the rules were changing (a few months ago at least) and that new joiners would not be getting 100% off, that's when they should have stopped advertising 100% off to new members," he said.

However Steve Colton, communications director at Prudential, said that while the decision to change terms was made in September, and although the website showed the old terms and conditions until 1 December, the company has not run a specific "gym" advertising campaign during 2009.

He said that the company wrote to all gym members in October and November to alert them to the changes, and will do so again a month before their policies come up for renewal, but stresses that customers who have just signed up or renewed will enjoy a further year on the old terms and conditions before they are affected by the changes.

He added: "We're not a gym provider: we're a PMI provider, where one of the big benefits is gym – and still is."