Most people who buy private medical insurance (PMI) do so to avoid NHS waiting lists and to have more choice and flexibility in their medical treatment.
Few can afford fully comprehensive policies, but there are several ways around this, starting with 'budget' PMI. This type of policy offers less cover - psychiatric treatment or physiotherapy may be excluded, for example - so it is vital that you check what you are and are not covered for before you buy.
Budget policies may also have restrictions on where you can be treated, requiring you to use one of the hospitals on their 'approved' list. This helps to limit insurers' costs: by using fewer hospitals, they can guarantee to send each hospital more patients and so can negotiate cheaper bills. However, one of the main reasons people buy PMI is to have a choice of where they are treated.
Another way insurers cut the cost of cover is large excesses on the policy. This means you pay the first part of any private healthcare costs up to the specified level. Most of the high-excess policies have an annual excess, which means that if you are ill over a period of several years, you might have to pay out a large amount in treatment costs.
Most PMI policies are written on an annual basis, which means the premiums can go up every year. Two factors affect premiums: medical inflation and the policyholder's age. Exeter Friendly Society, however, has a policy of not increasing subscriptions when you reach certain age bands. Compared with other schemes, the difference in the contributions in the future could amount to thousands of pounds.
As the cost of PMI rises, many people are cancelling their policies and opting to pay for private treatment out of their own pockets. A self-pay strategy can make sense - why not put money in a low-risk savings plan and build up your own private health fund? In this way you get to keep the cash if you don't need treatment. However, you need the discipline not to dip into the cash pot to pay for holidays or a new car.
The danger of this route is that you leave yourself open to vast bills, especially if you need a succession of different private treatments.
A few companies provide specialist services to people seeking private treatment. Go Private (www.goprivate.com, 0845 604 0333) charges £34.95 a year per person for a service that will find the cheapest hospital in your area for your specific needs. Healthcare Navigator (www.healthcarenavigator.co.uk, 0870 727 0140) will also track down the cheapest available treatment for an annual charge of £60 per household.
WPA and Exeter Friendly Society have policies that combine self-pay and insurance. You agree to pay a percentage of treatment costs, say 25 or 50 per cent, to reduce your premiums.
There are many schemes that target specific peer groups. AXA PPP Healthcare has a policy for the self-employed and WPA has one for professionals. The theory is that self-employed and professional people are too busy to be off work for long and are therefore likely to claim less, which in turn means they should have cheaper premiums. Moving this idea on, Bupa and AXA PPP Healthcare offer lifestyle options where you pay less for insurance if you have a healthy lifestyle.
If you need independent advice about purchasing PMI, the Association of Medical Insurance Intermediaries (www.amii.org.uk, 0870 112 0431) will put you in touch with a local specialist adviser.
The Association of British Insurers has a guide (www.abi.org.uk) explaining the different types of PMI cover. Finally, if you want to compare PMI premiums, useful tools are available at moneyobserver.com's 'compare and buy' service.
· This article was reproduced from the latest issue of Money Observer - Britain's leading investment and personal finance magazine. To register for free Money Observer e-updates or to find out more about the magazine, tel 0870 8701324 quoting ref MTEK003 or visit www.moneyobserver.com
Typical costs of surgical procedures and repayments
Procedure, Indicative, self-pay price
Knee replacement £7,675
Tonsillectomy £1,150
Cataract and lens implant £1,980
Prostatectomy £3,590
Hip replacement £6,925
· Source: WPA
