PMI vs cash plans

It was the former Chancellor of the Exchequer Nigel Lawson who said the NHS was "the closest thing the English have to a religion" and most Brits do indeed worship and revere the NHS.

However, a toxic mix of decades of political meddling, scare stories such as Mid Staffordshire NHS Foundation Trust's unusually high mortality rates, and the fact that waiting lists are growing (in August 2014, the total waiting list in England stood at 3.13 million - the worst for six years) means many people will be seeking to acquire greater health protection for their families in 2015. For them, private healthcare is the solution. But how does it work?

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For many, the attraction of PMI is that it allows you to skip the NHS waiting list and arrange treatment at a time that suits your personal or employment circumstances.

"People still turn to PMI to have quicker access to treatment," says Claire Ginnelly, head of healthcare at independent private health and protection insurance broker Premier Choice Group. "Also, the element of choice is still a big factor, as insurers often work closely with certain consultants who specialise in certain illnesses."

With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the "higher your premium will be.

Charlie MacEwan, a director at insurer WPA, says that if you agree customers pay for what they get, then they must spend some time to understand the service they are likely to receive from their prospective medical insurer.

"Ultimately, what you pay is a reflection of the benefits you might receive, so getting a good-value policy is key," says MacEwan. "I take the view that customers should design their benefits and then design their price, which they can reduce through taking an excess or removing some benefits they are unlikely to claim."

More usually a feature of car insurance but hugely prevalent in medical cover, an excess is the amount of money you have to pay before the insurance company starts paying. The excess makes up the first part of a claim, so if your excess is £100 and the claim is for £500, you would pay the first £100 and the insurer the remaining £400. The higher the excess, the lower the premium will be.

However, excesses on medical policies suit some people and not others. For a person that enjoys good health, an excess is a good way to keep premiums low. But for a person with less robust health who is likely to make multiple claims, an excess is not such a good idea.

As well as the excess, another way to reduce premiums is to reduce benefit for outpatient treatment. The most comprehensive policies will cover outpatient treatment in full, including very expensive MRI/PET and CT scans. However, by choosing to reduce this level of benefit, which will possibly only cover the consultations and a few diagnostic tests, you can reduce the cost of a policy.

"Even if the outpatient benefit is reduced, it's worth noting that the big scans – MRI/PET/CT – are usually covered," says Susie Colley, managing director at Torquay-based specialist intermediary Westcountry Healthcare.

"Many people choose to have a large excess, possibly £1,000, so their [PMI] premium is considerably reduced. They use the NHS for their outpatient consultations and some diagnostic tests; or, alternatively, they self- pay, leaving their private policy for the really nasty frightening stuff such as cancers and cardiac.

"In fact, if you have a minor ailment it's better not to claim, as you may well lose your no-claims bonus as well as see your premium increase the following year. Paying for the treatment on a self-pay basis will probably work out cheaper than claiming and seeing your premiums rise as a consequence."

But rising premiums and stagnant living standards do mean individuals are often deterred from taking out health insurance. Premier Choice Group's head of healthcare Claire Ginnelly says take up of PMI remains "pretty much stagnant" and has done for quite a few years.

"We see a drop in consumer business but then an upturn in company paid business," she says. "The consumer market can be expensive, especially for the older generation. There are solutions out there but you need to really know the market to understand the best insurers to use for certain age groups."

The latest edition of LaingBuisson's Health Cover UK Market Report (July 2014) reported that "...demand for health cover was stable in 2013" and that the number of private medical cover policies in the UK remained largely unchanged at 3.96 million at the start of 2014.

The report noted that a drop in medical cover purchased by individuals was balanced by an increase in cover purchased by companies on behalf of their employees.

This backs up Ginnelly's observation and she says companies are slowly waking up to the benefits of covering their employees' health. "Roughly speaking, 10% of the UK population is covered by PMI and, out of the £3.6 billion the market is worth, it's reported 70% of this sits in company business," she says.

"Therefore, around 7% of the population will have PMI as an employee benefit. Although overall penetration is still quite low, more companies are understanding the need for good, comprehensive employee benefits and PMI can really help a company with absence."

However, for many, it's not provided by their employer and PMI is therefore a luxury they can't afford. Also, many have an aversion to paying premiums for something they may never claim on.


For those who rely on the NHS but also want to be reimbursed for using both the NHS and private occupational health treatments, there are health cash plans Health cash plans predate the NHS by almost a century, starting in the northern industrial heartlands as a way working people could pool small monthly contributions into a collective fund on which they would draw should they become unable to work through illness or accident.

By the 1930s, these funds covered 10 million people but when they were effectively made obsolete by National Insurance in 1948, they were reconfigured as voluntary schemes to provide cash benefits during periods of sickness, along with convalescent, dental and optical care.

For a fixed monthly fee – around £15 for an individual aged between 17 and 65 – cash plans can be a cost-effective alternative to comprehensive private medical insurance. A cash plan is designed to allow you to claim back money from everyday healthcare bills. This can range from eye tests to dental check- ups, physiotherapy treatment to chiropractic treatment. They can also complement the services and benefits often received as part of a private medical insurance policy.

"Cash plan benefits tend to cover day-to-day requirements such as optical, dental and therapies with benefit limits; while medical insurance has more full refund, in-patient hospital benefits," says WPA's MacEwan. "Our view is that a cash plan is an NHS top-up policy."

While it doesn't offer a cash plan of its own that it markets to customers, mutual insurance giant LV= provides one as an optional add- on benefit to its 6,000 employees. Although not a member of it herself, LV='s PR manager Emma Banks says the benefit is appreciated by those who take it.

"We have a small number of employees who choose the cash plan option, either to complement private healthcare or instead of it," she says. "It provides cash reimbursement up to set limits for a range of services including dental, optical, physiotherapy and hospital stays. It also offers personal accident cover."

It is also argued that, for every £10 you pay into a cash plan, you can take out £20 in benefits. For example, Benenden Healthcare's Level 2 plan costs £13.75 a month (£165 a year). But you can claim a maximum £90 for dental treatment, £75 optical and £200 for complimentary therapies (such as physiotherapy) as well as £150 if you have a baby (or adopt).

But regardless whether it's PMI or cash plans, MacEwan says the key is that customers understand what they want and why they want it. "If the NHS is perfect in their local area, they are less likely to need medical insurance – why pay for something twice?" he says. "If you agree cash plans and medical insurance policies supplement and complement the NHS, potential customers may need the benefits of both to fill the gaps."