Is private health cover worth it?

Neil Faulkner investigates private medical insurance to see if it's worth getting.

Unnecessary medical bills

One problem is that some of the money from our insurance premiums go towards unnecessary medical bills.

If you look at the NHS, it frequently tries to do as little as possible, due to its budget constraints. However, when you turn to private care, the emphasis is on providing more - and often too much - care. That's because the more services the private practitioners provide, the more they get paid. In some cases this leads to overselling: too many tests, too many pills, too many procedures, not to mention the evidence of high prices in some areas due to lack of competition.

This sort of bias is nothing surprising; there is solid evidence of it occurring everywhere, and in any job or industry you care to look, from financial advice in the UK to midwifery in Germany. We all have costs and families to feed, and that affects our judgement.

Unfortunately, I can find no data showing how large an impact this has on health insurance premiums. Being a long-time researcher of this type of problem, and of this area of psychology, my best guess is that the impact is significant.

Purging

When you come to renew your policy, the price can be far higher, particularly if you've made a claim. Pushing customers out in this way is sometimes called 'purging'.

It's particularly easy for insurers to do this if they offer a no-claims bonus, which is a terrible invention for health insurance customers. The much higher price after the bonus is stripped away means you're forced to close your policy, potentially ending ongoing private treatment for a condition that you began suffering from in the previous year. Finding a new insurer now, after claiming, is probably going to be difficult and expensive.

More and more insurers are forcing customers to accept no-claims bonuses in return for their lowest prices, but you can still find some insurers that don't do so.

Rescission

There is another problem with health insurance, although it is the same with most insurances. The problem is called 'rescission'. This is when the insurer says the contract no longer exists because you didn't disclose something.

You really must be careful to explain all your medical history, if the insurer demands it. While the onus to ask the right questions is gradually shifting more to the insurer, I think you should still disclose if you have any doubts.

It's just an average

Health insurers like healthy people.

While an average £71 payout per £100 in premiums is good, it's probably lower (i.e. worse) for people who have a history of health problems. I think insurers could be marking prices up far more than they need to in order to either get rid of you or to have a much larger margin of safety than they look for with healthy people.

But the good news about averages is that it means some insurers offer lower prices for the same or similar cover. By shopping around, then, you could find an insurer that generally pays out more to its customers.

You can do just that with the lovemoney.com PMI comparison centre.

The all-important small print

This article is just a broad overview of whether the cover offered is generally value for money, but it's important to look carefully at the small print: there are wide differences in what you're covered for.

It's also worth reading Health cash plans: good value-for-money medical insurance? which has more information that will help you to decide whether to buy health insurance, and tells you about an insurance product that seems to be a particularly cost-effective type of health insurance, especially since it strips out large areas where private practitioners could more easily milk the system.

Get a free, no obligation private health insurance quote