Self-pay is big business and looks set to grow. Neil Armitage explains what clients need to know if funding their own private treatment
In recent years many more people have made the decision to pay for their own private medical treatment as and when they need it as an alternative to paying for insurance policies they may never use. According to market specialists Laing and Buisson, between 1998 and 2000, BUPA Hospitals saw growth of over 30% in people paying for their own private treatment. Although this increase slowed slightly during 2002 and 2003, there continues to be substantial numbers of people choosing the self-pay route to medical care.
Peace of mind
There are many reasons why self-pay can seem attractive to those who choose to go the private treatment route. First, many people who have previously taken out private medical insurance (PMI) but have never claimed may decide to save their premiums and put this money aside to pay for an operation if and when it becomes necessary.
Second, those who have pre-existing medical conditions, which may be excluded from cover, may decide that they either have to use the NHS or pay for treatment themselves. Finally, there are those who may wish to pay for treatment normally not covered by PMI or the NHS.
There is no doubt that although PMI offers peace of mind and security should a person become ill, the increasing cost of cover has led to many individuals having to look at alternatives, such as self-pay. However, there are still ways in which advisers can benefit from this growing trend.
For many advisers, a client's decision to pay for their own medical treatment can lead to them needing a suitable savings vehicle in order to help them fund their future healthcare needs. If advising a client on how best to save towards private medical care, it's important for them to be aware of the current costs of some of the most common treatments, as people can underestimate these. As the table shows, for example, a hip replacement can cost anything between £5,500 and £10,000, whereas open-heart surgery could cost upwards of £10,000.
While this may seem expensive, saving the money that they would have been paying out for PMI can help build up a self-pay fund. Clients who want to pay for their own treatment but are concerned about the potentially huge bills they could face, can be reassured by the fact that many hospitals offer a fixed package price for routine procedures such as hip replacements, knee replacements, cataract surgery and hernia operations. A fixed package price guarantees that the hospital sets a price for the operation - this will usually include surgeon and anaesthetist costs as well as the charges made by the hospital for the accommodation, nursing care, drugs and dressings.
Usually fixed-price packages include any re-admissions to hospital needed within a certain number of days of the patient's treatment in case there are any problems or complications following an operation. If a client chooses one of these packages there will be no further charges made for any additional treatment. However, your client will still need to ensure they have sufficient funds to cover any outpatient costs, such as initial consultations, MRI scans, diagnostic tests, physiotherapy and follow-up consultations.
It is wise to double check the following information when choosing the self-pay route:
• Fixed package prices cannot be obtained for all treatments. While it is still possible to go private for treatments such as radiotherapy and chemotherapy, for example, the costs of these types of treatment cannot be estimated in advance in the way that they can with fixed-price surgery. Therefore your client will need to keep a close eye on the bills to ensure that they have enough money to cover them.
• Certain medical conditions, such as diabetes and haemophilia may not be available on a fixed package basis.
• Costs for emergency medical treatment can build up quickly as many private hospitals do not have the facilities to deal with them. In such cases your client may still be better off using the NHS.
• Different hospitals also charge different amounts for surgical procedures - sometimes being prepared to travel slightly further away from home can have a big impact on reducing the cost of treatment.
• Shopping around for treatment can be quite a time-consuming process, and it is important to know the right questions to ask so that you know exactly what is and is not included in the package price. However, there are companies that will research the costs for your client, saving time and ensuring that the package covers the right elements. By encouraging your client to shop around you can also help them make the most of their money.
Competitive
When choosing how to fund healthcare treatment, there are a number of options to consider. First, there are ISAs and mini-cash ISAs. There are vast arrays of savings plans available through banks and building societies and other financial services, including internet banking, that all offer a favourable interest rate for investors. However, for those who wish to save on a tax-free basis an ISA or a mini-cash ISA are obvious options. It is a question of getting the balance right between a competitive interest rate and accessibility - a key consideration when individuals need to have their treatment.
However, how does one know how much to save and how much treatments will cost? It is fair to say that the majority of the public are unaware of how much private medical treatment costs and then struggle to find the full amount of finance at the time treatment is required. This is where problems may be encountered with ISAs or mini-cash ISAs because of the financial restrictions. In these cases some individuals have come to rely on family to assist with financial help or on occasions have approached banks and building societies for loans.
With loans, the lender will often charge high interest rates and patients may not feel comfortable discussing personal health details with their bank. Alternatively, there are other companies who offer loans, subject to status, specifically designed for healthcare purposes.
Additionally some private hospital groups offer interest-free credit arrangements, although there are certain restrictions, such as age. However, the interest-free credit may only be for a certain period, such as six months, after which you will also have to pay interest on the loan.
High excess PMI plans can provide a solution for clients torn between insurance and the self-pay route, as there are insurers who combine the two, making premiums more affordable. The market now is full of high excess schemes, where a member chooses to pay a certain amount towards their claim in order to receive a reduction to their annual premium. High excess schemes have become more popular over recent years since the abolition of tax relief on PMI premiums for the over 60s.
High excess
Excess levels range from £100 to £5,000 and sometimes higher, offering discounts on premiums of 50% or more. However, these are applied per person per year or in some cases per claim or medical condition. It is essential to know how these excesses work as they do differ from insurer to insurer. It is also important to know how the excess works so the funds needed are in reserve.
Once the excess has been paid in full, the insurance policy should provide you with full cover for possible eventualities that may occur in the same year - dependent on how the policy works.
Some medical insurers are now introducing 'co-payment' plans, sometimes known as 'shared responsibility' where a percentage of each claim is paid up to a certain limit. For example, for each claim made the policyholder may be responsible for 25% of costs up to a certain maximum agreed limit by the insurer such as £1,000. The insurer will thereafter provide cover once the £1,000 has been paid.
Essentially, self-pay should not be seen as a threat to sales of PMI. By using it as part of a portfolio and taking a flexible approach, intermediaries can combine self-pay with savings vehicles or new types of PMI plans. This ensures that their client's needs are met while they are still able to offer valuable advice to their client.
Neil Armitage is marketing director at Go Private
Case study
Carol Richards, a personal assistant in Exeter, cut six months off waiting for treatment by deciding to self-pay. Before receiving treatment Carol suffered from recurring tonsillitis, usually so severe it would lead to her having to take a week off work.
Her GP put her on a waiting list to see a consultant with a view to having her tonsils removed. Carol was told she faced a six-month wait to see the consultant and another eight-months for the operation.
Carol, so fed up with the wait, decided to approach a self-pay specialist. It arranged for Carol to see a consultant at her local hospital within two days, which cost her £95.
The consultant agreed that Carol needed the operation and put her on his waiting list. Although the cost of the operation privately was about £1,400, which was more than Carol was able to pay, she was able to cut months off her waiting time.
COVER notes
• There has been huge growth in self-paying for private healthcare over the last few years as PMI costs have risen.
• Clients with pre-existing conditions or who need treatment not covered by PMI or the NHS may be suited to self-pay.
• There are many options to fund private treatment, including loans designed to cover healthcare expenses.
