Sales of private medical insurance may have been flat for some time but there is one area growing in popularity – self-pay hospital care. Recent years have seen private hospitals encouraging patients to come to them direct, bypassing traditional insurers and healthcare intermediaries.
Around 150,000 people paid private hospitals for surgical operations last year, a 25 per cent increase on 1997, according to figures from BUPA. And some 20 per cent of private medical care is now self-pay, double the figure five years ago. This is expected to rise further as hospitals turn to marketing to boost customer awareness. This marks a shift from their traditional stance of leaving it to insurance companies to put the case for private cover.
The development is not entirely without precedent. Cosmetic surgery, routinely excluded from PMI policies, has always been popular among self-payers. Other popular treatments include cataracts, hip operations and varicose veins. Hospitals will also quote for more complex operations such as coronary heart bypass (see table overleaf).
While growth anywhere in the private medical sector should be cause for celebration, some fear that people could use self-pay as an excuse to cancel their PMI policies and go without adequate health cover.
PMI market leader BUPA, which has its own chain of hospitals, offers the self-pay option. Nuffield Hospitals Direct is also expanding in this area as is relative minnow Surgicare and hospital chain BMI Healthcare.
“Self-pay has been growing over the last 18 months,” says BMI Healthcare regional director Dr Paul Preston. “We saw a sharp increase when the windfall shares were announced but many people are also happy to dip into their savings.”
He expects the market to remain buoyant. “People see their PMI premiums rising much faster than inflation and, if they have not used their policy for a while, they sometimes prefer to put the money in a building society and save up to buy care if needed.”
Surgicare, which has centres in Manchester, Birmingham and London, has seen a 20 per cent increase in self-pay cases over the last year, according to marketing director Ian Waterman. Lengthy NHS waiting lists are the prime reason. Despite a drop in official statistics, there were still just over a million patients waiting at the end of March this year.
“It takes six months for your first inpatient consultation. Then you have to wait up to 18 months for treatment,” Waterman says. “There are also a number of treatments the NHS does not provide, such as cosmetic surgery, where people are tempted to pay.”
He has noticed that it is not only the wealthy who pay. A common customer is the self-employed builder with a hernia who might take the self-pay route rather than losing income while he remains on an NHS waiting list.
Simon Burton, spokesman for Nuffield Hospitals Direct, confirms the classlessness of self-pay. Other common clients include the elderly who cancelled their insurance when over-60s tax relief was abolished. “Often sons and daughters are paying for their parent’s hip or knee replacement. Young professionals with money to spare would rather pay than wait.”
Surprisingly, self-pay is bucking the seemingly inexorable upwards trend of private medical costs, Burton says. The average cost of surgical treatment has actually dropped by four per cent over the last five years.
Nuffield’s service has been given an extra boost by going direct. Self-pay comprised 15 per cent of its business in 1996, 20 per cent the following year and around 25 per cent in 1998.
Customers call a national freephone number and are diverted to the nearest appropriate hospital, which will have its own customer services representative. Nuffield also supplies pre-printed referral forms for patients to give to their GPs.
It offers a single pricing structure whereby patients receive a fixed, guaranteed price for treatment. This includes accommodation, nursing care, operating theatre fees, drugs, dressings, x-rays, tests and consultant fees. Work is guaranteed for 30 days after leaving hospital.
Alternatively, you can choose a lower “pay-as-you-go” fee, with extra costs if there are complications or further treatment is needed. Burton denies that Nuffield is threatening the traditional role of private insurers. “We work with insurers in many ways. We are not trying to challenge them, but to make it easier for customers without insurance to get private treatment.”
To increase access further, Nuffield offers interest-free credit through Mercantile Credit, providing a 10 per cent deposit can be made and the loan is repaid within 12 months. Loans over a longer period are charged at 15.9 per cent APR.
BUPA also has a single customer phone number where callers can pose questions to medically-trained staff. Patients are directed to one of its 36 hospitals and loans can also be arranged.
BUPA hospitals sales and marketing director Howard Beveridge says self-pay can actually complement standard PMI, offering treatment for pre-existing medical conditions that fall outside people’s policies.
Insurers without hospital networks, such as Prime Health and Norwich Union, do not offer a self-pay option. Prime Health spokesperson Mandy Blanks argues that the presence of a self-pay option can lull customers into a false sense of security.
“You are taking a risk by relying on self-pay for hospital treatment. People don’t realise how much this costs – with a heart bypass costing up to £12,000 you will need a lot of savings,” she says.
“Anybody who considers cancelling a PMI policy and paying themselves if necessary would have to be extremely wealthy, but in that case they could afford the premiums anyway.”
She says some people argue that in time the premiums they save will build up to create a substantial pot. “But what happens if you fall ill before you have that pot? Or suffer further illness after spending the money. PMI gives the reassurance that all bills will be covered.”
Private hospitals claim customers are often surprised when they see how affordable one-off treatment is, although Liz Hammond, director of Private Medicine Intermediaries, says the surprise is more at the expense. “What if you spend £7,000 on a hip and a couple of years later you need the other hip doing – by then you may have no savings left. People will also have an in-built resistance to spending large sums on treatment. I can think of better ways to spend £12,000.”
While self-pay hospitals quote fixed costs for many treatments, the cost of some treatments can spiral. “A client recently needed 24-hour round the clock nursing in a psychiatric hospital for several weeks. PPP healthcare paid out £50,000 overall. Imagine that under self-pay.”
She believes few people really self-insure. “There is no way somebody will place £1,000 a year in a fund for medical treatment just so one day they can get their cataracts done.”
Private hospitals maybe gearing up their marketing operations, but Hammond says much more will be needed if the product is to take off. Jan Lawson, partner in the Private Health Partnership, does recommend self-pay care to clients when appropriate, usually for those with pre-existing medical problems whose condition is excluded from treatment.
The role for the independent adviser in self-pay care is limited. Most simply indicate the option is available and leave the rest to the client, she says. “No commission is paid. The hospital wouldn’t even know we’d recommended the client.”
Lawson says there is another option, but one that covers the client from the more expensive bills. “When talking to people about arranging insurance we discuss taking out a large excess and self-paying for the smaller items. This can be particularly valid for older clients, where an excess of up to £1,000 can keep premiums down, while they pay for consultations, routine tests, physiotherapy and so on. This can cut premiums by up to 30 per cent.”
Cost comparisons between self-pay and PMI are impossible. If you stay healthy the former costs you nothing, so clients will have saved a fair sum in premiums. The trouble really starts if you fall ill.
What self-pay cannot provide is peace of mind. Clients may appreciate the monthly premium savings but when things go wrong their savings are in peril or their health is left to the mercy of the NHS.
Self-pay will become increasingly popular for people wanting plastic surgery or other treatments being squeezed off the NHS. It also has a place for those with pre-existing conditions excluded from their PMI policy, or clients who only realise the benefits of taking out medical insurance when it is too late. But few financial advisers would recommend it as an adequate alternative to a decent PMI product.
If you want to point a client towards self-pay, the following numbers are worth having.
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BUPA: 0345 520 520
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Nuffield. Hospitals Direct. 0800 688 699
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Surgicare: 0800 622 222