The boom in private health insurance exposes its own flaws

The demand for private medical insurance has soared. Unprecedented waiting lists in the UK NHS, and a crisis within primary care in the country have pushed it to its highest level in many years. The surge in demand poses problems for both health insurers and their customers.

Private patients are faced with insurers who are stretched and have a fierce competition to find doctors. Some of these doctors are fighting back against what they claim are years of almost stagnant fees for surgery.

Specialists say that private health insurance is not suited to take over the NHS due to the lack of coverage for chronic diseases and the frequent changes in policy terms.

Unidentified doctor: “There is a perception among the public and the government that private medical insurance helps the NHS.” Health insurance, however, “doesn’t do what NHS does”. . . It’s an extremely restrictive model.”

Consumer advocates worry that the insurance industry will not be able to handle the new customers. They also point out the disadvantages of policies which have a variety of exclusions and restrictions.

James Daley is the managing director of Fairer Finance, a group that advocates for financial reform.

The private medical insurance sector took shape in the 1940s as an adjunct to the newly created NHS. Customers, or their employers, pay a premium to cover new acute medical conditions — with the promise of faster, more convenient treatment. More difficult cases are also referred or transferred to the NHS.
NHS consultants work in private hospitals like Circle Health/BMI Healthcare or Spire during their free time. Bupa, Axa and other major insurers use their purchasing power to negotiate a better price with doctors and private hospitals. Insurance plans also offer prevention and early detection, which are aimed at reducing claims.

According to the Association of British Insurers, 5.8 million people in the UK have this insurance. This is the highest number recorded since 2008. A record number of 4.4mn people are covered by their employer rather than a personal policy.

The biggest providers accept that prices are going to rise, due to the rising cost of medical care and doctor fees, as well as spending on improving customer infrastructure.

The deputy chief executive of France’s Axa, Frederic de Courtois said: “There is no doubt about the price increase because we need to maintain our margins.”

The sector may face a long-term challenge from price increases. Analysts at Jefferies stated in a note from July that private medical insurance costs about £1,500 a year per person and that prices are rising 15 to 20% a year.

Insurers are more concerned about costs. The ability of insurers to set rates has long been a source of irritation for doctors. The competition regulator’s 2014 report acknowledged that the largest insurers have “significant buyer power”, yet said they had not found sufficient evidence to show it is being used to harm competition through lowering fees to uneconomical levels.

Last month, tensions erupted as scores of anesthetists argued. Give notice Bupa is the largest insurer of private health care in the UK.
Bupa fees have not increased in a meaningful way since the 1990s, and are well behind inflation. One doctor cited the fee Bupa paid for an anesthetist to perform a joint replacement in 1994. It was £320. The doctor stated that the same surgery cost just £5 more at the beginning of this year.

Bupa refused to comment. One person who is familiar with Bupa’s position stated that it was inaccurate to claim it hadn’t increased fees since 1990, and this example would be misleading if taken in isolation. The person stated that some fees fell over the years due to procedures becoming easier or quicker, and others rose. The company increased fees for anesthetists at the start of the month by 15% after doctors’ pressure.

There is no certainty that raising rates will suffice. One consultant said he would not work for Bupa anymore and instead bill patients directly. The insurer would pay whatever proportion they deemed appropriate, and the customer would make up any shortfall.

He also asked if it was reasonable to charge the same amount for a hernia surgery, regardless of whether the patient is a 21-year-old man in good health with no other medical issues or a 90-year-old chain-smoker who has suffered two heart attacks. The consultant stated that this was “blatantly absurd”. “I’d rather not take on a second patient, as the risks and stress aren’t worth the fees.”

Experts have described a shift in power within the sector as private hospitals sourced an increasing proportion of their revenues from the NHS, and patients who paid for themselves during the last two decades. This makes doctors less dependent on insurance companies and more likely to leave if rates aren’t high enough.

“Private health insurance has slowly declined as a proportion of hospital income over the years. . . Tim Read, researcher at LaingBuisson, said that the company has thus lost some bargaining power with doctors.

Insurance companies will continue to face increasing costs, but the demand for private insurance is likely to increase. This makes it even more important to invest in services and retain doctors.

In a recent survey, 1 in 5 business leaders indicated that they would consider adding private medical coverage in the coming year. In response to pressures on the state healthcare system, one UK company with over 15,000 employees gave its staff private medical insurance.

Fairer Finance’s Daley says that both the private and public sectors are reliant on the same pool medical staff. “Either (private medical insurance) will drive people away from NHS and worsen the situation there, or insurers may struggle to maintain levels of service people expect from private policies.”