A new private medical insurance (PMI) plan could make or break individual PMI as it encourages people to pay in cash rather than credit. Experts say that the cost of taking out an individual PMI is expensive across the market and is unaffordable for those who need it most.

HealthFund guarantees reduced premiums and demonstrable savings. The new plan will more likely appeal to people aged 40+ and those who have been axed from their jobs following the economic downturn. It will also attract people who are not happy with how much they are spending on individual or small company cover.

Higher paid people axed from their jobs had corporate private health cover and replacing that with individual PMI is expensive particularly for older, more senior staff and employees adding families on the policy.

HealthFund vs. traditional individual PMI

HealthFund allows people to only buy protection that covers unaffordable risks, using pay as you go (or the NHS) for less important illnesses. Industry sources describe it as a catastrophe insurance which cuts out smaller claims while offering significant savings on health insurance premiums.

Statistics by AXA PPP healthcare, suggest that a typical large corporate scheme costing £935 per employee, wife and child (a £375 tax charge to the staff member on the P11D) would cost £5,016 for a male aged 50, calculated on an individual basis.

It allows clients to choose from a high excess level of £1,500, £3,000 or £5,000 which lowers individual premiums making them affordable. However, the scheme must bank the excess with the plan to cover for emergency private medical treatment.

HealthFund estimates that a couple aged 48 on Bupacare Scale B will pay £3,968 annually with no excess. If they fund the first £3,000 via HealthFund, the premium falls by three-quarters to £730. The policy is underwritten by a Lloyd’s of London syndicate rather than a traditional health insurer.

The pros and cons of HealthFund

Few individual private health insurance claims exceed £10,000 which means anyone who could incur a bill surpassing that figure may be considered uninsurable based on previous conditions. Alternatively, they could choose to save all the premiums and either self pay or use the NHS. With this in mind, private insurance could be a “bad investment” given other options.

Although HealthFund has a tie-up with BMI Healthcare hospitals, clients will not be restricted to these. It has a medical helpline which offers advice on how to choose NHS care as well as private treatment.

Additionally, much of PMI’s corporate marketing is subsidised by the better margins earned on individual products, according to market experts. Large corporates can fiercely demand low costs, and are capable of switching insurers, totally disregarding any pre-existing illnesses.

It is also thought that after some time, the younger members of company schemes will realise they are paying for older people and may eschew PMI under flexible (menu-driven) benefit plans.

Insurance experts say that private hospitals could lose out as more people opt to use the NHS for smaller, non-urgent claims, rather than pay out their excess. They have the option of turning to the NHS for serious claims.