Growing waiting lists, and rationing of care within the NHS, suggest that taking out private medical insurance is a sensible option. But with a series of increases to insurance premium tax (IPT) pushing up the cost of cover, there is a risk that more and more people will find it unaffordable.
IPT has seen three increases in the last 19 months, taking it from just six per cent in 2015 to 9.5 per cent in November 2015, 10 per cent in October 2016 and, most recently, 12 per cent in June.
While the tax applies to a range of general insurance products, including home, car and pet insurance, the size of medical insurance premiums means policyholders will feel a doubling of the rate particularly keenly.
According to figures from the Association of British Insurers, the government takes £231 in IPT on the average annual premium of just more than £2,000. This is £39 more in IPT than before the latest rate rise, and £115 more than a policyholder would have paid in 2015.
Cost pressures
What makes matters worse is that this increase comes on top of the premium inflation that medical insurance customers already experience.
Carol Porter, head of commercial at The Health Insurance Group, explains: “Premiums increase by around 10 per cent every year as a result of age increases and medical inflation. Given that many people who have cover are retirees on fixed incomes, they will struggle with the additional IPT increases.”
Reducing premiums
Although it can mean compromising cover, there are a number of ways in which policyholders can reduce their premiums. Adding an excess, where they agree to pay the first chunk of their annual claims, can shave a few percentage points off the cost. For example, a £200 excess can give savings of up to 10 per cent, while at £1,000, the savings could be as much as 30 per cent.
Another variation on this is co-insurance, where the policyholder pays a proportion of the claim, typically capped at a set amount each year. The main exponent of this is WPA, which offers its Shared Responsibility concept on many of its plans.
With this the policyholder agrees to pay 25 per cent of their claims up to a maximum of between £250 and £3,000 a year. The higher the annual limit, the greater the savings, with someone opting for £3,000 potentially enjoying a premium reduction of up to 50 per cent.
Policyholders can also take advantage of no claims discounts. These reward those who do not make claims every year, but with the discounts meagre it will usually only serve to stabilise premiums at renewal.
Excess cover
Taking out a separate policy to insure the excess on a medical insurance policy is also possible.
Gemma Harris, operations director at Chase Templeton, uses Medex Protect individual medical excess insurance to spread the risk across two policies.
Ms Harris explains: “A client could reduce their medical insurance premium by taking out a higher excess, with the medical excess policy taking care of the excess payment. This approach can be more cost effective.”
As an example, a 45-year-old in Birmingham would typically pay £607.08 a year for a policy from Aviva offering full inpatient and day care treatment and no outpatient cover. Add in a £200 excess and the annual premium drops to £546.36, saving £60.72. Alongside this, they could take out a Medex plan covering them for the £200 excess. This costs £52, saving them £8.72 overall.
