According to headline figures from a report by private health market analysts LaingBuisson, the private medical insurance (PMI) business is booming. Almost one in eight people, or 4.68 million, have some form of PMI, but does this figure give us an accurate picture of the trends?
The report covers up to the end of 2023 and shows that PMI covered 4.68 million if policyholders’ spouses, partners and children are included. That represents 11.8% of the UK’s 68.3 million population, the highest percentage since 12.3% in 2008.
Looking more closely at the figures, however, the primary driver is employers offering PMI as a benefit. Four out of five policyholders, 3.8 million, are covered by a policy through their employer, leaving only 0.88 million holding PMI as individuals.
PMI offerings by employers depend on economic factors; the high figure for employer-offered PMI was last seen in 2008, but this fell significantly due to the impact of the financial crash as employers cut costly benefit packages.
Unsurprisingly, offering PMI as a benefit is very popular with employees, as they see NHS waiting lists increase. Employers are also keen on the ‘wellness’ packages that are part of PMI, which attempt to reduce work lost due to illness.
Individuals who buy PMI seek to avoid NHS waiting lists should they need any procedures.
However, policyholders are increasingly finding that PMI is no substitute for the NHS and that the costs are escalating for individuals and employers. Policies are rarely completely comprehensive, and they lack coverage for chronic conditions. Policyholders may encounter frequent changes to terms, with numerous alterations to restrictions and exclusions. PMI policies are also notorious for being difficult to understand.
As the number of policies sold increases, so do claims. The ABI reported that in 2023, the number of claims made across individual policies and workplace schemes increased by 21% to 1.7 million, with workplace claims being the main driver, up 26% to 1.3 million.
Insurers paid out a record total of £3.57 billion for PMI claims, up 21% compared to 2022 figures. Payouts for workplace policies also increased by 26% to £2.27 billion.
The knock-on effect of soaring sales and claims is that insurers must find ways to protect their profits. As expected, this is done by increasing premiums and tightening their control over how much they pay the people who actually do the work—the consultants and other staff.
Staffing pressure in private healthcare
The PMI market is dominated by the four big insurance firms, Aviva, AXA Health, Bupa and Vitality Health, which have 95% of the private medical insurance market between them, according to LaingBuisson. And these large companies have historically used their considerable buying power to secure a good price for their customers from doctors and private hospitals.
Times have changed, however, and in a strange irony, insurers are suffering similar problems to the NHS—an escalating number of patients (claims)—but a limited private health infrastructure and big increases in medical costs—doctor rates and pharmaceutical costs—plus difficulties getting staff. The private companies don’t train medical staff but have always poached them from the NHS, with consultants usually splitting their time between the NHS and private work.
Staff are a particular problem, with doctors reported to be resisting almost stagnant fees for their work. Some refuse to work for the insurers, preferring to self-pay. Ultimately, PMI’s promises can only be upheld if the staff are willing to work for the insurers.
Price rises
Faced with the large increase in claims and other costs, insurers have protected their profits by hiking up premiums.
In late September 2024, employers were reported to typically see their healthcare costs increase by 10 to 25% on policies renewing in 2024, with the rare case of a premium increase of more than 50%.
Individuals who take out PMI are also facing price hikes. According to research by global advisory, broking, and solutions firm Willis Towers Watson (WTW), overall, UK PMI costs were expected to increase by 12.6% in 2024, higher than the global average and three percentage points above the European average.
According to the WTW Global Medical Trends survey, UK private medical inflation has been consistently higher than the European average for the last five years. This is driven by increases in demand for private healthcare services, pressure on public healthcare systems, and higher claims levels.
Inequity
PMI is not cheap for individuals in the UK. Research by MyTribe Insurance Experts , an independent website, found that in 2024, the average monthly cost of basic health insurance (without out-patient cover) for a 20-year-old was £28.79, while comprehensive cover (including out-patient cover) costs £41.24. By age 70, the monthly cost of basic health insurance rises to £141.29, with comprehensive cover reaching £202.51. Health insurance premiums increase steadily with age, with comprehensive plans typically costing 40-50% more than basic plans. And, of course, premiums increase yearly at renewal, and any claim made on the policy will still push up the cost of renewal.
More employers have reported planning to add PMI as a benefit despite the escalating costs, so improving relations with doctors and investing in services has become ever more vital for insurers. This, in turn, could exacerbate the problems in the NHS – both the public and the private sector rely on the same pool of staff – if they take away more staff from the NHS, this makes the NHS’s problems worse – leading to more people seeking help in the private sector, and so the issue continues.
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