Private Medical Insurance is designed to cover the costs of treatment for short term illnesses and injuries, commonly known as “acute” conditions. Insurer’s typically use the Association of British Insurer’s definition for an “acute” condition, which is defined as:
“An acute condition is a disease, illness or injury that is likely to respond quickly to treatment that aims to return you to the state of health you were in immediately before suffering the disease, illness or injury, or that leads you to a full recovery”.
These policies are not designed to cover individuals for the costs of recurring, continuing or long-term treatment and monitoring of chronic conditions. However, these policies are able to cover you for a ‘flare-up’ or an ‘episode’ in relation to a chronic condition.
Members/companies can select the level of cover they wish to be insured for. Private Medical Insurance policies are not designed to replace all services offered by the NHS. For example, Accident & Emergency treatment is typically covered under NHS services, as they are beyond the scope of most Private Hospitals, together with the inability to obtain pre-authorisation for claims in an emergency situation. There are a number of options that can be selected or unselected in relation to the level of cover a policy provides. These are:
- Annual limits on outpatient cover
- The selection of hospitals available for treatment
- The level of cancer cover
- Psychiatric cover
- Travel cover
- Dental cover
Our advisers will talk through the options available to you and will propose suitable levels of cover based on your claims history and affordability of the products.
As mentioned above, Private Medical Insurance policies do not cover members for “chronic” conditions. A chronic condition is defined by the Association of British Insurer’s as;
A disease, illness or injury that has one or more of the following characteristics:
- It requires ongoing or long-term monitoring through consultations, examinations, check-ups or tests.
- It requires ongoing or long-term control or relief of symptoms.
- It requires your rehabilitation, or for you to be specially trained to cope with it.
- It continues indefinitely.
- It has no known cure.
- It comes back or is likely to come back.
The method of underwriting is essential to determining what is covered under your Private Medical Insurance policy.
On a fully underwritten policy, pre-existing conditions are not covered. These are disclosed to the Insurer at the beginning of the policy when submitting an application. A pre-existing condition is a medical condition, illness or injury that was sustained prior to obtaining medical insurance. The Insurance provider would normally place “exclusions” on the policy that would relate to that condition and these are clearly defined in the policy documentation.
On a ‘Moratorium’ policy, all pre-existing conditions from the last 5 years are excluded from cover, but providing that you have been symptom, check and test free for the pre-defined period (usually two years), the policy will then cover those conditions thereafter. The benefit of a ‘Moratorium’ policy is that you can obtain cover for pre-existing conditions; however at point of claim, the Insurer will need to check medical records to ensure that the claim is not in relation to a pre-existing condition.
The only policy where all pre-existing conditions are covered from outset is on a Medical History Disregarded underwriting basis. The Insurer will cover the members for all conditions (albeit not chronic conditions) and this is usually only available to larger size company schemes as the Insurer is accepting all potential medical risks from all members, hence they need a larger group of people in order to significantly diversify their risk.
There are a few determining factors that affect the premium costs. These are as follows:
- The member’s age
- The claims history
- The underwriting method
- The level of cover on the policy and the choice of hospitals covered
- Cost containment features used such as an excess or an outpatient limit
- Height, weight and smoker status
- Insurance Premium Tax changes
- Medical inflation
Each insurer has a different method behind their premium cost calculations. Some insurers are ‘non-claims’ related, meaning that the individual claims on the policy do not determine the premium costs at renewal. These insurers look at the claim:loss ratio of their whole book of business and determine all premium costs for all members based on their previous years performance.
Other insurers will look at the individual’s health status and assess their premium costs based on the perceived risk of that individual, looking at their height, weight, smoking status and level of engagement with regular physical activity.
Insurers that use claims history to determine premium costs, usually offer No Claims Discounts (NCD). This will benefit members who do not claim, as they will get increased percentage of NCD. There is also a downside to this, which means that if a member has a large claim, they will face much higher premium costs next year, due to a reducing NCD.
Your premium can go up as well as reduce, even if you do not claim. The reason that premium costs typically increase year on year, is that the member is due to member age increases, medical inflation is running at a much higher pace than CPI/RPI inflation and there have been Insurance Premium Tax rises year on year. This results in the average premium increasing by circa 10-15% per annum, without any claims.
There are both claims related and non-claims related policies. A non claims related insurer will assess the performance of their entire book of business and apply rate increases or decreases according to what they deem is necessary to ensure their financial stability.
Private Medical Insurance is unlike car insurance or home contents insurance, which are primarily cost driven. We encourage our clients to be fully medically underwritten as early as possible, as this where they are least likely to carry pre-existing medical conditions. This enables clients to carry with them their underwriting terms, with a minimal amount of exclusions. This underwriting can be transferred from Insurer to Insurer throughout the years; however there is a cost in doing this. By remaining with an Insurer for a number of years, this shows loyalty and therefore not only allows the ability to build up No Claims Discounts, but places the policyholder in a stronger negotiating position in respect of renewal premiums.
For example, a member who has moved insurer every year based purely on cost, would have to be re-underwritten every year in order to obtain the best premium costs, thereby increasing the chances of them obtaining an exclusion and minimising their opportunity to build up No Claims Discounts. Furthermore, if the member were to claim after having moved insurers, they would have less negotiating power as a 1 year insured member, than they would having been with the Insurer for a number of years.