11 December 2023
It is perhaps not surprising that private medical insurance (PMI)is on the up. The crisis in the NHS has driven demand to its highest in 15 years yet Insurers are buckling under the challenge with a customer service that often fails to deliver and increased competition for doctors who are rebelling after years of stagnant fees.
As the Financial Times reported, the boom in PMI is exposing its own flaws, causing increasing dissatisfaction among users. Patients going private encounter insurers with stretched customer service and in fierce competition for doctors, some of whom are pushing back against what they say are years of near-stagnant fees for operations. An edited version of that article is reproduced here.
A lack of cover for chronic conditions and frequent changes to policy terms make private health insurance ill-suited to pick up the slack from the NHS, according to specialists, health insurance “doesn’t do what the NHS does . . . It’s a very restrictive model.”
Consumer advocates, meanwhile, worry about the industry’s ability to cope with the hundreds of thousands of new customers, and the drawbacks of policies with a multitude of restrictions and exclusions. “It’s a big opportunity for the sector, but also a dangerous time,” said James Daley, managing director at advocacy group Fairer Finance.. For the biggest providers, there is an acceptance that prices will have to increase, both as a result of rising medical bills and doctor rates but also spending to enhance customer infrastructure. “[There is] no doubt that prices will increase, because we have to maintain our margins,” said Frédéric de Courtois, deputy chief executive at France’s Axa. Price rises may pose a longer-term challenge to the sector. In a July note, analysts at Jefferies noted that private medical insurance is already expensive at about £1,500 per year per person, and prices typically rise 15 to 20 per cent a year.
More insured patients are coming through for treatment too, treatment that they may have taken to the NHS previously. but now can’t get an appointment for. Some insurers are reporting an increase of 30% in requested treatment.
The more pressing problem for insurers, however, is costs. A 2014 report by the competition regulator acknowledged the biggest insurers had “significant buyer power”, but said it had not found “sufficient evidence that it was currently being exercised in such a way as to harm competition by suppressing fees to uneconomic levels”. Despite the expense, demand for private health insurance is expected to continue to grow
Tensions broke into the open last month, as scores of anaesthetists gave notice on contracts with Bupa, the biggest insurer in the UK private health market. Doctors who spoke to the Financial Times said Bupa’s fees had not improved meaningfully since the 1990s and lagged well behind inflation.
One cited a fee Bupa would pay for an anaesthetist working on a joint replacement surgery in 1994, at £320. At the start of this year, the same operation paid just £5 more, the doctor said. Bupa declined to comment. It bumped up fees for anaesthetists by 15 per cent at the beginning of the month after pressure from doctors. It is not clear whether nudging rates higher will be enough.
Experts describe a power shift in the sector, as private hospitals have sourced a rising proportion of revenues from the NHS and patients who pay for themselves over the past two decades. That makes doctors less reliant on insurers — and more willing to walk away if they feel rates are not high enough. “Private medical insurance has been slowly declining as a percentage of independent hospital income for years . . . and so has lost some of its bargaining power over doctors,” said Tim Read, a researcher at consultancy LaingBuisson.
Despite the expense, demand for private health insurance is expected to continue to grow, making the need to retain doctors and invest in services even more pressing for insurers. In a recent poll, one in five business leaders said they were considering adding private medical insurance in the next year. The boss of one UK business with more than 15,000 employees told the FT his company had given its entire staff private medical cover, in response to the pressures on state healthcare. But, according to Fairer Finance’s Daley, with both private and public sectors relying on the same pool of medical staff: “Either [private medical insurance] will take people away from the NHS and make matters worse there, or insurers will struggle to maintain the levels of service that people expect from a private policy.”