Special Report on Private Health: Costs rise as six-week rule is threatened: Insurers have responded to rising charges and more claims by tailoring their policies to specific groups, writes Alison Eadie

THE DAMPENING effect of recession on demand for private medical insurance (PMI) is expected to prove a temporary phenomenon and PMI penetration should reach 16.5 per cent of the UK population by the year 2000 against 11.2 per cent in 1993.

This is according to the 1994 edition of Laing's Review of Private Healthcare, from publishers Laing & Buisson. The Review shows that the number of people covered by PMI inched up to 6.7 million in 1993, much the same as at the end of 1990. The value of premiums rose 6.5 per cent last year, after hikes of 14.2 per cent and 16.5 per cent in 1992 and 1991 respectively.

William Laing, editor of the Review, said the PMI sector was in a much stronger financial position than it was two years ago, with gross margins (premium income less benefits incurred) reaching a historically high level of 20 per cent last year.

Despite application of managed care principles, the Review concluded that insurers would not be able to prevent PMI costs from rising more rapidly than inflation. And it added that the price of PMI was believed to be the main factor determining the size of the market for the remainder of the 1990s.

Consumers are demonstrating increasing discernment and price consciousness. Bupa, market leader with 46 per cent of the UK PMI market, said that two of its most popular products at the moment were LocalCare and EssentialCare. The former ties a subscriber to treatment in a specified local hospital and cuts the price of the policy by about 15 per cent. EssentialCare is cheaper than the standard BUPACare as it excludes certain benefits, such as, for example, out-patient cover if not linked to in-patient treatment.

The six-week rule, pioneered by Private Patients Plan in 1979 as a means of cutting the cost of comprehensive PMI, has come under fire in recent weeks. PPP, second in the market with 28 per cent share, recently waived the rule for 10 of the most common medical procedures. The rule stipulates that private treatment is available only if the subscriber would have to wait six or more weeks for such treatment at a local National Health Service hospital.

PPP's waiver now allows subscribers to have 10 procedures including hip replacement, gall bladder removal, hernia repair and haemorrhoid removal without any reference to the length of NHS waiting lists.

PPP, Bupa and Norwich Union, all of which sell six-week rule medical plans, insist they are valid products and will continue to be sold. Although the length of NHS waiting lists has fallen in some parts of the country, improvement is far from universal.

Tim Baker, the commercial director of Norwich Union Healthcare, makes the comment: 'Our claims experience shows that not everything is treatable on the NHS in six weeks. The length of wait may have changed, but the numbers of those waiting are much the same.'

Bob Bycroft, managing director of Clinicare, attacks the six-week rule for the opposite reason. He claims that patients with serious illnesses are finding it increasingly difficult to obtain urgent treatment on the NHS. Insurers are therefore picking up the tab for treatment of cancer, heart disease and other urgent treatments, as well less serious procedures.

Premiums on six-week rule plans will therefore either have to rise or the waiting period will have to be extended to 10 or 14 weeks. Mr Bycroft says: 'Policyholders who buy a conventional industry norm package are being exploited, subsidising those who opt for these cheaper, reduced benefit plans. They are sold as loss-leaders at substantially discounted premiums.'

The proliferation of products and entry of new players, particularly from continental Europe, has widened consumer choice but made choosing the right plan harder. Specialist healthcare brokers help consumers find a way through the maze.

Competition has also persuaded insurers to become more user-friendly and focus on past areas of grievance. The introduction of helplines allows subscribers or would-be subscribers to ask about existing medical conditions or other areas of uncertainty. Bupa's helpline is open until 8pm and at weekends. PPP in June won an award for telephone customer care, beating off challengers which include First Direct and Virgin Atlantic.

No claims bonuses have been introduced by some insurers. Allied Dunbar, which sells one PMI product in the 'de luxe' category, offers new subscribers a 27.5 per cent discount, rising to 50 per cent over seven years. As with car insurance, one claim does not eliminate the total bonus, but puts the subscriber back a notch or two. The aim was to discourage small claims which put a disproportionately high administrative burden on the company.

The range of cover and price is enormous. At the top end, Clinicare's Carte Blanche offers a health maintenance plan rather than a conventional insurance policy. As well as in-patient care, it includes dental and ophthalmic fees, spectacles and contact lenses, alternative therapies, prescription charges and private (normal) maternity care.

A family of two adults in their early thirties with two children living outside London would pay pounds 1,473.84 annual premium. Clinicare estimates that without insurance the family would pay around pounds 900 a year on dentists, opticians, prescriptions and osteopaths.

In the no frills bracket, PPP's Valuehealth puts an annual ceiling of pounds 10,000 on treatment and only the cheaper C and D band hospitals may be used. It costs a basic pounds 426.36 a year for two adults in their early thirties with two children, or 5 per cent more if the premium is paid monthly rather than on an annual basis.

(Photograph omitted)