Patients shun costly private health care loses its lustre

PRIVATE health care is suffering a crisis with too few patients to fill hospital beds. Ten private hospitals have already closed since 1996 and another 50 are expected to go bust, according to the leading private health analyst William Fitzhugh.

Private care grew during the 1980s, when medical insurance became as familiar a middle-class accoutrement as golf clubs or a Volvo. The number of people covered by private health insurance rose steadily from the late 1970s to 1990, the start of the last recession, peaking at about 6.6 million. But since then, the lure of private medicine - the hotel- style rooms, the restaurant-quality meals and the attention of top consultants - has lost its lustre and the public has turned its back on expensive health schemes.

The hospital closures are being forced by the big insurers which have deals with a select group of hospitals. They want to concentrate treatment in 150 of the 212 private hospitals available, in an attempt to drive down prices by guaranteeing the chosen hospitals a constant supply of patients. With rates of occupancy at 50 per cent, those hospitals left "out of the loop" are unlikely to survive, said Mr Fitzhugh.

St Gerald's Hospital, near Birmingham, which closed in April, is typical of those not expected to survive. The 89-year-old hospital owned by the charitable trust, Father Hudson's Homes, specialised in orthopaedic treatment but was running a pounds 500,000 deficit and could not afford to keep going.

Estimates of the number of private medical subscribers vary but the latest figures from the Association of British Insurers show only six million people possess private health cover. Improved NHS treatment, rising premiums and a clampdown on tax breaks for pensioners' private insurance have all had an impact on private hospitals.

William Laing, editor of the so-called "Bible of private medicine", Laing's Review of Private Healthcare, said there will be no return to growth. "The question must be posed whether a maximum level of private medical insurance in the UK has been reached," he said.

The tax relief cut, announced by Chancellor Gordon Brown in his first Budget, meant private health insurance premiums effectively rose by a third for the 1.2 million people affected. Leading private health insurer Western Provident Association said the typical premium for a 60-year-old Londoner had risen from pounds 1,900 a year to around pounds 2,500.

Another pressure on premiums comes from people whose private health cover is a middle management perk. According to Paul Farrell, a corporate adviser on private health, managers treat the company private health plan as a must-have status symbol and insist upon seeing a private doctor even when it would easier and cheaper to see a local GP.

Meanwhile, GP fundholders are encouraging patients with private health cover to use it, so they can make their own savings, said Mr Farrell.

This pressure on premiums, which has seen them rise by 60 per cent since 1990, has put off potentially profitable subscribers who are young, healthy and less likely to make claims.

The effect has been that health insurance has remained an expensive luxury restricted to a well-off 10 per cent. Insurance giants such as the Norwich Union have entered the sector to challenge what was once a virtual duopoly dominance by Bupa and PPP - itself taken over by Guardian Royal Exchange last year - increasing competition and further eroding profit margins.

Recent figures claiming that NHS waiting lists have been slashed will not have boosted the morale of bosses in the private medical industry, either. They are desperately trying to find new subscribers. Fears about the state of the NHS drive people into paying for medical cover but good news only reaffirms their confidence in the state-run provision.