Criticisms of Private Medical Insurance by
the Office of Fair Trading

It is difficult for potential customers to obtain comprehensive information on the charges and coverage offered by companies selling private medical insurance. This hinders consumers’ ability to compare products and make informed decisions on whether to buy medical insurance and which supplier to select. Many insurers, particularly the largest firms, do not publish the rates they charge people of different ages, requiring people to obtain individual quotes. Insurers offer so many varieties of policy with different coverage and exclusions that consumers are inevitably confused.

The lack of adequate and clear information from private medical insurers has led the Office of Fair Trading to investigate the industry twice in recent years and to issue critical reports. The OFT issued a press release in relation to its second report in May 1998 under the heading final warning to health insurers. The Director General of Fair Trading, John Bridgeman stated:

"The response of this £2bn industry to recommendations in my 1996 report was dismal."

The OFT called on insurers to issue "benchmark products" which would allow consumers to assess the charges different companies charge for comparable products. The report stated:

"In the absence of a clear idea about what different policies cover, and of agreed definitions, consumers are unable to compare one policy against another. As a result, they may pay more than is necessary and inevitably purchase, on occasion, inappropriate policies."

The OFT also referred to research from the Charitable Hospitals Foundation which suggests that many subscribers to private health insurance schemes fail to understand important restrictions in the cover they are buying. In particular, this research suggests that:

"79% of patients were unaware that their insurer would not pay the cost of drugs dispensed for use at home following discharge from hospital and that their policy would not provide cover for chronic (incurable) conditions."

The OFT concludes that the private medical insurance market is likely to remain undeveloped "unless these information related problems are addressed". The OFT report can be viewed at their website.

The private medical insurance industry responded to this "final warning" by producing a consumer guide which defines a "Core Product" in simple terms and indicates the possible variations which may occur. Most private medical insurers now recommend potential purchasers to read this guide. This is discussed further on the CareHealth site in the section on Private Medical Insurance.

In a July 2000 press release entitled Health Insurers Improve Customer Information the OFT praises the progress made by the industry in improving product literature and aiding comparison by using core benefit descriptions. However, the OFT had two remaining areas of concern.

Firstly, it stated that "there has been insufficient strengthening of the self-regulation of moratorium-based health insurance and no sign of research into whether policyholders are foregoing medical advice during the moratorium period."

Secondly, "insurers have not responded to OFT's recommendation that they should publish statistics on their average increases in PMI premiums over the last five years - statistics that the OFT had recommended should be drawn to the attention of consumers before the product was sold." In CareHealth's experience, only one insurer out of the eight covered on the site, Clinicare, publishes details of the average increases in its premium rates prominently in its sales literature.

Also, it is highly questionable whether the PMI industry has delivered the greater simplicity which the OFT has consistently said is essential. To illustrate the complexity of the choices facing a potential purchaser, we list below the number of different options offered to an individual by the eight insurers covered on the site. BUPA leads with a staggering 3960 options for its Heartbeat policy. There are five basic variants of the policy (Heartbeat healthcare select 1 to 4 and HC). Each variant has three options for the range of hospitals offered (Extended, National and Local access). Each variant has three options for premium rates (standard, fixed for five years and fixed for ten years).Any policy has eight excess options. Any policy also has eleven options for additional cover. 5 x 3 x 3 x 8 x 11 = 3960.

It is not practical to illustrate all 3960 options from BUPA here. Instead, we show the much smaller, but still bewildering, range of options facing a 50 year old man or woman considering buying insurance from AXA PPP healthcare. The list shows the 114 different monthly premium options AXA PPP healthcare offers him or her.

Policy Name Excess Amount (£) Hospital availability/accommodation Premium (£)
Platinum 0 Hospital Cover 1 410
Platinum 0 Hospital Cover 2 321
Premier 0 Hospital Cover 1 185
Premier Choice 0 Hospital Cover 1 181
Premier 100 Hospital Cover 1 168
Premier Choice 100 Hospital Cover 1 161
Premier 200 Hospital Cover 1 151
Premier 0 Hospital Cover 2 149
Premier Choice 200 Hospital Cover 1 148
Premier Choice 0 Hospital Cover 2 146
Classic 0 Hospital Cover 1 144
Premier Choice 500 Hospital Cover 1 141
Premier 500 Hospital Cover 1 137
Premier 100 Hospital Cover 2 136
Classic 100 Hospital Cover 1 131
Premier Choice 100 Hospital Cover 2 130
Ideal 0 Hospital Cover 1 127
Classic Choice 0 Hospital Cover 1 125
Premier 200 Hospital Cover 2 122
Classic 200 Hospital Cover 1 121
Premier Choice 200 Hospital Cover 2 120
Ideal 100 Hospital Cover 1 116
Premier Choice 500 Hospital Cover 2 114
Classic 500 Hospital Cover 1 113
Classic Choice 100 Hospital Cover 1 111
Ideal Choice 0 Hospital Cover 1 111
Premier 500 Hospital Cover 2 110
Ideal 200 Hospital Cover 1 107
Classic Choice 200 Hospital Cover 1 102
Ideal 500 Hospital Cover 1 99
Ideal Choice 100 Hospital Cover 1 99
Classic 6 0 Hospital Cover 1 97
Classic Choice 500 Hospital Cover 1 97
Classic 0 Hospital Cover 2 96
Classic 6 100 Hospital Cover 1 94
Classic Choice 0 Hospital Cover 2 94
Classic 6 200 Hospital Cover 1 92
Ideal Choice 200 Hospital Cover 1 92
Classic 6 500 Hospital Cover 1 91
Classic 100 Hospital Cover 2 88
Ideal Choice 500 Hospital Cover 1 87
Classic Choice 100 Hospital Cover 2 84
Ideal 0 Hospital Cover 2 82
Classic 200 Hospital Cover 2 81
Classic 6 0 Hospital Cover 2 81
Ideal Choice 0 Hospital Cover 2 80
Classic 6 100 Hospital Cover 2 77
Classic Choice 200 Hospital Cover 2 77
Classic 6 200 Hospital Cover 2 76
Classic 500 Hospital Cover 2 75
Classic 6 500 Hospital Cover 2 75
Ideal 6 0 Hospital Cover 1 75
Ideal 100 Hospital Cover 2 74
Classic Choice 500 Hospital Cover 2 73
Ideal 6 100 Hospital Cover 1 73
Ideal 6 200 Hospital Cover 1 72
Ideal 6 500 Hospital Cover 1 71
Ideal Choice 100 Hospital Cover 2 71
Key Plan 0 Hospital Cover 1 70
Ideal 200 Hospital Cover 2 69
Key Plan 100 Hospital Cover 1 68
Key Choice 0 Hospital Cover 1 67
Ideal Choice 200 Hospital Cover 2 66
Key Plan 200 Hospital Cover 1 65
Assure 0 Hospital Cover 1 64
Ideal 500 Hospital Cover 2 64
Key Plan 500 Hospital Cover 1 64
Ideal Choice 500 Hospital Cover 2 62
Assure Choice 0 Hospital Cover 1 60
Key Choice 100 Hospital Cover 1 60
Key Plan 0 Hospital Cover 2 58
Assure 100 Hospital Cover 1 57
Key Choice 200 Hospital Cover 1 55
Key Choice 0 Hospital Cover 2 55
Key Plan 100 Hospital Cover 2 55
Assure Choice 100 Hospital Cover 1 53
Key Choice 500 Hospital Cover 1 53
Key Plan 200 Hospital Cover 2 53
Ideal 6 0 Hospital Cover 2 52
Key Plan 500 Hospital Cover 2 52
Assure 200 Hospital Cover 1 51
Assure 0 Hospital Cover 2 51
Ideal 6 100 Hospital Cover 2 50
Ideal 6 200 Hospital Cover 2 49
Key Choice 100 Hospital Cover 2 49
Assure Choice 200 Hospital Cover 1 48
Ideal 6 500 Hospital Cover 2 48
Key 6 0 Hospital Cover 1 48
Assure Choice 0 Hospital Cover 2 47
Assure 500 Hospital Cover 1 46
Assure 100 Hospital Cover 2 46
Key 6 100 Hospital Cover 1 46
Key 6 200 Hospital Cover 1 45
Key Choice 200 Hospital Cover 2 45
Key 6 500 Hospital Cover 1 44
Assure Choice 500 Hospital Cover 1 43
Key Choice 500 Hospital Cover 2 43
Assure 200 Hospital Cover 2 42
Assure 6 0 Hospital Cover 1 42
Assure Choice 100 Hospital Cover 2 41
Key 6 0 Hospital Cover 2 40
Assure 500 Hospital Cover 2 38
Assure 6 100 Hospital Cover 1 38
Key 6 100 Hospital Cover 2 38
Assure Choice 200 Hospital Cover 2 37
Key 6 200 Hospital Cover 2 37
Key 6 500 Hospital Cover 2 36
Assure 6 0 Hospital Cover 2 35
Assure 6 200 Hospital Cover 1 34
Assure Choice 500 Hospital Cover 2 34
Assure 6 500 Hospital Cover 1 32
Assure 6 100 Hospital Cover 2 31
Assure 6 200 Hospital Cover 2 28
Assure 6 500 Hospital Cover 2 26

There are 114 prices ranging from £26 per month (£312 per year) to £410 per month (£4920 per year). The highest premium is 16 times the lowest.

The range of premium options is graphed below.

The number of options offered to a 50 year old by the other insurers covered by the CareHealth premium database are given below:

Information provided to policyholders unsatisfactory

A further inquiry into private medical insurance by the OFT in November 1999 concluded that the private medical insurance industry is competitive, but that:

"information provided to BUPA and PPP policyholders is unsatisfactory and must be improved. In particular, policyholders should be given clear and accurate information on renewal of policies to enable them to make informed comparisons between different types of policy."

The OFT is here addressing the issue that, although BUPA and PPP offer a wide range of policies and introduce new variations, sometimes with lower premiums, they have not in the past automatically informed existing policyholders of the options available to them when their annual renewal falls due. They have simply let subscribers stay on their existing scheme. This is similar to the much-criticised practice by some building societies of introducing new savings schemes with higher rates of interest but not informing their existing customers about them.

Lack of information for customers about networks and partnership consultants

The OFT also criticised lack of information to subscribers on which hospitals and consultants they are entitled to use and, in the case of BUPA customers, the implications of using a BUPA Partnership Consultant. The relevant press release can be seen in full here.

The issue being referred to here is that BUPA operated a Consultant Partnership Scheme where participating consultants received a 5% bonus on their fees for treating a patient if they treat them at a BUPA partnership hospital and charge within BUPA’s Benefit Maxima. It should be noted that BUPA’s partnership hospitals include approximately 170 major hospitals from all the major independent hospital groups, not only BUPA owned hospitals. However, BUPA’s partnership network excludes most NHS Hospitals. Most BUPA insurance schemes allow subscribers to be treated at the larger network of approximately 800 "participating hospitals", including NHS Hospitals. However, it is clear that the Consultant Partnership Scheme provided a financial incentive to consultants to treat patients in the more restricted range of hospitals irrespective of the type of insurance scheme they have chosen. The OFT recommended that subscribers to BUPA medical insurance schemes should be informed of these issues. Since this criticism by the OFT, BUPA informed the Competition Commission in its evidence relating to its unsuccessful application for approval for its bid for Community Hospitals Group (now Capio Healthcare UK) that it ended the requirement on consultants to use hospitals in BUPA’s network from 1 July 2000. BUPA has also increased the bonus payment to consultants who belong to the scheme to 10% when they treat BUPA insured patients within the Benefit Maxima.

BUPA’s Benefit Maxima are a scale of maximum charges which the insurer will pay for different treatments and procedures. The OFT repeated its view that this practice did not operate against the public interest since it sets a limit on medical fees and provides some transparency about charges. However, the OFT had earlier prevented the British Medical Association from issuing recommended fees to be charged for different procedures on the grounds that this would be anti-competitive. In practice, BUPA has effectively set fee levels instead through its benefit maxima.

The OFT recommends that the British Medical Association and the private medical sector should develop a Code of Practice on charging, adding that it first made this recommendation five years ago.

Lack of effective market means premiums are high

The Financial Times commented on these issues in an editorial dated 1st June 2000 recommending that the Government should ensure that the OFT includes the medical profession in a recently announced inquiry into competition restrictions in the professions:

"Given the limited incentive for insured patients to shop around, there is, at the least, a case that no effective market exists for specialist fees in private medicine, and that premiums are higher than they need be as a result. Ministers should think again, and include the medical profession."

In the absence of published data on charges, the CareHealth website aims to help remedy this lack of information by bringing together figures on charges from the main insurers for standard, core products.

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