Personal Finance: A prescription for good health

Our third article on personal welfare states looks at healthcare plans that pay for `free' NHS treatment. By Andy Couchman

Eye tests, glasses, dental check-ups and treatment, and prescriptions. They are all examples of how our "free" NHS system can be expensive and, for those with families, the costs can be multiplied for each member of the family.

Unless your income is low enough to qualify you for government help, keeping healthy can be expensive. If you are unlucky enough to need hospital care, too, then while the treatment itself is likely to be free, the additional travel and other costs quickly add up.

Add in the occasional physiotherapy session and it is clear that free health is anything but. For many people who do not want, or cannot afford, private medical insurance, there is an alternative.

Healthcare cash plans, previously known as hospital cash funds, can trace their roots back to the 1870s. As industrial Britain grew, Victorian philanthropists helped set up hospital funds for workers who each paid 1d a week for the right to treatment at their local hospital.

They knew that unless they saved in this way, they would be unable to afford to pay for treatment, and no treatment meant no job; and no job meant that the whole family was put at risk.

Some Saturday funds, so called because subscriptions were collected on Saturdays - payday - are still in existence today. For many though, the coming of the new NHS in 1948 saw the old ideals of self-help swept aside and replaced by the all-embracing nationalism of the early post-war years.

Today, the sector has rebuilt itself and over six million people are now covered by healthcare cash plans. The market is worth around pounds 250m a year and growing rapidly as politicians rediscover the third way that the Victorians foresaw over a century ago.

Insurance companies, too, are moving in, partly in response to private medical insurance premiums that continually outpace both inflation and some customers' ability to pay them, especially as they grow older.

BUPA, WPA and BCWA Healthcare all offer cash plans, as do commercial insurers such as Norwich Union Healthcare. Even retailers do, since Boots the Chemists launched a plan underwritten by Royal & SunAlliance last year.

Cash plans, with their fixed benefit limits, typically do not suffer high-cost inflation. Where once, long hospital stays meant fat payouts for those unlucky enough to be ill, nowadays it is the healthy who often benefit most. Many plans will pay half the cost of dental and optical care.

Anyone who has a six-monthly dental check-up, a biennial eye test and new glasses or contact lenses can already be some way to recouping their premiums. If they are unlucky enough to need hospital care too, the payout could easily result in quite a healthy addition to their bank balance.

Cash plans are still available from less than pounds 1 a week, but most people now pay more and, as many benefits go up in line with the premium level paid, payouts can be large if you choose a more expensive plan. Typically, people will pay pounds 20 - 30 a month, but for that a whole family can be covered.

HSA Healthcare is the largest provider, with around half the market, and offers plans from pounds 1.60 a week up to pounds 12.80 a week. While the cheapest plan would only pay up to pounds 33 a year for dental treatment, the most expensive version would pay up to pounds 264. In both cases, the payout would be limited to half the cost and no tax is payable on the payment.

A big attraction for older people is that premiums do not go up with age, and for those with families, children are often included free, although some benefits are lower.

A straightforward claim can be paid out in less than a week - something that puts many larger insurers to shame. But you will need to keep receipts and many plans only reimburse half your costs, although that does vary between providers and between individual benefits.

On average, 80p in each pound of premiums is paid out in claims and, as most providers are owned by their members, if they do make a healthy profit, it is medical charities that are likely to benefit. Many cash plans are regionally based so any charitable donations are likely to benefit the local community and hospitals.

Cash plans are not an alternative to private medical insurance. The sums paid out are usually small and are unlikely to be large enough to pay private medical bills that can run into hundreds of pounds a day. There is usually a blanket exclusion for all pre-existing conditions, and most benefits are likely to be subject to a six- month qualifying period before you can benefit - longer if related to pregnancy, old age or mental illness, for example.

The British Health Care Association (BHCA) represents most cash plan providers with the exception of the largest two, HSA Healthcare and Westfield, and commercial providers such as Norwich Union Healthcare.

BHCA says that since 1979 the movement has seen its premium income rise from just pounds 16m, and has more than doubled in the last six years. BHCA members now pay over pounds 2m a year to charitable causes.

(To get an idea of the annual benefits that a weekly premium of pounds 1 will provide, and which usually covers the whole family, the BHCA has provided figures for the box below.)

Many insurers pay even more benefits. HSA Healthcare now has 21 different benefits, while Westfield has up to 17. Norwich Union Healthcare takes a different approach - it offers up to 12 benefits but they include up to four prescriptions a year, half the cost of private minor surgery by a GP and a 24-hour GP helpline.

There is a wide difference between benefits and premiums between providers so the advice, as always, is to shop around and make sure that you get the benefits you want at a premium you can afford. Many providers deal direct, or you could ask your financial adviser to do the shopping round for you, although many have little experience of these plans.

For a list of healthcare cash plans, call the British Health Care Association on 0113 232 0903. Other cash plan providers include: HSA Healthcare on 0800 150 150; Westfield on 0114 250 2000; Norwich Union Healthcare on 0870 900 1008. Andy Couchman is publishing editor of HealthCare Insurance Report

ANNUAL BENEFITS FROM pounds 1 PER WEEK PREMIUM

Each day spent in hospital pounds 30

Sight tests, glasses etc pounds 60

Dental treatment pounds 60

Specialist consultations pounds 250

Maternity pounds 150

Off work due to illness pounds 70

Disablement/accidental death pounds 10,000

Physiotherapy/osteopathy/acupuncture pounds 250

Convalescence Paid in full

Source: BHCA