News

Private sector struggles to control costs

The private health insurance industry and the NHS face similar challenges in controlling mounting costs and improving the appropriateness of care, according to a report from the Office of Fair Trading (OFT).

But the report suggests that the NHS may be squaring up to the issues more effectively than the private sector.

‘For many individual plans, private medical insurance premiums have risen by six to twelve per cent a year above the retail price index’, said John Bridgeman, director general of fair trading, at the report’s launch. ‘Prospective policyholders have not been warned about these apparently inevitable increases.’

Costs in the private sector seems to have rising faster than those in the public sector. In real terms, spending on private medical insurance premiums has risen over two per cent faster than spending on NHS acute services.

The OFT points out that any product whose price rises faster than average earnings is likely to face problems. ‘It will become less and less affordable, and either its specification will have to be continually reduced or its market will shrink’, argues the report.

The OFT’s conclusion is supported by the fact that the market in private health insurance, worth about £2.2bn a year in the UK, has been static for the past five years. In an attempt to control costs and reduce clinical variations in practice, the industry has been investigating the US experience in managed care and financial incentives for practitioners and hospitals not to over-treat.

Yet the reasons why the private sector is performing badly are not well understood. The report finds evidence that both the number of claims made, and the costs of each claim, are rising.

Some insurers suggest that the introduction of GP fundholding has produced an incentive for doctors to safeguard their budgets by encouraging privately insured patients to seek private treatment. This would, in effect, result in the NHS shifting costs onto the private sector. But no firm evidence exists to support this claim.

The OFT has called on insurers to give consumers clear and accurate information on the current and possible future costs of premiums, and on what is and is not covered by policies. Many policyholders find the small print of policies hard to understand and believe costs are covered which in fact are not.