Who will pay for this cut?

Health is never far from the headlines. And that has especially been the case in recent weeks, following the publication of the government’s radical plan to overhaul the NHS.

Last June, health secretary Andrew Lansley unveiled the ambitious blueprint, which will give consortia of GPs control over commissioning treatments. These proposals now face a bumpy ride through parliament.

The profound change in the way that the NHS is organised is part of the wider public spending squeeze. Although it has been allocated a slight rise in funding, this effectively translates into a freeze if inflation is factored in. Amid this turmoil, what opportunities exist for the private health insurance market?

The sector remains highly concentrated, with the three biggest insurers – Bupa, AXA and Aviva – accounting for 81.2% of the market, according to the latest Datamonitor survey.

The biggest move over the past year was PruHealth’s acquisition of the fourth-biggest medical insurer, Standard Life.

Increased appetite

The i-word is off-limits for the government. The Conservatives are particularly anxious not to talk about a topic that summons up shades of the Thatcherite past David Cameron has spent years distancing himself from.

“Both internally and in public, there is no conversation about private health insurance,” says the deputy director of right-wing think-tank Reform, Nick Seddon.

Nevertheless, he is convinced that the current environment will spark an increased appetite for insurance. “There’s not going to be enough money to go around,” he says, which means an inevitable reduction in the number of treatments. “We previously saw this kind of rationing in the 1980s, when there was a really rapid increase in the health insurance market in the UK.”

The past decade has been one of relative stagnation in the private health insurance market, with around six million people covered through individual and corporate schemes, according to researcher Laing & Buisson.

AXA PPP commercial director Fergus Craig agrees with Seddon that this could soon change. “If people have to wait a bit longer for operations, it’ll be back to where we were 20 years ago,” he predicts.

Craig believes that demand for health insurance is driven by affluence: cover tends to get cut when times are tight. The NHS’s performance also affects demand. “If the NHS is performing well, it has a dampening effect.”

But shadow health secretary John Healey suggests that accessibility to services could cause a problem before performance is even an issue. He argues that the coalition government’s scrapping of waiting list targets is already creating opportunities for insurers. Official statistics show that the number of NHS patients waiting six weeks or more for diagnostic tests has risen 50% over the past year.

Healey has been quick to capitalise on such concerns. In a recent interview with the Sunday Mirror, he said: “Private health companies are watching how waiting times rise while lining up to cash in on those who feel they have to pay to jump the queue. Labour’s time in government was a period of slim pickings for private health insurance companies, because patients saw big improvements from our investment in the NHS. Private health insurance companies know that Tory governments are good for business.”

Mixed opportunity

Managing director of intermediary Best Health UK Debbie Kleiner-Gaines says that spending cuts are yet to happen. “It will take a while to feel the impact of increasing NHS waiting lists. We expect to see a lot of interest in six months.”

But Kleiner-Gaines, who sits on the executive committee of the Association of Medical Insurance Intermediaries, has no doubt that when the cuts hit, the impact will be profound. “If concerns over NHS restructuring and budgets are proved right, demand for private healthcare will rocket.”

Some health insurers believe that the private sector could ease the burden on the cash-strapped NHS. Private hospital provider BMI Healthcare recently calculated that the NHS could save £285m a year if more GPs routinely asked their patients if they had insurance.

If each of the UK’s nearly 50,000 GPs referred one extra patient a month ­– at an estimated average treatment cost of £500 – the NHS could save £285m, freeing up scarce resources.

BMI chief executive Adrian Fawcett argues that GPs should be mandated to ask whether patients have medical insurance when the Department of Health next updates the NHS operating framework. “Even a small rise in the number of people using insurance to pay for care would result in significant savings,” he says.

Clear Insurance head of health insurance Michael Cook agrees: “GPs will be asking the question, and they will be encouraged to do so.”

Such issues will become increasingly pressing for GPs as a result of the changes, as they will be given responsibility for commissioning services, leaving them with tricky decisions on prioritising treatments and operations.

Cook argues that this shift will generate insurance opportunities. “GPs will be more proactive,” he says. “You could see them driving deals with private consortiums. You could see deals with private hospitals for patients who are prepared to pay for care.”

AXA’s Craig is optimistic too that the rapid changes will deliver opportunities. “Previous experience would indicate that there will be unexpected outcomes from the reforms.”

But there will be downsides as well, he says. “This is creating a period of uncertainty, which is not helpful. We are in a hiatus.”

The primary care trusts (PCT), the commissioning bodies that now face the scrapheap, will be around for a couple of years, he says. “It’s difficult to see what the state of negotiations with PCTs is going to be. Until GP consortiums are up and running, we will be fairly short of people to engage with.”

Shifting the goalposts in such a radical fashion every four or five years is “deeply unhelpful” for insurers, Craig adds, as it makes it difficult to develop products. “We require a fair amount of investment, which should happen over a fairly long period of time.”

He is particularly worried about the decision to abolish the National Institute for Health and Clinical Excellence (NICE), the body that provides guidance on the treatments and drugs that doctors can prescribe. Instead of one body, such decisions will be in the hands of individual GPs’ consortia – a recipe for further uncertainty, Craig says.

“We were keen on NICE because you knew that the NHS was not going to provide X or Y … down the road, you could launch a product that provides X and Y. If you don’t understand what the GPs decisions are going to be, it is impossible for us to provide products. We can’t see at this stage where there might be opportunities.”

Something that may have helped the push to private - tax relief for medical insurance – appears to be off the agenda. Backbench Tory MP Peter Bone has tabled a private members’ bill to encourage the take-up of this form of cover. But parliamentary managers have timetabled any debate for a graveyard slot, making its chances of succeeding negligible.

Craig says that the Treasury is dead set against tax relief on cost grounds. “If this was a door that didn’t have three bolts and a deadlock, then I would push on it.”

Systematic framework

Seddon says that it is “disappointing” that the government has not investigated other forms of financing healthcare.

He argues that embracing insurance could create a more systematic framework than the rather ad-hoc arrangements that look set to emerge, and urges the government to look at the kind of top-up arrangements in place elsewhere in western Europe, where the state provides a basic level of care with top-up treatments on offer under insurance packages.

Such packages could be a way of negotiating vexing issues surrounding expensive treatments, such as certain cancer treatment drugs, which are too expensive to offer across the board.

One thing appears certain, though: while the political parties are slugging it out over the politics of health, the insurance industry will be looking for opportunities. IT