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Health insurance explained

By Dean Sobers

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Health insurance explained

Find out what health insurance can cover you for - and where its limitations are.

Around 5.1 million UK residents have health insurance, with the industry paying out £7.4m in claims every day, according to the Association of British Insurers. But what is health insurance? And how does it work?

At its most basic, health insurance, also known as private medical insurance, pays out for private treatment if you fall ill.

However, health insurance doesn’t cover you for everything and differs from provider to provider. The product is designed to pay for essential medical conditions (usually called acute conditions), that respond quickly to treatment, as well as surgery and medical tests.

What does health insurance include?

What you are covered for depends on your provider, but there are some elements usually included in most policies.

Inpatient treatment

Most policies cover the costs of inpatient treatment (where you need a hospital bed for the day or overnight), including tests and surgery.

Outpatient treatment

Outpatient treatment (where you see a consultant or have diagnosis tests) is covered under many policies but the amount you can claim for may be capped. Cheaper policies cover fewer types of out-patient treatment and have lower caps.

Hospital accommodation and nursing care

A stay in hospital and limited nursing care is included in most policies.

Exclusive drugs

Some policies will include drugs unavailable on the NHS, but that have been approved by the National Institute for Health and Care Excellence.

Extra cover

Cover for psychiatric treatment varies between insurers. This is a difficult area for providers as it blurs the line between curable illness (which is covered) and long-term care (which isn't). Comprehensive policies may include psychiatric treatment, but not all do.

Some policies also offer complementary therapies, a private ambulance, home nursing, a 24-hour advice line and parental accommodation if your child is in hospital. Again, a comprehensive policy is more likely to cover these areas.

What is excluded from health insurance?

Your policy won't pay for longer-term treatment such as kidney dialysis, or illnesses such as asthma. Other exclusions include drug abuse, normal pregnancy and non-essential cosmetic treatments.

What are the different types of health insurance?

There are two main types of health insurance, fully underwritten insurance and moratorium insurance. If you opt for fully underwritten health insurance, you will have to give your provider your full medical history, however, with a moratorium plan, you will only need to give limited information to your provider.

A fully underwritten policy is likely to give you wider coverage, but will be more expensive, while a moratorium policy will be cheaper and will come with blanket exclusions on some pre-existing conditions.

Some insurers also have specialist policies. For example, only cover you when you have to wait longer than six weeks for NHS treatment. Other policies are designed specifically for the over-55s, or have a special focus on one disease, such as cancer.

Modular, pick-and-mix style policies are becoming more common. These cover you for in-patient treatments, but also allow you to add cover for different things so that you tailor-make your insurance package.

What are the alternatives to health insurance?

As well as free treatment via the NHS, there are a number of alternatives available. Healthcare cashplans, where you pay a monthly fee and can claim back the cost of certain basic treatments, and critical illness cover, where you pay to cover specific serious illnesses, could both be used as alternatives depending on what you need.

  • Last updated: August 2016
  • Updated by: Dean Sobers

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