A guide to health insurance in the UK

Health insurance in the UK is becoming more relevant as NHS challenges continue. This guide explains what private health insurance is, how it works, what it covers, and why it could play a role in your healthcare and financial planning.

Health insurance can seem daunting, but it’s a potential alternative, or complementary way, to manage your own health and access timely treatment as the NHS faces historic issues.

It is safe to say health insurance is not a widely used product in the UK. Just 2.6% of health spending is done via private medical insurance according to the Office for National Statistics.

But it is gaining some traction – especially given well-documented recent issues in the NHS. While waiting lists are falling, more than seven million are still holding on for procedures.

The UK’s healthcare system is still overwhelmingly nationalised. In practice, this means that the NHS is ‘free at the point of delivery’– but is ultimately paid for through everyone’s taxes. You can read editor Edmund Greaves’s weekly column for more on that.

That being said, a private healthcare system, although much smaller, does exist alongside the national provision.

The lines between private and public are at times blurred as some doctors and healthcare institutions look after both kinds of patient. But how that care is funded is ultimately what is relevant.

This guide explains what health insurance is, how it works, why it might be a useful or necessary alternative to the NHS, what to consider when purchasing and its potential role in your finances.

In compiling this guide, Mouthy Money spoke to Dr Katie Tryon, chief commercial officer at health insurer Vitality for an episode of the Mouthy Money podcast. You can listen to the full podcast episode with Katie to hear more about how health insurance works and what to consider.

What is health insurance?

Health insurance, commonly known as private medical insurance in the UK, is a form of insurance policy that funds private healthcare for specific medical conditions, treatments or other health-related services.

Unlike the NHS, which offers free care at the point of use, private health insurance grants access to private hospitals, consultants and treatments. These private services are typically much quicker than NHS care but there is a significant ‘out-of-pocket’ cost attached.

Private health insurance generally covers acute conditions, such as sudden illnesses or injuries requiring surgery, but often excludes chronic conditions like diabetes or long-term care. Policies differ, but many include hospital stays, specialist consultations, diagnostic tests and treatments like physiotherapy.

Dr Tryon explains: “Traditional health insurance covers private treatment for conditions like musculoskeletal issues, cancer, or cardiovascular problems, depending on policy terms. These are the big-ticket items people historically bought insurance for.”

But she notes that usage of so-called ‘primary’ services such as GPs is growing significantly in response to changes in NHS ease of access.

“The real growth has been in primary care – services like GP consultations, physiotherapy, talking therapies and even skin analytics. Since we launched our GP service in 2015, claims in this area have grown by hundreds of percent.

“Moving further upstream, prevention is a growing focus. We use tools like Apple Watches to encourage physical activity, better nutrition, smoking cessation, weight loss and regular screenings. Health insurance has evolved from just paying hospital bills to a holistic tool for managing and improving health.”

As Dr Tryon says, some plans provide additional benefits, such as holistic services, tech, dental cover or mental health support, depending on the provider and premium.

This is typically done as it is an effective way to ensure the customer remains healthy for longer and also doesn’t end up costing the insurer more in expensive health treatments down the line.

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How does health insurance work?

When you buy a health insurance policy, you pay a monthly or annual premium to an insurer, who agrees to cover eligible medical costs for private treatment.

The process begins with selecting a policy that matches your needs, budget and desired coverage level. Such cover ranges from basic plans for major treatments to comprehensive ones that include outpatient care and extra services.

If you need treatment, you contact the insurer, who may require pre-approval or allow a GP referral to a private specialist.

The insurer verifies if the treatment is covered, and if approved, you can book appointments at a private hospital or clinic within the insurer’s network. Typically, the insurer pays the provider directly, though some policies require you to pay upfront and claim reimbursement.

Premiums vary based on age, health, lifestyle and coverage. They may increase annually due to inflation or aging, depending on the terms and conditions of the policy.

Policies often have exclusions, like pre-existing conditions or cosmetic procedures, and may include excess fees, where you cover part of the costs. Reading the terms carefully ensures you understand the coverage.

Why might you want or need health insurance?

Health insurance can offer some advantages depending on your situation. The NHS provides excellent emergency care and chronic condition management, but waiting times for non-emergency procedures, like knee surgery, can extend to months.

Dr Tryon is emphatic that health insurance is just about non-emergency procedures and issues but is increasingly being used an alternative for primary care.

“Our data shows a clear correlation between NHS waiting lists and our claims, especially for secondary care like hospital treatments. Primary care and prevention services are areas the public sector struggles to prioritise due to financial constraints.

“Another is the ‘quantified self’ movement. People are obsessed with data – heart rate variability, steps, calories – but often don’t know what to do with it. They’re looking for guidance and we help navigate that. Early intervention is also key. It’s cheaper and better to address issues early, like physiotherapy instead of a hip replacement.

“Finally, the digital revolution, supercharged by Covid, has transformed care delivery. Virtual services and community-based care leapt forward, enabling this shift.”

Private insurance can enable quicker treatment, which is vital if you’re in pain or need to resume work. It can also provide greater choice (depending on what is available in your area) allowing you to select your consultant, hospital and appointment times, offering flexibility the NHS may not.

Private hospitals can provide private rooms and better facilities, giving more comfort during recovery. For the self-employed or those unable to take extended time off, private care can minimise income loss by speeding up recovery.

Access to specialists or advanced treatments may also be easier privately, especially for complex conditions.

What to look out for when buying?

Choosing the right health insurance policy requires careful consideration to ensure it fits your needs and budget.

It is important to remember too that health insurance only works if you have a policy in place before a condition or issue emerges.

Dr Tryon says many policies are provided through workplace programs, but you can take out a policy independently. Costs vary between £70 to £200 (but can be more) depending on your age and health-related factors.

Here are some key things to consider:

Coverage scope: Check what the policy includes. Basic plans may cover only inpatient treatments, while comprehensive ones include outpatient consultations, diagnostics, and therapies. Ensure it matches your priorities.

Exclusions and limits: Most policies exclude pre-existing conditions, cosmetic surgery, or chronic illnesses. Some limit coverage for treatments like cancer care. Review the terms to avoid unexpected gaps.

Network of providers: Insurers partner with specific hospitals and consultants. Check that nearby facilities are included and available with your chosen provider.

Excess and co-payments: Some policies require an excess, like £100 per claim, or a percentage of costs, reducing premiums but increasing your out-of-pocket expenses.

Premium costs: Compare quotes from multiple providers, but don’t compromise essential coverage for a lower price. Use comparison sites or brokers for broader options.

Claims process: Choose insurers with a clear claims process and strong customer service. Look at reviews to consider the firm’s reliability.

Consider your age, health and finances when selecting a policy. Younger, healthier individuals might opt for basic cover, while older people or those with health concerns may need broader protection.

Why health insurance matters for your finances

Health insurance isn’t typically defined as something that can save you money or offer a sensible financial safety net, but its usefulness does extend beyond healthcare.

By protecting your health and potentially your family’s too, it can act as a financial safeguard that protects you against a loss of income, savings and stability through health issues.

For self-employed individuals or those trying to navigate long NHS waiting times, it can enable faster recovery times and outcomes.

Premiums, while highly variable depending on your age and health status, are predictable, unlike ‘out-of-pocket’ medical bills that can reach into the thousands.

However, the costs, often hundreds or thousands annually, require weighing against benefits, especially if you’re young, healthy, or rarely need care. For some, saving for emergencies may be more cost-effective.

Private insurance becomes more appealing for those who can afford it. It complements the NHS, easing the pressure on you to rely on public services while enhancing your healthcare options.

If you’re thinking about getting health insurance, assess your health and finances and consider consulting a financial planner or broker to find the best policy.

Understanding health insurance’s role in your financial plan can help you to make choices that support your health and wealth.

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