With NHS waitlists at record highs, private medical insurance looks increasingly attractive, especially if you’re in business for yourself.
Having the option to go private means you can receive treatment faster and get back to business sooner should you fall ill.
Plus, if you employ staff, it’s an attractive perk to offer them.
But is private medical insurance actually worth the cost? And, if so, what’s the most tax-efficient way to pay for it as a limited company owner?
In this post, we’ll take a look at:
- What a typical medical insurance policy does and doesn’t cover
- Whether it’s actually worth buying a private medical insurance policy
- The pros and cons of paying for it through your limited company and out of your own pocket
What does private medical insurance cover?
There are four main types of private medical insurance:
1. Private health insurance
If you’re thinking of getting private medical insurance, this is probably the type of policy you have in mind.
Private health insurance covers the cost of private medical treatment if you get sick, and it typically has three levels of cover:
- Inpatient cover, which pays out if you need to go to hospital
- Outpatient cover, which pays for doctors’ and consultants’ appointments, tests, and other care that doesn’t require a hospital stay
- Day patient cover, which pays for appointments and tests
The vast majority of private health insurance policies only cover acute conditions: illnesses that appear suddenly and can heal within a reasonably short amount of time, like bronchitis or a broken bone.
That said, levels of cover — and, so, the cost — can vary widely.
The cheapest policies cover a limited number of treatments and cap payouts. For example, a policy might pay out up to £10,000, and you’d need to pay for treatment over that limit yourself.
The most expensive policies have no payout caps and can cover specialist treatments, including advanced cancer care and mental health support.
2. Diagnostics cover
This type of policy pays for the doctors’ and consultants’ appointments and tests you need to find out what’s causing your symptoms, but not for the cost of treatment.
It’s useful for getting a quick diagnosis and cheaper than private health insurance. But, once you find out what you’re sick with, you’ll need to use the NHS or pay out of pocket for treatment.
3. Health cash plans
Health cash plans give you money back on some of your health care costs, up to a certain limit.
They can cover:
- Routine doctor’s appointments, eye exams, and dental check-ups
- The cost of health screenings
- The cost of prescriptions
- Hospital parking charges
4. Critical illness cover
This type of policy pays out a one-off lump sum if you’re diagnosed with a serious illness.
Critical illness policies are sometimes confused with life insurance. But, while most critical illness policies only cover life-threatening or life-altering illnesses — stroke, advanced cancer, or losing a limb, for instance — they pay when you’re diagnosed, not when you die.
You don’t necessarily have to use the payout to pay for medical care, either. The money is yours to use as you see fit.
What private medical insurance does NOT cover
Private medical insurance doesn’t cover:
- Chronic conditions. These are illnesses that don’t get better and need to be managed on an ongoing basis, such as diabetes or asthma. Some policies will however cover flare-ups — an acute worsening that can be brought back under control
- Pre-existing conditions — illnesses you were diagnosed with prior to buying the policy. Policies tackle pre-existing conditions in one of two ways:
- i) Moratorium underwriting
Here, a pre-existing condition will be covered as long as you haven’t sought treatment or experienced symptoms for a specified period.
So, if you’re hospitalised with bronchitis and your policy has a 3-year moratorium, for instance, you’ll be covered if your last infection was more than three years ago. But you won’t be covered if you were last sick with bronchitis less than three years ago.
- ii) Full medical underwriting
Here, you’ll need to provide a full medical history before your policy is issued, and any illnesses you’ve had in the past will be specifically excluded from cover.
The main advantage of this type of policy is that it pays out faster. Unlike moratorium policies, there’s no need to provide evidence that you haven’t sought treatment within the moratorium period every time you claim. The insurer already knows your history.
The flipside is that pre-existing conditions will remain so for the duration of the policy.
- Treatment for alcohol and drug addiction
- Cosmetic surgery, fertility treatment, and other non-essential medical care
- Pregnancy and childcare
- Accidents and emergencies
Is private medical insurance worth the extra cost?
The simple answer is: it depends on your reasons for buying it.
Private medical insurance can help you get seen much faster than going through the NHS. You can typically see a specialist or get diagnostic tests done privately in a matter of days.
By contrast, the NHS has 2-week waiting times for urgent care and 18-week waiting times for non-urgent care. And these are just targets. In practice, it takes some patients several years to be seen.
Private medical insurance can also give you more flexibility and convenience.
You can book an appointment at a time that suits you instead of having to go when you’re told, choose where and who will treat you, get a second opinion more easily, and even access treatments not available on the NHS.
Many private hospitals’ rooms also look more like hotel rooms than hospital rooms. They’re nicer and comfier (and the food tastes better).
That said, it’s important to bear in mind that private medical insurance is complementary, not a replacement for NHS care.
If you’re in an accident or suffer a serious, life-threatening emergency, you’ll need to go to A&E, because private hospitals simply aren’t equipped to offer this kind of treatment.
Similarly, if you live with a chronic condition, tend to get sick with the same illness over and over, or need other treatment that insurance doesn’t cover, you’ll need the NHS unless you can afford to pay for private care yourself.
Of course, you’re still entitled to use NHS care if you have private medical insurance. So if you can afford it, buying a private medical insurance policy can give you the best of both worlds.
Should you buy private medical insurance via your limited company or pay for it personally?
You’ll be pleased to hear that private medical insurance is an allowable business expense. Which means paying for it through your limited company can bring down your corporation tax bill.
By contrast, paying personally means taking money out of your taxable income and lowering your take-home pay.
Many insurers also have private medical insurance products designed for businesses. These can be better value than products aimed at individual customers.
That said, it’s not all black and white.
Because private medical insurance benefits you personally, HMRC considers it to be a benefit-in-kind.
As a result, if you pay it through your limited company, you’ll need to:
- Pay income tax on the premium at your highest rate
- Pay employers’ national insurance
- Fill out a P11D form every year
It’s worth crunching the numbers to see which option would work out cheaper for you.
If you take a small salary and the rest of your income as dividends, paying for private medical insurance through your limited company may be more tax-efficient than paying for it yourself.
If, on the other hand, you take a substantial salary, the benefit in kind might tip you into a higher tax band.
Your accountant can advise you about the best way to pay for private medical insurance based on your circumstances. There are also ways you can reduce the premium to make it more affordable.
Consider limiting your cover only to what you need
There are several ways to go about this. You could:
- Only buy cover for diagnostic tests, elective care, and treatments that aren’t available on the NHS
- Reduce your list of in-network hospitals — the hospitals where you can receive treatment. Unless you travel all the time, you’re unlikely to benefit from having the option of being treated at hospitals that are hundreds of miles away from your home, so this is a relatively painless way of bringing costs down
- Choose a ‘guided’ policy — a policy with fewer in-network doctors or consultants
Consider a policy with a 6-week wait option
These are policies that kick in only if an NHS wait for in-patient treatment is longer than 6 weeks.
Choose a higher deductible
This is the amount you have to pay out of pocket before your policy kicks in. The higher the deductible, the less the insurer has to pay, which lowers your premium.
Needless to say, there’s a balance to be struck here. You’ll want the deductible to be high enough to make a difference to your premium, but not so high that it defeats the purpose of buying private medical insurance in the first place.
Final word… and a bonus tip
While not a substitute for NHS care, private medical insurance can give you more flexibility, more choice, and the peace of mind that you can avoid long waiting times should you get sick.
The catch is that, depending on the level of cover you want, it can come at a significant cost. Which is why you should weigh your options, shop around, and work out the best way to pay for it.
Most importantly, private medical insurance is one of the few products where, once you’ve picked a provider, it pays to stick with them.
A new insurer will consider any illnesses you claimed for under your old policy to be pre-existing, so you won’t be covered if you fall ill again. More to the point, the older you get, the more likely you are to get sick. And this means you’re unlikely to find a better deal than the one you already have.
With this in mind, it’s critical to do your homework.
You’ll likely be dealing with your private medical insurance provider for many years to come. So, alongside the right cover and price, make sure you choose a company with a reputation for quality and great customer service.
Thinking of buying private medical insurance?
At Limited Company Help, we’ve been working with five-star rated financial advisor Broadbench for over a decade.
Broadbench specialise in financial advice for contractors and limited company owners, and they can help you get affordable, high quality health cover for you, your family, and your staff
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