How to choose the best medical insurance

how to choose the best medical insurance

Medical insurance, in return for monthly premiums pays for your medical care if you need it as a result of sickness or injury. In some countries, such as the UK, healthcare is offered publicly, while in others, such as the United States, healthcare is private and mostly funded by medical insurance provided by employers. However, if your employer does not provide medical insurance and you are in a country that doesn’t have adequate public healthcare, or you are not entitled to it, you probably need private medical insurance.

Why do I need medical insurance?

First, while countries such as the UK offer free public healthcare, an increasing number of professionals are globally mobile and need to have individual health insurance plans not only in their home country, but wherever they are working or travelling. In addition, strain on public systems is evident, with more frequent disruptions to service as populations grow and age. Increasing demand results in government’s trying to hold down costs whilst doctors and nurses fight for their wages; this drives some to ‘go private’. The rest of this guide focuses primarily on the case of individuals who are considering individual private medical insurance or low cost medical insurance.

Find out more: Download our Insurance Guide.

Apart from the physical and emotional blow that an illness can deal to us, if we have to pay for treatment, the financial setback can be very real too. For example, studies show that, in the United States, medical issues contribute to 60% of personal bankruptcies.

As medicine advances, procedures and medications become more sophisticated and complex. The good news is that this contributes to higher life expectancies, better recovery rates and so on. The bad news is that it also means that medical costs have, all over the world, risen much faster than overall inflation. Another factor that contributes to this is how labour-intensive medical care is. With technology advances, a factory may be able to push out more widgets per machine operator, and thus sell them more cheaply. But healthcare still relies on doctors, surgeons, nurses, roughly in the same proportion to patients as it did twenty years ago. While there are some promises that ‘tele-medicine’ technology could allow fewer staff to care for more patients at the same standard, big changes aren’t here yet.

The net result is that medical care may be getting better, but not cheaper. And that makes medical coverage all the more important. Even if you personally are a risk-taker and would go without coverage for a while, remember that if you become seriously ill, your loved ones will almost certainly be willing to spend their hard-earned savings to support your treatment – a burden very few of us would like to impose.

If this is already clear to you, consider also that, in addition to caring about medical insurance, you should care about having the right medical insurance and paying the right price for it.

Because medical costs can be so high, and because we all end up using medical care at some point, health insurance is usually the largest total insurance expense individuals face. In fact, it can be a significant percentage of your income if bought privately. So making sure your money is well spent is essential.

Am I eligible?

Medical insurance, whether public, individual or employer-sponsored, is recommended for everybody who can access or afford it.

Some people argue that those who are young, in good health, have no dependents and have fairly low incomes might reasonably make a decision not to carry it, because it may be expensive. From a technical standpoint, the argument does have merit, but even so, it is regarded as risky. One partial alternative for people in this situation is critical illness insurance.

If you have public or employer-sponsored insurance, you need to consider whether the coverage it offers is sufficient and of adequate quality for you. Medical insurance policies limit costs in a number of ways:

Find out more: Download our Insurance Guide.

Exclusions. the policy will specify what procedures are appropriate, and for what conditions. For example, for your routine check-up, your doctor might recommend a certain lab test, but the medical plan might determine that such a test, while appropriate for specific illnesses, is not justified simply for a check-up. Alternatively, there might be two different surgery procedures available. The more traditional one has lower costs, but the more modern one has better results. The plan may only cover the cheaper alternative.

By setting caps in reimbursements for certain procedures. In some cases, these can be insufficient to cover the cost of the procedure with the doctor or hospital of your choice, in which case you are liable for the remainder. Policies usually come with detailed tables explaining these caps, and it can be useful to have a look to compare whether they seem reasonable vs. what the costs of the procedures really are.

By requiring co-payments, deductibles or co-insurance. All of these terms mean that for each procedure, you pay a certain amount. That can be a percentage of the covered cost, or it can be a fixed amount in pounds for each procedure.

By restricting the authorised network – the doctors and institutions that are covered. For example, treatment with the most prestigious specialists and hospitals may only be covered for high-end plans, whereas patients in the authorised network face long waiting lists and poorer service. This most common for local, rather than international plans.

So even those who do have public or employer-sponsored insurance might find that their coverage is insufficient either in terms of what is covered, or how much is paid, and can benefit from buying privately or topping up their employer-sponsored-plan, if possible.

Because the likelihood of needing medical care tends to rise with age, consider that medical insurance can become very expensive for the elderly. Some jurisdictions impose regulations to mitigate this issue – restricting how insurance premiums can be readjusted for existing policyholders, for instance. But by and large, older people looking to buy private medical insurance for the first time can face difficulties.

Also, those who already have a serious illness, or very significant risk factors for serious illness, will find it very difficult, if not impossible to find private medical insurance.

Therefore, if you foresee needing insurance, it is important to look into medical coverage early.

How does it work?

Because medical insurance is regulated and provided in different ways in each country, the details may vary. But the overall functioning is similar.

First you select and buy the medical insurance. This involves answering detailed questions about your medical history and may include a consultation with a plan doctor.

You pay regular, usually monthly, premiums. These may be subject to re-adjustment for inflation or for your age bracket.

Find out more: Download our Insurance Guide.

In order to protect the insurer against ill patients buying insurance after they have discovered their ailment, in some cases there may be a period – between days and months – during which you are not covered for certain types of illnesses. This is called a moratorium.

How you use the medical services can vary. Some plans, especially international plans marketed to expats, for most procedures allow you to select whichever local provider you deem appropriate and then request reimbursement up to the established caps. Others require that you use authorised doctors and hospitals (the network), and then pay them directly. In fact, in some countries local operators are vertically integrated – they have doctors and hospitals of their own.

Co-payments can either be deducted from reimbursement, charged at the location of the procedure, or billed to you by the plan later, depending on the market.

In some countries it is standard for plans to also cover medication, whereas in others they only cover consultations, tests and procedures.

Can I do it alone or do I need a financial advisor?

Historically, insurance of all types was sold mostly through brokers, who advised clients on the most attractive provider and policy and mediated the purchase. In some jurisdictions, brokers are legally required to act in their clients’ best interests. Insurance brokers make their income by commissions on the policies sold

Over the past decades, insurance has also become available directly from insurers.

As compared to more complex products, such as life-insurance policies that incorporate investment characteristics, or to critical-illness-coverage which only protects against very specific ailments, medical insurance is fairly standard and relatively easy to understand, and so is quite commonly purchased directly. Given that it is recommended for virtually anybody, it is also somewhat less dependent on your personal financial plan.

Find out more: Download our Insurance Guide.

A specialist can alert you to good opportunities you might not be aware of, or alternatively warn you about plans whose customers are unsatisfied, and given the high cost of the plans, such advice can be worthwhile. In any case, that advice will not normally cost you anything.

Who are the main suppliers?

There are suppliers that focus on globally mobile professionals and who need medical insurance that both provides the high standards they expect and that is appropriate for multiple countries.

The best-well known of these in the UK is BUPA. The other leading UK health insurers are Axa, Aviva and PruHealth, and those 4 represent over 90% of the market.

Then there are local providers in each country, whose offering may be more cost-effective, but may be restricted to that country. In the UK itself, apart from the 4 large insurers, there are smaller niche insurers too who seek to differentiate themselves with more flexible and affordable plans, or their own network of clinics.

What are the risks of a medical insurance policy?

Because insurance is a contractual relationship, you are subject to credit risk – the risk that your provider doesn’t pay you.

Specifically, with regard to medical insurance, this can be a point to watch out for. While in most developed markets, regulations seek to protect policyholders, less solid local providers might be more vulnerable to deterioration in their finances from rising healthcare costs or overly-optimistic actuarial estimates. This is in contrast to life insurance which is more commonly purchased from global providers, and in which the insurer is liable for a fixed amount.

As with all insurance, there is also the risk that after having contracted the policy, you face financial difficulty which makes it hard to keep up the premium payments. Such a default can cause your policy to be ended, which can be unfortunate if you are currently in need of care, or if due to your age and market conditions, new policies with similar coverage would cost you even higher premiums. If you face financial distress, it might be an idea to discuss with your financial advisor whether it is preferable to default on the payments or if there is an alternative.

Medical insurance is a contract in which, in return for periodic premiums, a provider promises to pay for your medical care due to injury or illness, if you need it. Due to the rising cost of healthcare, it is increasingly important. Although some people have access to free public healthcare or to employer-sponsored plans, private medical insurance is advancing as professionals become globally mobile and public systems come under strain. It can be purchased from providers who offer global plans, or from local providers who may be more cost-effective. The exact functioning of the policy can vary across countries and insurers. Because it can be a significant expense, it is important to compare alternatives and seek the assistance of a specialist.

Find out more: Download our Insurance Guide.


CHRIS LAND, FINANCIAL ADVISOR

Chris has 9 years’ experience as a UK pension specialist and licensed financial advisor. He specialises in helping clients make balanced financial decisions to grow their personal wealth.

Chris is licensed with Globaleye, an award-winning international financial advisory firm established in 1999, with 10 offices and 15,000 clients worldwide.


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