Shrinking pay packets have seen consumers switching to lower levels of health cover and using the savings to take out health cash plans, writes CAROLINE MADDEN

A COMBINATION of shrink- ing pay packets and higher premiums has forced many households to cut back on private health insurance.

One trend emerging is that consumers are switching to lower levels of cover – or, more worryingly, dropping their private health insurance altogether – and using the savings to take out cheap health cash plans.

Traditional private health insurance products are primarily designed to cover “in-patient” healthcare costs such as hospital stays and major operations, whereas health cash plans focus on providing cash payments for routine day-to-day “out-patient” expenses such as visits to GPs and other health practitioners such as dentists and physiotherapists. Cash plans can be an ideal complement to private health insurance.

The main provider of health cash plans in Ireland is the Hospital Saturday Fund (HSF) Health Plan (www.hsf.ie), and it currently covers just over 100,000 people in the Republic.

The majority of these contribute through an employer scheme, but it’s possible for individuals to join directly.

“One of the attractions with us is that we are, by comparison, very low cost,” says Roy Smith of the HSF. “This year again we’ve frozen our prices.”

In fact HSF, which donates its surpluses to charitable causes every year, hasn’t increased its prices for the last five years. Given the hefty price hikes announced by health insurers VHI Healthcare and Quinn-healthcare late last year, this will be music to consumers’ ears.

HSF offers seven different plans, with premiums ranging from €9.50 to €55 a month, which translates into annual costs of between €114 and €660 a year.

The level of cover is linked to the premium that the customer chooses to pay. The top-of-the-range plan, known as Scheme 5500, pays for half of all dental and optical care costs up to a maximum of €550 a year. Other benefit under this scheme include a cash payment of €32 for each visit to the GP or emergency department (with a maximum of 10 visits covered a year), €16 towards the cost of up to four prescriptions a year, and a birth grant of €800.

One of the key advantages of the HSF cash plans is that their premiums are not dependent on the number of people included on a policy. They can, therefore, prove extremely cost-effective for large families because a contributor can add their spouse or partner, and all dependant children up to 18 to their plan at no extra cost. As a result, parents with several young children who are likely to make frequent trips to the doctor’s surgery and pharmacy could easily find that their cash plan more than pays for itself each year.

Some private health insurance plans provide a certain level of out-patient cover, for example reimbursing a certain level of GP, consultant or physiotherapy fees, in addition to hospital cover. However consumers should bear in mind that there is usually an “excess” amount of several hundred euro that they will have to pay themselves before their private health insurance kicks in.

In the case of Hibernian Aviva Health’s “we plan” health insurance policy, an out-patient excess of €250 applies per family. With Quinn Healthcare Essential Plus, the family excess is €440, and with VHI Healthcare Plans A to C, the excess is €250 per person. However, if a family has supplemented their health insurance with a cash plan it will go some way towards covering the costs that they are unable to claim on their health insurance.

Several health insurers offer “day-to-day” health insurance products which can be bought as standalone products, or as add-ons to the consumer’s main hospital plan. For example, VHI Healthcare’s HealthSteps range is specifically designed to cover out-patient expenses.

One advantage of this type of product is that premiums qualify for tax relief at 20 per cent (as is the case with all private health insurance premiums), whereas contributions to health cash plans do not qualify for any such relief.

Despite this, day-to-day plans aren’t necessarily better value than cash plans, and it’s important to weigh up the benefits, and the level of cover offered, before making a decision.

For example, both types of plans (health cash plans and “day-to-day” health insurance products) generally cover dental, optical and GP costs, but the number of visits and the maximum amounts that can be claimed vary widely.

Furthermore, some of the more advanced HSF health cash plans offer extra benefits such as personal injury cover, and all of their plans pay grants for hospital stays, so consumers should assess their family’s specific medical requirements before choosing the product that best suits them.

The nightly grants paid by HSF for overnight stays in hospital range from €20 to €120, and go some way towards covering the “out-of-pocket” expenses that can quickly mount when a family member is hospitalised, such as overnight accommodation and meals for parents, emergency childcare and parking charges.

A cash plan can help to bridge the gap between the total costs arising from hospital stays, and what the patient’s private health insurance will pay out.

Ideally, health cash plans should be used to supplement private health insurance rather than replace it.

Although they can help to alleviate the burden of everyday medical costs, for families in particular, health cash plans are not designed to cover the “big ticket” health costs such as major surgery or hospital bills.

Despite this major drawback, more people are eschewing expensive private health insurance in favour of low-cost cash plans – because it’s all they can afford.

“We’re seeing a change, certainly compared to this time last year,” says the HSF’s Smith. “In the past I would say the majority of our contributors were joining us to complement their private medical [insurance], but now there seems to be a bit of shift away from that.

“People are saying ‘I can’t afford the private medical anymore,’ or ‘I’ve never had insurance, I’ve looked at that premium, it’s beyond my reach. What alternatives are there?’ So we are plugging a gap.”

Although health cash plans may be enticingly cheap, and are better than having no health cover at all, consumers must make sure they fully understand the limitations of these products before signing up.