Members of company health insurance schemes are in for a nasty surprise when they retire. Many employees are reluctant to go without private medical cover when they stop working, but they face a huge increase in cost, especially if they stay with the same insurer.

Brian Mulreany, of Essential Healthcare, the health insurance adviser, says: “Most employees pay only tax on this benefit. Moreover, the premium that the employer pays will be relatively low because there will be a group discount. So when people retire and are offered an individual continuation option by the company’s insurer they are often shocked to see premiums double or even triple.”

Worse still, this huge rise in premiums comes at the same time as you are coming to terms with reduced income as you move on to a pension. If you are receiving treatment for an existing condition and want to maintain your cover, you have little choice but to stay with the same insurer. “This is why the premiums on group-leaver policies are so high,” Mr Mulreany says. “Only those in poor health tend to stay on, so the claims ratios are high and insurers lose money.”

For this reason, some insurers of corporate schemes do notoffer a continuation option, which means that you will have to shop around for a new policy. But for many people it will be cheaper to move to a new insurer anyway, even if they have had a couple of claims in the past. Steve Walker, of Medical Insurance Services, the independent adviser, says: “If you have had one-off procedures in the past, such as a hysterectomy or hernia repair, you should not have problems obtaining cover elsewhere, and in about 90 per cent of cases you will pay less.”

Also, many policies have two-year moratoriums on cover for conditions treated in the past five years, with cover reinstated after the two years if you are clear of treatment, consultations and medication for that period.

Not surprisingly, Mr Walker recommends that former employees consult a specialist adviser before they switch. He says that when individuals shop around, they tend to stick to the big names and try to reproduce the cover they had when they were covered by a company scheme.

Advisers can recommend insurers that offer favourable terms to people leaving group schemes, or provide access to deals available only through brokers. They can also tell you the pros and cons of more limited cover. Mr Mulreany says: “Most group schemes are fully comprehensive but many individual schemes are menu-based, so you can choose the cover you want and pay less.”

One such scheme is offered by BCWA. It has five cover options: outpatient tests and consultations, acute surgery, complementary therapy (such as physiotherapy), treatment for cancer and heart conditions and dental and optical treatment. AXA PPP also has a scheme, available through intermediaries, that covers inpatient treatment, outpatient surgery, MRI and PET scans and radio and chemotherapy. However, it does not pay for outpatient consultations, therapies and minor procedures.

Mr Mulreany says: “Older people often have savings and can afford to pay for outpatient consultations or physio, if necessary, leaving the insurer to cover the cost of the big-ticket items.”

It is also important to consider affordability in years to come. Most insurers increase their premiums in line with age as well as inflation.

Exeter Friendly Society is one of the few insurers to have “age at entry” pricing, where your premiums are fixed at your age when you first take out the policy. However, premiums still rise with inflation – in Exeter’s case, premiums on traditional policies have risen by an average of 9 per cent a year over the past five years.

Those who are worried about the prospect of rising premiums could also consider the Healthcare Deposit Account from the National Deposit Friendly Society. This scheme allows you to pay a fixed premium for life in return for a fixed annual amount of cover. For £50 a month you receive up to £25,000 of medical benefits each year and £750 of dental and optical cover.

Half of the premium is paid into a deposit account and used to pay for part of the claim cost, or it can be withdrawn if cover is no longer required. This scheme may not cover all your costs but it could be useful for people on a limited budget.

Eat your way to cheaper premiums

FOR retired people who are making an effort to remain fit and healthy, PruHealth is providing private medical insurance with a difference. The insurer is offering discounted premiums to policyholders who can demonstrate that they are living a healthy lifestyle.

To obtain the discounts policyholders must earn Vitality points by undertaking activities such as visiting a gym regularly. PruHealth has also teamed up with Sainsbury’s so that policyholders can accumulate Vitality points when buying fresh fruit and vegetables. Purchases will be monitored through shoppers’ Nectar cards.

Dave Priestley, PruHealth’s sales director, says that the policy has proved popular with all age groups, including the retired. “As people grow older they often take more interest in their health and they also have more time to go to the gym and keep fit,” Mr Priestley says. “Even if they have to make a claim, they can still benefit financially from our policy through such things as reduced-cost health screening and reductions in gym membership fees.”

However, the company does expect there to be fewer claims from its health-conscious customers. Mr Priestley says that, since the policy was introduced three years ago, claims among people who accumulate Vitality discounts have been about 33 per cent lower than those from people on the basic premium.

CASE STUDY

Philip James and his wife, Christine, were members of his company’s private medical insurance scheme for 13 years before he retired from full-time work last year, aged 63.

The couple, from Sutton Coldfield, Warwickshire, wanted to continue the cover. “We had not made a claim in five years,” Mr James says, “but we liked knowing that if we did have a problem we would not have to wait ages for treatment.”

Mr James’s company had paid an annual premium of £1,500, but the leavers’ policy offered by the insurer was more than £3,000. Mr James looked for an alternative but found nothing much cheaper until a friend recommended Medical Insurance Services, the specialist adviser.

“They suggested an AXA PPP policy with two options – one that covered outpatient costs and another that didn’t,” Mr James says. “We chose the latter, as we could use the premium savings to pay for any outpatient costs. Our premiums worked out at about £1,350 a year – less than half the cost of the company leavers’ scheme.”

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