The private health insurance market stands to benefit from a formal arrangement to treat patients who are unable to receive treatment on the NHS because of lengthy waiting lists.

More than one million people are waiting for admission to NHS hospitals, according to latest Government figures.

The Government initiative is contained in a new National Plan for the NHS, set to be unveiled in two weeks.

The document, will for the first time, include proposals for a binding agreement between the NHS and private medical insurers.

It is understood this will detail extensive arrangements for funding the large scale treatment of NHS patients in private hospitals. This is likely to recommend NHS trusts rent spare operating theatres and hospital beds in the private health sector if NHS facilities are full. The treatment is likely to be undertaken by existing NHS consultants and nurses. NHS patients will not have to pay if treated privately.

The ABI gave its backing to the proposal saying it will help absorb current spare capacity in private hospitals.

An ABI spokesman said: "We welcome talks with all relevant parties about how private health insurers can work more closely with state-funded health services."

The strategy was unveiled by the health secretary Alan Milburn last Thursday. He described the historic move as "crossing the Rubicon".

He believes the PMI sector's role in the NHS should be widened to include all elective surgery, critical and step down care but exclude accident and emergency treatment.

Milburn said decades' old NHS working practices must change if the 53-year institution is to modernise.

Some of the funds for treating patients could come from Gordon Brown's £20bn budget fillip for the NHS, which is spread over the next four years.