How Much Does Business Health Insurance Cost Per Employee?
All you need to know about Business Health Insurance costs, including how it’s taxed, what affects the price, and ways to bring your premium down.
A Corporate Healthcare Trust is an alternative method of providing Business Health Insurance to your staff.
Company Healthcare Trusts have been around since the 1980s, but it’s only more recently that they’ve come more to the forefront of healthcare provision for employees. This is partly due to recent hikes in Insurance Premium Tax (IPT) which have made Health Insurance more expensive.
Rather than taking out a Group Health Insurance policy for your employees, with all the associated costs such as IPT, a Health Insurance trust allows your organisation to self-fund private medical treatment for your workers.
Typically suited to companies on the larger end of the scale in terms of turnover and employee numbers, a Health Insurance Trust can offer a cost-effective alternative to Private Health Insurance.
Instead of an insurance policy, which would attract Insurance Premium Tax, a Business Healthcare Trust is a pool of funds the company pays into a trust instead of paying premiums.
This creates a trust fund that is used to pay for staff healthcare.
Once paid into the trust, the money cannot be returned to the employer for tax reasons. However, any surplus in the trust not used for claims in a given year can be ‘rolled over’ to the following year.
As the employer is self-funding medical treatments for employees, they can cover whatever they see fit without being bound to an insurer’s terms and conditions.
For instance, most Corporate Health Insurance policies won’t cover chronic conditions; coverage for such conditions can be extended by a Healthcare Trust, however, because it is up to the employer to decide what they will and won’t fund.
Similarly, Healthcare Trusts are specially tailored and maintained around the needs of you, your employees and your business, so you ultimately get the solution that works best for you.
A Health Trust can save money for larger companies with higher healthcare expenditure needs due to the lack of Insurance Premium Tax due on the trust compared to a Health Insurance policy.
If you as a company can afford to self-fund your healthcare, it can offer savings over a Health Insurance policy. Insurance Premium Tax is charged at 12%, so there are immediate potential savings there given that a Healthcare Trust is not liable for IPT.
Of course, there are other fees to be concerned with, such as legal fees for the setup of the trust and ongoing administration fees, usually paid to a professional administrator and typically being subject to VAT, for the servicing of the trust and the payment of claims when they arise.
Whether or not a Healthcare Insurance Trust will be a viable, cost-effective option for your business depends on:
Insurance Premium Tax is due on certain insurance contracts, including Private Health Insurance — it’s currently levied at 12%. However, as Corporate Health Trusts aren’t considered an insurance product, it’s not applicable.
What you will have to pay Insurance Premium Tax on is any Stop Loss Insurance you opt for to cover payouts in excess of a cap set on eligible treatment either per employee or a total amount per year.
Most Healthcare Trusts require specialised administration. This is commonly outsourced, perhaps to the insurer you opt to work with to set up the trust.
Any fee you pay to them for this administration will be subject to VAT. However, neither the sums paid into the trust or the claims going out of the trust are typically subject to VAT.
As an employer, your Class 1A National Insurance Contributions are payable on the total contribution into the Trust, which includes money paid in to cover both claims and the Trust’s administrative expenses.
The benefits provided by the Healthcare Trust are usually considered a P11D or Benefit in Kind and are calculated the same way as they would be for a conventional insurance scheme — based on the cost per employee incurred by the employer.
Simply put, this is typically the total annual inflow into the trust divided by the number of employees covered by the trust.
It’s important to ensure that employees are taxed this way and not based on what comes out of the trust in the form of claims / payments to individuals, since this would result in an imbalance of taxation towards those who are ill and therefore need to use the trust more.
To achieve this, you’ll need to ensure the benefit provided to the employee is the ‘right to reimbursement’ of specified medical expenses rather than the actual reimbursement itself. HMRC has produced guidance on the conditions that must be satisfied to ensure this, which include:
Corporation Tax relief is usually available on the sums paid into the trust meant for providing employees with healthcare.
Taxation is dependant on individual circumstances and is subject to change. This does not constitute tax advice. We always recommend speaking to an appropriate professional before setting up an Employee Health Insurance Trust.
Health Insurance | Health Insurance Trust |
|---|---|
Insurance Premium Tax due | Typically no Insurance Premium Tax due |
A P11D Benefit in Kind | A P11D Benefit in Kind |
For any company of 3+ employees | Typically makes financial sense for larger companies by revenue and employee numbers |
Coverage is determined by underwriting and the insurer’s terms and conditions, usually excluding pre-existing and chronic conditions | Greater flexibility with coverage, such as potential cover for chronic conditions if you as the employer decides to include them |
All premiums paid go to the insurer for each eligible employee, even if that employee doesn’t claim in that policy year | In a year with few claims, the trust retains the unused funds to be put towards future health expenditure |
Can be set up with minimal administration and cost other than premiums due | Incurs costs, such as fees for legal and tax advice, and an ongoing administration fee |
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