What are healthcare trusts?
Healthcare trusts enable employers to provide self-funded medical cover to employees. Unlike private medical insurance (PMI), healthcare benefits are paid for from a trust fund, set up with trust rules.
The value of the fund is based on an estimated annual claims bill. There is an option to make periodic payments into the fund, rather than a single premium payment up front. Cover can be fully- or partly-employer paid.
The primary appeal of the healthcare trust approach over PMI is its ability to give employers greater control over health offerings, with increased flexibility over the benefits included.
Employers can tailor cover to meet the exact needs of their workforce. They might, for example, want to include chronic conditions or benefits like flu jabs, IVF or new types of hearing aids before they become commonly included in PMI schemes.
Two main types of schemes are available: stand-alone client-owned trusts, which are more portable and offer greater control, and master trusts, which are pooled arrangements where providers can save employers considerable amounts of time and money by acting as trustees and handling all the administration.
Hybrid schemes, mixing PMI and healthcare trusts, represent a further option. Employers may, for example, want to keep the major inpatient treatment on an insured basis but place outpatient treatment in a trust.
Because the market is geared towards tailoring cover to meet specific client requirements, providers differ little on actual products. They are effectively competing on service levels, administration fees and the ability to include modern additional treatments.
However, most providers feel they have unique selling points. For example, Healix and ProAmica, argue that, because they do not also offer PMI, they have a more specialist focus than the other players that do. While WPA highlights the merits of being a not-for-profit organisation.
What are the cost implications?
Healthcare trusts can also be more cost-effective than PMI, and providers volunteer savings of anything between 15% and 30%.
In addition to enjoying tax advantages, employers avoid having to pay a cut to insurers. And, because schemes are not branded to an insurance company, a sense of loyalty to employers makes employees less likely to abuse usage.
Exceptionally high retention rates enjoyed by healthcare trust providers also reduce the costs of chopping and changing.
Organisations using standalone healthcare trusts still have to pay for initial set-up costs, with legal fees likely to be between £8,000 and £15,000. Other costs include administration fees and any stop-loss insurance required to safeguard against unusually high claims levels.
So, the approach may not be cost effective unless an organisation’s healthcare spend amounts to several hundred thousand pounds a year.
Healix estimates that over 75% of corporates which pay over £2 million per annum on healthcare benefits already use a healthcare trust.
Are there any tax or legal issues?
Employers do not have to pay insurance premium tax (IPT) on healthcare trusts, therefore creating a saving of 12%. They also avoid the employer’s national insurance (NI) on that IPT. But they do have to pay IPT on any stop-loss insurance premiums, and VAT on administration fees.
Employees incur a P11D liability on the employer-paid benefits they receive but, because there is no IPT, this is lower than with a PMI scheme.
There are far more legal issues than with a PMI scheme and, with HM Revenue and Customs (HMRC) requiring all trusts to be registered, there is a major focus on governance.
Unless an employer is going the master trust route, it must draw up a trust deed and appoint trustees to ensure the trust is run in accordance with the rules. Trustees must also engage a suitable administrator to handle day-to-day healthcare expenditure, administration and claims.
What are the current market trends or developments?
The struggling NHS and a heightened focus on healthcare by employers is increasing demand for healthcare trusts but there are no exact up-to-date market-wide statistics.
The latest LaingBuisson Health Cover UK Market report, published in June 2023, refers only to 2021 data, and measures self-insured schemes, which include healthcare trusts.
It shows that the self-insured company segment grew by 5% in 2021 and that, with the exception of 2019, it has grown faster than the company-insured segment every year since 1996. But in 2021 traditional insured PMI schemes still accounted for 67% of employer-paid private medical cover demand.
The NHS's current issues are seeing healthcare trusts developing higher claims volumes, and claims values are being increased by the inclusion of more expensive forms of treatment. There is also a trend for healthcare trusts to add in new forms of cover, embracing areas like neurodiversity, gender dysphoria, infertility and family-friendly services.
Apps are making the trusts much more user-friendly to employees, enabling them to use their mobiles to make online appointments, access video consultations with GPs, physiotherapists and online counselling services, as well as accessing generic information on symptoms and checking what benefits they have.
A further development is a move in the mid-company market towards corporate deductibles. These avoid the administration costs involved with setting up trusts as they are effectively insurance contracts with a very large corporate excess.
Who are the main providers and what types of scheme do they offer?
Major healthcare trust providers include Aviva, Axa Health, Bupa, Healix, ProAmica (part of the General and Medical Group), and WPA.
