What is a private medical trust?

This is our guide for employers on private medical trusts (also known as healthcare trusts) which are growing increasingly popular with companies that have more than 500 employees.

Private Medical Insurance
Benefits 101
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This is our guide for employers on private medical trusts (also known as healthcare trusts) which are growing increasingly popular with companies that have more than 500 employees. Although they’ve been around since the 1980s, it’s only in recent years that enterprise companies have taken a keen interest in them in order to save money. At the end of this article, you’ll understand how healthcare trusts work, how much you could save and what the pros and cons are, to help you make an informed decision.

What is a private medical trust?

It’s essentially a pot of money that employers can use to cover employees’ medical expenses when necessary. Designed as an alternative to private medical insurance, healthcare trusts give employers greater flexibility and cost control while employees still receive many of the same great benefits.

How does a healthcare trust work?

The way it works is that your business makes payments into a trust scheme (for example, with Aviva). You set the rules of the trust, giving you control over the level of cover you want and the way your money is invested. The trust provider then looks after claims assessments and payments. And your employees, aka the beneficiaries of the trust, get all the benefits of private healthcare without paying for insurance.

You can set up a trust in one of two ways:

  • Non-discretionary trust – This is fully funded by you, the employer
  • Multi-contribution trust – This allows for voluntary contributions from trust members (let’s say an employee wants to cover their family members, for example)

What kind of savings can companies make? 

Many companies choose to use a healthcare trust because the overall cost tends to be lower than an insurance policy. Because trusts are different to insurance, they do not attract Insurance Premium Tax (IPT), resulting in an immediate cost saving for your business. In fact, you could save up to 20% a year on average. 

Bear in mind that for any additional insurance services you add on, like stop-loss insurance, you’ll need to pay IPT.

Who are healthcare trusts for? 

Ask yourself these questions to determine whether a private medical trust is suitable for your business:

  1. Does your company have at least 500 - 1,000 employees?
  2. Would you have a claims fund of £500,000 or more?
  3. Have you already had a fully insured corporate excess or cost plus private medical insurance arrangement?

If you answer yes to most, or all, of these questions, it’s worth looking into the benefits of a private medical trust.

Why opt for a healthcare trust?

There are a number of benefits to your business offering a healthcare trust instead of private medical insurance, including:

More control and flexibility

Given that your business essentially owns the trust, you have complete flexibility over how much money is put in, what treatment it will cover and more. You can choose specific service providers to tailor your package to the needs of your employees. Maybe you want to cover pre-existing chronic health conditions that standard private medical insurance policies won’t cover, for instance.

Potential cost savings

This is one of the main reasons large companies choose a healthcare trust instead of the available alternatives. Because a trust is not an insurance contract, neither you nor your employees have to pay IPT (which was 12% in 2022). This is especially attractive given insurance premiums have been increasing drastically in recent years.

But it’s worth noting that costs can be more than expected if more claims are made each year than you anticipate. Most employers take out supplemental stop-loss insurance when opening a healthcare trust in order to protect them if costs spiral. Your stop-loss threshold could be capped at 125% of the claims fund or it could be set based on the cost of individual treatments.

Save time on manual admin

When you set up a trust, the beauty of the arrangement is that the trust provider or administrator manages your membership as well as any claims and payments. Less time spent on admin means more time taking care of your business, safe in the knowledge that your employees’ health is in good hands.

There you have it: your one-stop-shop on healthcare trusts. Whether you take out private medical insurance or set up a healthcare trust depends on the needs and budget of your business, and it’s worth getting buy-in from employees and other stakeholders before you make a decision. And remember, if you’ve never set up a trust before, it’s worth seeking legal and tax advice first.

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