Are healthcare trusts a viable alternative to PMI?

In times of austerity, the government needs to be creative about clawing back as much into the Treasury coffers as possible. The inexorable rise of Insurance Premium Tax (IPT) is a good example of this. Policy holders are feeling the impact of IPT on top of their insurance premiums, but when it comes to group Private Medical Insurance (PMI), Healthcare trusts are rising up as an alternative force to be reckoned with.

IPT has seen lurching increases in recent times, from a moderate 6% to a rather hefty 10% (from October 2016). And it’s going up yet again in June to 12%, following the 2016 Autumn Statement. While this makes life uncomfortable for individual PMI policy holders, for group schemes it’s really rather painful.

If a company pays £200,000 for a group PMI policy, that’s currently an eye-watering £20,000 extra (increasing to £24,000 from June). Small wonder then that many businesses are looking for more cost-effective ways of keeping their staff healthy.

Why trusts can work well for some

One such means is a healthcare trust, where employers put a sum in trust for the benefit of their employees. The trustees determine what benefits employees are entitled to, and usually appoint an administrator to pay them out. A healthcare trust doesn’t attract IPT because it’s not an insurance policy.

There are other costs involved in the set-up – legal fees for example – but that’s still a good trade-off for IPT. Administration costs will also be charged separately, but these would be built into an insurance premium anyway along with any profit margin for the insurer – and that’s before IPT is applied.

Of course, it takes a certain amount of confidence to take on an open-ended liability like a healthcare trust. But the main attraction is that if claims come in lower than predicted, the surplus stays in the trust to be offset against future years’ claims, rather than benefiting the insurer.

Another bonus for any organisation switching from an insured arrangement to a trust is that the claims history will be known, making it less of a leap into the dark. What’s more, many of the conventional insurers have their own subsidiaries to offer trust administration services, so they can still wield buying power with treatment providers.

And for the truly risk-averse, there’s always stop loss insurance, a good solution for staunching the tide of a haemorrhaging fund by doing just what it says on the tin. If claims go above a certain percentage of the fund, the insurance will kick in to mitigate the loss.

In the never-ending quest of wily business to outwit the mandarins of Whitehall, are healthcare trusts a good choice? Given the potential gains involved for larger and medium-sized companies, the answer is almost certainly yes.

So what about smaller businesses?

Risk aversion profile apart, the other chief consideration for setting up a healthcare trust is the number of employees. Organisations with fewer than 150 staff will no doubt find it’s not viable, because without a significant prior claim history, it will be too difficult to predict the size of fund required.

So smaller businesses, like individual policy holders, may have to swallow group policy IPT increases whole – unless they choose another option.

Health cash plans are a great alternative (or addition) to PMI, allowing employees to claim back money spent on optical and dental fees, physiotherapy, chiropractic and more, up to an annual maximum. And unlike PMI, staff don’t even have to be sick to claim.

Along with a combination of simple and inexpensive wellbeing initiatives – gym membership, fruit in the office, exercise sessions, for example – this could be a more appealing solution for many people, and have a greater impact on absence rates.

But even if PMI is the preferred choice, it’s still not all doom and gloom – the right broker will help smaller businesses find the best scheme at a price they can afford.

At Amba, we can advise on health cash plans, wellbeing initiatives and group PMI. So whatever your concerns are, contact us for expert advice on what could work best for you.