Private Medical Insurance
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Nathaniel Lee
Job Title: Business Protection Adviser
Private Medical Insurance
Nathaniel Lee explains everything you need to know about private medical insurance.
What is private medical insurance and how does it work?
Private medical insurance is an insurance policy that renews annually for individuals or businesses. It allows members to see doctors or other medical professionals at a time and place of their convenience, rather than having to wait for the NHS. It can significantly speed up access to medical services.
Why choose private medical insurance for your business?
It can be right for some businesses, while it might not suit others. There’s a cost to it, and that increases the more people you have. Certain businesses are not financially stable enough to take this out, or don’t have enough employees.
It can be a very useful tool in recruiting and retaining people as an employee benefit. And, because you can be seen more quickly, a business can get staff back in the workforce sooner, hopefully, because they will recover more rapidly.
Many people have been considering private medical care in recent years because there are such long wait times in the NHS at the moment. When we speak to clients, this is very often an area they are interested in.
What are the benefits of providing private medical insurance to employees?
We’re very lucky in this country to have the NHS, but there can be significant wait times.
Private medical insurance can be seen as quite responsible, because you’re removing yourself from needing the NHS and allowing others to take your place.
If you arrange private medical cover through your company, the economies of scale are generally quite attractive. While the overall cost increases with the number of people on the scheme, the cost per person comes down.
The reason is that it’s easier for an insurer to have one scheme of a hundred people than it is to manage 100 individual schemes. You can also add partners and children onto schemes. It’s quite a nice way to give back to staff.
Often they are accompanied by benefits packages, such as reward schemes, that staff can access, making them feel more valued.
Can I cover just certain employees?
Yes, some companies just offer it to directors or senior managers. Some offer it to everyone, while others do opt-in or opt-out. This can be quite a good approach, as there are some taxation points, which we’ll come onto. Also, some employees would rather have the money in their paycheck than be on the scheme.
How much does private medical insurance cost?
It varies a lot. One factor is how many people are on the scheme – because it becomes cheaper per person as the numbers grow.
The next factor is where in the country you are. In central London, the cost of living is more than somewhere more rural. The associated medical costs in your area have a big impact.
Depending on the size of the scheme, age can be a factor as well. At a certain size, typically in the low hundreds, it switches from being age priced to unit priced. But in the SME market, most of our clients’ schemes are based on age.
A company employing lots of employees in their 50s will find their medical cover costs more than a company employing people in their 20s and 30s.
Is corporate health insurance a taxable benefit?
Speak to your accountant and tax advisor, as with any tax conversations. But as a general rule, corporate and SME schemes are generally considered an allowable business expense.
Typically there is a tax position for the employees, with a benefit in kind on their premiums.
It’s equivalent to whatever their cover amount is, and if they’ve got a partner and children it’s inclusive of that cost, as well.
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What are the alternatives to private medical insurance?
There are lighter versions of private medical called cash plans. They give you an allowance per person for certain things – such as dental care, osteopathy or visiting a chiropractor.
Those companies effectively get you to prepay for the service and then reimburse you a percentage, up to those allowances. You might receive child benefit worth a couple of hundred pounds, or your annual dental checkup is reimbursed. That is typically cheaper than full private medical because it’s more limited.
As a general rule, most full medical providers will cover you for cancer, barring the excess. Your treatment could cost hundreds of thousands of pounds. I’ve even had clients come to me with claims of over £1 million. With cash plans, it’s automatically limited to a few hundred pounds.
But the alternative is having no cover in place. Perhaps you’re not of a size where you can offer medical cover yet, or you’ve got a certain budget for protection, but other areas are more appropriate for you at this point.
If you don’t take anything out and something major happens, you just have to go through the NHS or try and fund it yourself.
How do I choose the right private medical insurance plan for my business?
There are a few different levels to consider, including how you select a provider. There are nuances to each of their levels of cover.
Private medical tends to be made up of a core element, with options to add on. Examples could be mental health support, dental or travel cover. The first consideration then is whether you want the core protection or do you also want those add-ons?
Another is the hospital list. Providers often have three tiers – a very comprehensive option, a restricted version and a guided option, where within a certain radius you gain a selection of consultants and hospitals to see. That’s generally the cheapest.
There’s also the underwriting method. A new scheme will either be moratorium or full medical underwriting. With moratorium, if you’ve had anything in the last five years you’re not covered for that condition for the next two years. You need to be fully discharged and symptom-free for two years, and there are different moratorium periods.
With full medical underwriting, the provider asks lots of questions and if something happened in the last five years, you’ll have an exclusion on your policy.
There is the option to have medical history disregarded if your scheme is at a certain size, which is attractive for a lot of companies. At 15 to 20 employees, you can start to access that sort of underwriting.
If the policy is already in place and you’re looking at changing schemes, switch underwriting is an option, where the medical exclusions continue from a previous policy. This is helpful because you don’t want to stop the policy you’ve had, start a new one and now face lots of new exclusions because things have happened in the interim.
It’s important that it’s managed well when doing market research and switching each year.
You’ve demonstrated how a business protection advisor can help – any final thoughts?
One thing to note with private medical insurance is that prices generally go up each year. There are three reasons – increased age, which you can’t help; base medical inflation, which again you can’t do much about, and thirdly claims, which is something you’re directly involved in.
On the smaller end of these schemes, the premium goes up the following year, even if there haven’t been many claims.
But each year as your advisor, we go out to market and see if we can get better terms on that particular type of policy. There won’t be an exact one-to-one mapping of each policy, as they’ve all got slightly different terminology, but we’ll get it as close as possible. If we can get the price cheaper elsewhere, we’ll show that to the current provider to argue the price down.
We might go back and forth a few times, but by doing that we can significantly reduce the increase. In some instances, we’ve actually been able to reduce the premium from the renewal quote to the same as the previous year.
That way, we’re effectively slowing the growth of the premium over time. If you do nothing, it gets quite steep quite quickly. But with our support you’re reducing the gradient. A client pays less over time than they would otherwise.
Sometimes a client has taken out a policy directly with an insurer and has also argued each year to get three months off, or something. But if you haven’t got the time or the energy to do that, it can creep up quite considerably. An advisor will do that for you.
Even if a client has set it up directly with an insurer, we can transfer that to our agency and work on that case for them. We can then help mitigate some of that future cost.
Key Takeaways:
- Private medical insurance serves as a tool for recruiting and retaining employees, helping staff access medical services faster than the NHS and potentially return to work sooner.
- The cost per person on the scheme becomes more attractive due to economies of scale as more people are enrolled. The total premium is also affected by geographical location and the average age of the employees.
- The insurance plans can be highly customised, offering a core element with optional add-ons (like mental health or dental support), different tiers of hospital access, and various underwriting methods.
- As a general rule, corporate schemes are considered an allowable business expense, though employees typically incur a Benefit in Kind tax on the premiums.
- Premiums generally increase each year, but an advisor can help mitigate this rise by comparing market prices and negotiating significantly with the current provider to secure better renewal terms.
Business protection policies are subject to underwriting, policy definitions, exclusions, and insurer terms and conditions. Tax treatment depends on individual circumstances and may change in future. Business Protected does not provide legal or tax advice. For specialist tax advice, please refer to an accountant or tax specialist.
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