Small Business Health Insurance Benefits, Costs and Best Options
As an FCA-authorised broker that has helped arrange over 900,000 policies, WeCovr understands that navigating the world of private medical insurance in the UK can be complex. This guide is designed specifically for small and medium-sized enterprises (SMEs) to simplify the process of offering health cover to your team.
A complete SME guide to offering staff PMI and its tax implications
In an increasingly competitive job market, attracting and retaining top talent is a major challenge for UK SMEs. While competitive salaries are crucial, a comprehensive benefits package is often the deciding factor for skilled professionals. Private Medical Insurance (PMI), also known as private health cover, has emerged as one of the most valued employee benefits.
This guide will walk you through everything you need to know about small business health insurance: the compelling benefits, the realistic costs, the best options for your company, and the all-important tax implications for both you and your employees.
Why Should Your Small Business Offer Private Health Insurance?
Offering PMI is not just an expense; it's a strategic investment in your people and your business's future. The advantages are felt by both the employee and the employer.
Benefits for Your Business (The Employer)
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Reduced Sickness Absence: This is arguably the most significant financial benefit. With NHS waiting lists reaching record highs (according to NHS England data, the waiting list stood at over 7.5 million in early 2024), long waits for diagnosis and treatment are common. PMI gives employees swift access to specialists, diagnostics, and treatment, meaning they can get better and return to work faster. The Office for National Statistics (ONS) reported that 185.6 million working days were lost due to sickness or injury in 2022, the highest since records began. Reducing this figure, even by a small amount, has a direct positive impact on your bottom line.
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Attract and Retain Top Talent: In a candidate-driven market, a strong benefits package sets you apart. A survey by Canada Life found that nearly two-thirds of employees (63%) are more likely to stay with an employer who offers a good benefits package. Health insurance is consistently ranked as one of the most desired perks.
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Boosted Morale and Productivity: Employees who feel valued and cared for are happier, more engaged, and more productive. Offering health insurance sends a clear message that you prioritise their well-being beyond the workplace. This fosters a positive company culture and a sense of loyalty.
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A Healthier, More Resilient Workforce: Many modern PMI policies include proactive wellness benefits, such as gym discounts, mental health support, and 24/7 virtual GP access. These tools empower your team to manage their health proactively, potentially reducing the likelihood of serious illness in the first place.
Benefits for Your People (The Employee)
- Fast-Track Medical Care: Bypass long NHS queues for eligible acute conditions. This means quicker diagnosis and treatment, reducing worry and uncertainty.
- Choice and Control: Employees often get a choice of specialist and hospital from a pre-approved list, offering more control over their healthcare journey.
- Comfort and Privacy: Treatment is often in a private hospital with amenities like a private room, en-suite bathroom, and more flexible visiting hours.
- Access to Specialist Drugs and Treatments: Some treatments and drugs not routinely available on the NHS due to cost may be covered by a PMI policy.
- Peace of Mind: Knowing that they and their family (if covered) have a safety net in case of illness provides invaluable peace of mind.
A Critical Note: What Private Medical Insurance Does Not Cover
It is vital to understand the fundamental purpose of PMI in the UK. It is designed to work alongside the NHS, not replace it.
PMI is for new, acute conditions that arise after you take out the policy.
- Acute Condition: A disease, illness, or injury that is likely to respond quickly to treatment and lead to a full recovery (e.g., joint replacement, cataract surgery, hernia repair).
- Chronic Condition: A disease, illness, or injury that has one or more of the following characteristics: it needs ongoing or long-term monitoring, has no known cure, or is likely to recur (e.g., diabetes, asthma, high blood pressure).
Standard UK private medical insurance policies DO NOT cover:
- Pre-existing conditions: Any illness or injury you had symptoms of, or received advice or treatment for, before the policy start date.
- Chronic conditions: Long-term illnesses that require ongoing management rather than a curative treatment.
- Accident & Emergency (A&E) services: You should always call 999 or go to A&E in an emergency.
- Normal pregnancy and childbirth.
- Cosmetic surgery, unless it is reconstructive following an accident or eligible surgery.
Understanding these limitations is key to setting the right expectations for your team.
Decoding the Cost of Small Business Health Insurance
The cost of a group PMI scheme is not one-size-fits-all. It's calculated on a "per-employee, per-month" basis and is influenced by several key factors.
| Cost Factor | How it Affects Your Premium |
|---|---|
| Average Age of Employees | The most significant factor. Older employees are statistically more likely to claim, so the higher the average age, the higher the premium. |
| Number of Employees | The more employees you add, the lower the average cost per person, as the risk is spread across a larger group. A scheme for 3 people will be more expensive per head than one for 30. |
| Level of Cover | This is where you have the most control. You can choose different tiers of cover, such as basic, intermediate, or comprehensive. |
| Underwriting Method | How the insurer assesses pre-existing conditions. We'll cover this in more detail below. |
| Policy Excess | The amount an employee pays towards a claim. A higher excess (£250, £500) will lower the overall premium. |
| Hospital List | Insurers have tiered hospital lists. A comprehensive list including prime London hospitals will be more expensive than a regional or national list that excludes them. |
| Location (Postcode) | Your business's postcode matters. Premiums are generally higher in major cities, particularly London, due to higher private treatment costs. |
Example Cost Scenario
Let's imagine "EcoBuild Solutions," a sustainable architecture firm in Manchester with 15 employees. Their average employee age is 38.
They want a mid-range policy with a £250 excess and a good national hospital list.
- Estimated Monthly Premium Per Employee: £40 - £60
- Total Estimated Monthly Cost for the Business: £600 - £900
This is a broad estimate. The final price depends on the specific insurer and the exact cover options chosen. An expert broker like WeCovr can provide precise, tailored quotes from the UK's leading insurers to find the best value for your budget.
Understanding Your Options: How to Choose the Right Policy
Building the right SME health insurance plan involves making several key decisions.
1. The Core Components of a PMI Policy
Your policy will be built around these core elements:
- In-patient and Day-patient Treatment: This is the foundation of all PMI policies. It covers tests and treatment when you are admitted to a hospital bed, even if it's just for the day. This is usually covered in full.
- Out-patient Cover: This is for consultations, diagnostic tests (like MRI scans), and therapies that do not require a hospital bed. This is often the most customisable part of a policy. You can choose:
- No cover (relying on the NHS for diagnostics).
- A limited monetary amount per year (e.g., £500, £1,000, or £1,500).
- Full cover. Choosing a lower out-patient limit is a common way to manage costs.
2. Optional Add-ons to Enhance Your Cover
You can enhance your core policy with valuable extras:
- Therapies Cover: Physiotherapy, osteopathy, and chiropractic treatment.
- Mental Health Cover: Access to psychiatrists, psychologists, and therapy sessions. This is an increasingly popular and important benefit.
- Dental and Optical Cover: Routine check-ups, treatments, and contributions towards glasses or contact lenses.
- Travel Cover: Adding international health cover for business or leisure trips.
3. Choosing the Right Underwriting
Underwriting is how an insurer decides to handle pre-existing conditions. For small groups, there are two main options:
- Moratorium (Mori) Underwriting: This is the most common type for small SMEs. No medical history is declared upfront. Instead, the insurer automatically excludes treatment for any condition the employee has had symptoms of or sought advice for in the 5 years before joining. However, if they go 2 full years on the policy without any symptoms, advice, or treatment for that condition, it may become eligible for cover. It's simple and quick to set up.
- Full Medical Underwriting (FMU): Each employee completes a detailed health questionnaire. The insurer assesses it and explicitly lists any conditions that will be permanently excluded from cover. It takes longer to set up but provides absolute clarity from day one about what is and isn't covered.
For larger groups (typically 20+ employees), a third option, Medical History Disregarded (MHD), becomes available. This is the most comprehensive (and expensive) type, as it agrees to cover eligible acute conditions regardless of an employee's prior medical history.
Comparing Major UK Private Health Insurance Providers
The UK market is dominated by a few major providers, each with its own strengths and unique selling points.
| Provider | Key Features & Strengths | Best For |
|---|---|---|
| Bupa | One of the most recognised names. Extensive hospital network. Strong focus on mental health and digital health tools. | Businesses looking for a premium, trusted brand with comprehensive options. |
| AXA Health | Excellent digital GP service (Doctor at Hand). Flexible and modular policy design ('Personal Health'). Strong muscle, bone, and joint support. | SMEs wanting a modern, tech-forward policy with highly customisable options. |
| Aviva | Known for its 'Expert Select' hospital list which can reduce costs. Good value and a strong 'BacktoBetter' physiotherapy pathway. | Cost-conscious businesses seeking a solid, reputable insurer with good value pathways. |
| Vitality | Unique wellness-focused model. Actively rewards healthy living (gym use, steps) with cinema tickets, coffee, and lower premiums. | Companies with a young, active workforce who want to promote a culture of well-being. |
This table is a simplified overview. The "best" provider truly depends on your company's specific needs, budget, and employee demographics. This is where using a broker is invaluable.
The Tax Implications of Company Health Insurance: A Simple Breakdown
This is a critical area for any business owner to understand. Providing PMI is a taxable benefit, or a 'benefit-in-kind'.
For the Business (The Employer)
- Corporation Tax: The good news is that the cost of your company's PMI premiums is considered an allowable business expense. This means you can deduct the full cost from your pre-tax profits, reducing your overall Corporation Tax bill.
- National Insurance: You will need to pay Class 1A National Insurance Contributions (NICs) on the value of the premiums. The rate for 2024/25 is 13.8%.
For the Employee
- Income Tax: The value of the health insurance premium paid by the employer is treated as additional taxable income for the employee. They will have to pay income tax on this amount at their marginal rate (20%, 40%, or 45%).
- P11D Form: As the employer, you are responsible for calculating the value of the benefit for each employee and reporting it to HMRC on a P11D form at the end of each tax year. The value is simply the cost of the premium for that employee. HMRC will then adjust the employee's tax code to collect the tax due.
A Worked Example: Tax in Action
Let's return to our fictional company, EcoBuild Solutions.
- They pay an annual premium of £600 for one of their employees, Sarah.
- Sarah is a basic-rate taxpayer (20%).
Impact on the Business (EcoBuild Solutions):
- Corporation Tax Relief: They can deduct the £600 premium from their profits. At the current Corporation Tax rate of 25%, this saves them £150 (£600 x 25%).
- Employer's NICs: They must pay Class 1A NICs on the premium. This costs them £82.80 (£600 x 13.8%).
- Net Cost to the Business: The initial cost was £600. The tax relief saves them £150, but the NICs cost them £82.80. So, the final effective cost of providing this benefit is £532.80 (£600 - £150 + £82.80).
Impact on the Employee (Sarah):
- Benefit Value: The value of her benefit is £600.
- Income Tax Due: She will pay 20% income tax on this value. This amounts to £120 for the year, or £10 per month.
- How it's Collected: HMRC will adjust her tax code, so the extra £10 is deducted directly from her monthly salary via PAYE. She doesn't need to do anything herself.
Despite the tax, the employee still receives a £600 policy for a net cost of just £120. It remains a highly valuable and cost-effective benefit.
How to Set Up Your Small Business Health Insurance Scheme
Getting your company scheme up and running is a straightforward process, especially when guided by an expert.
- Define Your Goals and Budget: Decide what you want to achieve. Is it purely to cover long-term sickness, or is it to be a top-tier recruitment tool? Establish a realistic budget per employee.
- Gather Your Employee Data: You'll need a list of all employees to be covered, including their dates of birth. You do not need their individual medical histories if you choose moratorium underwriting.
- Speak to an Independent Broker: This is the most crucial step. A specialist broker, like WeCovr, doesn't charge you a fee for their service. Their role is to:
- Understand your specific needs and budget.
- Scan the entire market of insurers and policies.
- Present you with clear, like-for-like comparisons.
- Explain the fine print and differences between policies.
- Help you complete the application and set up the scheme.
- Provide ongoing support at renewal time to ensure you're still on the best deal. You can find a more detailed breakdown in our Guide to Using a PMI Broker.
- Choose Your Policy and Finalise Cover: With your broker's help, select the insurer and policy options that best fit your company.
- Launch and Communicate to Your Team: Once the policy is active, it's vital to communicate the benefits clearly to your staff. Explain what's covered, how to make a claim, and what the tax implications are for them. A good launch ensures high appreciation and take-up of the benefit.
Enhance Your Offering: Wellness and Added Value
Modern PMI is about more than just reacting to illness. Many insurers now bundle in a host of wellness services designed to keep your team healthy. When comparing policies, look out for:
- 24/7 Virtual GP: The ability to book a remote video or phone consultation with a GP, often within hours. This is hugely popular and reduces time off work for minor appointments.
- Mental Health Support Lines: Confidential helplines offering immediate support, often branching into structured therapy sessions if needed.
- Gym Discounts: Significant savings on memberships at major gym chains.
- Health and Wellness Apps: Access to apps for mindfulness, nutrition, and fitness tracking.
As a WeCovr client, you also get complimentary access to our AI-powered calorie and nutrition tracking app, CalorieHero, to further support your team's health goals. Furthermore, clients who purchase PMI or Life Insurance through us often receive discounts on other types of business or personal insurance, adding even more value.
Conclusion: A Powerful Investment in Your Most Valuable Asset
For a small or medium-sized business, your team is your greatest asset. Investing in their health is a direct investment in your company's resilience, productivity, and future growth. Small business health insurance is a powerful tool to reduce absenteeism, boost morale, and give you a crucial edge in the competitive battle for talent.
While the costs and tax rules may seem complex at first, they are manageable and logical. The net cost to the business is often surprisingly affordable, especially when weighed against the high cost of long-term staff absence and recruitment.
By partnering with an expert, independent broker, you can demystify the process, compare the market's best PMI providers with ease, and build a tailored health insurance plan that delivers real, lasting value for your business and your employees.
Ready to explore the best health insurance options for your SME? [Get Your Free, No-Obligation Quote from WeCovr Today]
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Related guides
Why private medical insurance and how does it work?
What is Private Medical Insurance?
Private medical insurance (PMI) is a type of health insurance that provides access to private healthcare services in the UK. It covers the cost of private medical treatment, allowing you to bypass NHS waiting lists and receive faster, more convenient care.How does it work?
Private medical insurance works by paying for your private healthcare costs. When you need treatment, you can choose to go private and your insurance will cover the costs, subject to your policy terms and conditions. This can include:• Private consultations with specialists
• Private hospital treatment and surgery
• Diagnostic tests and scans
• Physiotherapy and rehabilitation
• Mental health treatment
Your premium depends on factors like your age, health, occupation, and the level of cover you choose. Most policies offer different levels of cover, from basic to comprehensive, allowing you to tailor the policy to your needs and budget.
Questions to ask yourself regarding private medical insurance
Just ask yourself:👉 Are you concerned about NHS waiting times for treatment?
👉 Would you prefer to choose your own consultant and hospital?
👉 Do you want faster access to diagnostic tests and scans?
👉 Would you like private hospital accommodation and better food?
👉 Do you want to avoid the stress of NHS waiting lists?
Many people don't realise that private medical insurance is more affordable than they think, especially when you consider the value of faster treatment and better facilities. A great insurance policy can provide peace of mind and ensure you receive the care you need when you need it.
Benefits offered by private medical insurance
Private medical insurance provides numerous benefits that can significantly improve your healthcare experience and outcomes:Faster Access to Treatment
One of the biggest advantages is avoiding NHS waiting lists. While the NHS provides excellent care, waiting times can be lengthy. With private medical insurance, you can often receive treatment within days or weeks rather than months.
Choice of Consultant and Hospital
You can choose your preferred consultant and hospital, giving you more control over your healthcare journey. This is particularly important for complex treatments where you want a specific specialist.
Better Facilities and Accommodation
Private hospitals typically offer superior facilities, including private rooms, better food, and more comfortable surroundings. This can make your recovery more pleasant and potentially faster.
Advanced Treatments
Private medical insurance often covers treatments and medications not available on the NHS, giving you access to the latest medical advances and technologies.
Mental Health Support
Many policies include comprehensive mental health coverage, providing faster access to therapy and psychiatric care when needed.
Tax Benefits for Business Owners
If you're self-employed or a business owner, private medical insurance premiums can be tax-deductible, making it a cost-effective way to protect your health and your business.
Peace of Mind
Knowing you have access to private healthcare when you need it provides invaluable peace of mind, especially for those with ongoing health conditions or concerns about NHS capacity.
Private medical insurance is particularly valuable for those who want to take control of their healthcare journey and ensure they receive the best possible treatment when they need it most.
Important Fact!
We can look at a more suitable option mid-term!
Why is it important to get private medical insurance early?
👉 Many people are very thankful that they had their private medical insurance cover in place before running into some serious health issues. Private medical insurance is as important as life insurance for protecting your family's finances.👉 We insure our cars, houses, and even our phones! Yet our health is the most precious thing we have.
Easily one of the most important insurance purchases an individual or family can make in their lifetime, the decision to buy private medical insurance can be made much simpler with the help of FCA-authorised advisers. They are the specialists who do the searching and analysis helping people choose between various types of private medical insurance policies available in the market, including different levels of cover and policy types most suitable to the client's individual circumstances.
It certainly won't do any harm if you speak with one of our experienced insurance experts who are passionate about advising people on financial matters related to private medical insurance and are keen to provide you with a free consultation.
You can discuss with them in detail what affordable private medical insurance plan for the necessary peace of mind they would recommend! WeCovr works with some of the best advisers in the market.
By tapping the button below, you can book a free call with them in less than 30 seconds right now:
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WeCovr is an insurance specialist for people valuing their peace of mind and a great service.👍 WeCovr will help you get your private medical insurance, life insurance, critical illness insurance and others in no time thanks to our wonderful super-friendly experts ready to assist you every step of the way.
Just a quick and simple form and an easy conversation with one of our experts and your valuable insurance policy is in place for that needed peace of mind!