Small Business Health Insurance Benefits, Costs and Best Options

As an FCA-authorised expert with a history of arranging over 900,000 policies, WeCovr understands that protecting your business involves more than just comprehensive motor insurance. This expert UK guide explores small business health insurance, a vital tool for safeguarding your most valuable asset: your people.

A complete SME guide to offering staff PMI and its tax implications

For a small or medium-sized enterprise (SME), every employee counts. Their health, wellbeing, and motivation are directly linked to your company's success and resilience. Offering Private Medical Insurance (PMI) is no longer a perk reserved for large corporations; it's a strategic investment in your team's health, your company culture, and your bottom line.

This guide will walk you through everything you need to know about small business health insurance, from the compelling benefits and expected costs to the crucial tax rules and best options for your unique business needs. We will also explore the powerful connection between employee wellbeing and your business's overall risk profile, including its impact on your fleet insurance obligations.

What is Small Business Health Insurance (Private Medical Insurance)?

Small Business Health Insurance, commonly known as Private Medical Insurance (PMI) or a 'group health scheme', is a policy taken out by a business to provide its employees with access to private healthcare.

Its primary purpose is to bypass NHS waiting lists for eligible conditions, offering prompt access to specialists, diagnostic tests, and treatment in private hospitals. Think of it as a way to get your team back on their feet and back to work faster when illness or injury strikes.

What does a typical PMI policy cover?

While policies vary, most schemes are built around core cover for 'in-patient' and 'day-patient' treatment. This includes:

• Hospital Stays: Costs for a private room, nursing care, and surgery.
• Specialist Fees: Consultations with surgeons and anaesthetists.
• Diagnostic Tests: MRI scans, CT scans, and X-rays when admitted to hospital.
• Cancer Care: Comprehensive cover for chemotherapy, radiotherapy, and surgical procedures is a central feature of most modern policies.

You can then enhance this core cover with optional extras, such as:

• Out-patient Cover: For consultations and tests that don't require a hospital bed.
• Mental Health Support: Access to counsellors, therapists, and psychiatrists.
• Dental and Optical Care: Contributions towards check-ups, glasses, and dental treatment.
• Alternative Therapies: Physiotherapy, osteopathy, and chiropractic treatment.

It's important to understand that PMI is designed to work alongside the NHS, not replace it. Emergency services (A&E) and the management of chronic, long-term conditions typically remain with the NHS.

The Tangible Benefits of Offering Health Insurance to Your Staff

Investing in PMI for your team delivers significant returns that go far beyond a simple feel-good factor. For an SME, these benefits can be business-critical.

1. Attract and Retain Top Talent: In a competitive job market, a strong benefits package helps you stand out. Health insurance is consistently ranked as one of the most desired employee perks, showing potential hires that you are an employer who genuinely cares.

2. Reduce Sickness Absence: This is perhaps the most direct financial benefit. According to the Office for National Statistics (ONS), an estimated 185.6 million working days were lost due to sickness or injury in the UK in 2022. PMI can drastically reduce this figure in your business by:

   • Speeding up diagnosis: Employees can see a specialist in days, not weeks or months.
   • Accelerating treatment: Prompt access to surgery or therapy gets them back to health sooner.
   • Promoting preventative care: Many policies include health screenings and wellness apps.

3. Boost Productivity and Morale: When employees feel valued and secure in their health, their morale and engagement soar. A healthy, happy team is a productive team. Furthermore, knowing that their colleagues can get fast treatment reduces the pressure on the remaining staff who would otherwise have to cover the absence.

4. Create a Positive Company Culture: Offering health insurance sends a powerful message: you invest in your people's long-term wellbeing. This fosters loyalty and creates a supportive environment where employees feel looked after.

How Employee Health Impacts Your Business and Motor Insurance Risk

For any business that operates vehicles—whether it's a single van for deliveries or a whole fleet of company cars—employee health has a direct and serious impact on road safety and insurance risk. A healthy driver is a safe driver. Poor health, stress, or fatigue can impair judgement and reaction times just as much as other distractions.

The Driver and Vehicle Licensing Agency (DVLA) has strict rules about 'notifiable medical conditions'. These are conditions that could affect an individual's ability to drive safely, such as epilepsy, diabetes, heart conditions, or poor eyesight. An employee using a company vehicle has a legal duty to inform the DVLA and their employer about any such condition.

By providing PMI, you empower your employees to manage their health proactively. This can:

• Identify Issues Early: Health screenings can catch conditions before they become serious enough to affect driving.
• Manage Conditions Effectively: Quick access to treatment helps employees manage notifiable conditions, ensuring they remain legally fit to drive.
• Reduce Fatigue and Stress: Mental health support and faster physical recovery reduce two major contributors to road accidents.

A robust health and wellbeing programme, with PMI at its core, is a cornerstone of modern fleet management strategy. It demonstrates a commitment to safety that motor insurance UK providers look upon favourably when calculating your fleet insurance premiums.

Understanding Your Business Motor Insurance Obligations

Just as health insurance protects your people, motor insurance protects your business assets and legal liabilities on the road. In the UK, it is a legal requirement for any vehicle used on public roads to have at least 'Third-Party' insurance cover. For a business, this is non-negotiable.

Failing to have the correct business or fleet insurance can lead to severe penalties, including heavy fines, penalty points on the owner's licence, and even vehicle seizure.

The Different Levels of Motor Insurance UK Cover Explained

When insuring your business vehicles, you'll encounter three main levels of cover. Choosing the right one depends on your budget, risk appetite, and the value of your vehicles.

Key Motor Policy Terms for Business Owners

Understanding your motor policy is key to managing your costs and risk. Here are a few essential terms:

• No-Claims Bonus (NCB) or Discount (NCD): A discount on your premium for each year you go without making a claim. This is a powerful cost-saving tool, and protecting it can be a wise investment.
• Excess: The fixed amount you agree to pay towards any claim you make. A higher voluntary excess can lower your premium, but ensure it's an amount you can afford to pay.
• Optional Extras: These can be added to your policy for enhanced protection. Common options include Breakdown Cover, Legal Expenses Cover (to recover uninsured losses), and a guaranteed Courtesy Car.

As an expert broker, WeCovr can help you navigate these options to find the most suitable and cost-effective vehicle cover for your business needs.

The Costs of Small Business Health Insurance: What to Expect in 2025

The cost of a group health scheme is not one-size-fits-all. Premiums are calculated on a 'per employee, per month' basis and are influenced by several key factors.

Estimated Small Business Health Insurance Costs for 2025:

As a rough guide, you can expect premiums to fall within these ranges per employee, per month.

Disclaimer: These are illustrative estimates for 2025. Your final quote will depend on the specific factors listed above.

Navigating the Tax Implications of PMI for Your Business and Employees

Understanding the tax treatment of PMI is essential for any SME owner. The rules are different for the business and the employee.

For the Business

Good news: The cost of providing a health insurance scheme for your staff is considered an allowable business expense by HMRC. This means you can deduct the full cost of the premiums from your pre-tax profits, thereby reducing your Corporation Tax bill.

Example:

• Your annual PMI premium for 5 employees is £4,000.
• Your business's profit is £100,000.
• You can deduct the £4,000, so you only pay Corporation Tax on £96,000 of profit.

For the Employee

Because the employee is receiving a personal benefit paid for by the company, HMRC classes health insurance as a 'benefit in kind'. This has two main implications:

1. P11D Form: As the employer, you must report the value of the benefit (the cost of their premium) to HMRC on a P11D form for each employee in the scheme.
2. Income Tax: The employee will have to pay income tax on the value of that benefit. This is usually handled by HMRC adjusting their tax code, so the extra tax is collected automatically through PAYE each month. The amount they pay depends on whether they are a basic (20%), higher (40%), or additional rate (45%) taxpayer.

Example:

• An employee's annual PMI premium costs the business £800.
• The employee is a basic rate taxpayer (20%).
• They will pay 20% of £800 in extra tax over the year, which is £160, or about £13.33 per month.

It is crucial to communicate this clearly to your employees so they understand why their tax code has changed. Despite the small extra tax, the vast majority of employees see this as a highly valuable benefit that would cost them far more to buy individually.

Choosing the Best Health Insurance Options for Your SME

With so many providers and policies on the market, choosing the right one can feel daunting. Here’s a breakdown of the key decisions you'll need to make.

Underwriting: Moratorium vs. Full Medical Underwriting

This is the method insurers use to decide what pre-existing conditions they will cover.

• Moratorium (Mori) Underwriting: This is the most common type for small schemes. Employees don't need to complete a medical questionnaire. Instead, the insurer applies a general rule: they won't cover conditions for which the employee has had symptoms, medication, or advice in the 5 years before joining. However, if the employee then goes 2 full years on the policy without any issues relating to that condition, it may become eligible for cover. It's simple and fast to set up.
• Full Medical Underwriting (FMU): Each employee completes a detailed health questionnaire. The insurer then assesses this and states upfront exactly what will and won't be covered. It provides more certainty but takes longer to set up.

Key Policy Features to Compare

When you receive quotes, don't just look at the price. Compare the features to see which policy offers the best value for your team.

How to Set Up a Small Business Health Insurance Scheme

Setting up a group health scheme is a straightforward process when broken down into steps.

1. Define Your Objectives and Budget: Decide what you want to achieve. Is your main goal to reduce absence, attract talent, or both? Set a realistic monthly budget per employee.
2. Gather Your Employee Data: To get accurate quotes, you will need a list of employees to be covered, along with their dates of birth. No names are needed at the quote stage.
3. Decide Who to Cover: You can choose to cover all employees, or just a specific group (e.g., senior management). A scheme must typically cover at least two employees.
4. Compare the Market: This is where an expert broker adds huge value. Instead of approaching multiple insurers yourself, a specialist can survey the entire market on your behalf, comparing policies and costs to find the best fit.
5. Review and Select: The broker will present you with a comparison of the top options. You can review the benefits, costs, and hospital lists before making a final decision.
6. Implement and Communicate: Once you've chosen a policy, you'll complete the application. The final step is to communicate the new benefit to your team, explaining what's covered and the minor tax implications.

WeCovr: Your Partner in Comprehensive Business Protection

Protecting your business requires a holistic approach. At WeCovr, we pride ourselves on being more than just a provider of market-leading motor insurance UK policies. As an FCA-authorised broker with high customer satisfaction ratings, we act as your trusted partner in managing all aspects of your business risk.

We can help you:

• Find the right Health Insurance: Our experts can guide you through the process, comparing the market to find a scheme that fits your budget and goals.
• Secure Competitive Motor Insurance: From a single van to a large fleet, we find the best vehicle cover to keep your business moving safely and legally.
• Access a Range of Protection: We can also assist with other crucial business and personal cover, such as life insurance and key person insurance.

Better yet, clients who purchase one type of cover with us, such as a motor policy or life insurance, can often access exclusive discounts on other policies. It’s our way of providing complete, cost-effective protection for your entire operation.

Ready to invest in your team's health and your business's future?

Contact WeCovr today for a free, no-obligation quote and expert advice on small business health insurance and all your motor insurance needs.