Trusts get flexible

With its tax-efficient structure, a healthcare trust is a great way to cut the cost of providing health insurance benefits. But, rather than simply replicate the cover available under a medical insurance policy, a growing number of employers are using them to flex the benefits they provide.

This evolution from saving tax to flexing benefits is something Punter Southall Health & Protection Consulting head of healthcare and wellbeing consulting Soraya Chamberlain is seeing as an emerging trend in the market. “Now that employers are more accustomed to the trust structure, there’s more interest in revisiting the benefits to create cover that’s more in line with their objectives. It’s a slow burn but it’s an exciting development,” she explains.

The option to flex is also fuelled by growth in the health and wellbeing space. “When the first trusts were set up, healthcare benefits were pretty much limited to medical insurance and health screenings,” says Healix Health Services sales director Richard Saunders. “Today though, as the link between health and productivity has strengthened, an employer might want to consider moving all these additional health benefits into their trust.”

Trust ingredients

Although the benefits schedule of a traditional medical insurance plan is often the starting point for the design of many trusts, employers have almost limitless flexibility around how they shape these benefits and the extras they add in. “In theory, an employer can include anything they like in a trust,” says WPA Protocol managing director Rachel Riley. “We’re seeing more interest in adding dental and optical benefits and some employers like to include cover for chronic conditions and primary care. As long as we can assess the risk, it can be included.”

International medical insurance benefits can be added to trusts alongside domestic ones and employers can flex the level of benefit up or down to suit need or budget. There’s also room for some more unusual benefits.

For example, one employer includes fertility treatment in its trust and the egg freezing benefit, which Apple and Facebook recently announced they would offer to female employees, could also sit quite nicely in a trust. 

Benefits aren’t restricted to what you might find on a medical insurance plan. Subject to the administrator’s ability to manage them, a trust can include other health and wellbeing benefits to offer a fully integrated healthcare package.

These could include cash plan benefits, dental, employee assistance programmes, occupational health, critical illness insurance, gym membership and flu jabs. “The only thing you can’t really put in a trust is a long term benefit such as income protection or life assurance as these are much more investment based,” adds Saunders.

Benefits of being flexible

Bespoking benefits in a healthcare trust offers a number of advantages to employers. “It can be exactly the plan you want,” says Simplyhealth head of employer marketing Howard Hughes. “By offering benefits an organisation believes in it can help it stamp its identity on the trust.”

This is particularly the case with the more unusual benefits or a range of health and wellbeing benefits. For example adding in benefits such as gym membership, flu jabs and dental cover can send out signals that the organisation is helping its employees look after their health.

Creating this employer identity can also drive greater savings. Hughes says that when healthcare benefits are branded as the employer’s rather than an insurer’s, it can change employee psychology. “Because they have a relationship with their employer, employees are more likely to think twice about using the benefits,” he explains, adding that this can sometimes backfire if it has to turn down a claim.

Trust design can also influence the way employees use the benefits. A good example of this is including cash benefits such as a lump sum for using the NHS rather than private treatment or a maternity payment. Riley explains: “Providing NHS cash benefit can encourage employees to use the trust benefits more sensibly, which can have a significant effect on claims costs.” 

As an example stem cell treatment can cost up to £100,000 privately. As it’s also available on the NHS, offering an employee a lump sum could encourage them to take this option and save the trust a large claim. 

But, while a financial bonus Jelf Employee Benefits corporate account director Sarah Lockhart says that employers need to be careful with cash benefits as they are subject to slightly different tax treatment within a trust. “We advise our clients that cash benefits may be subject to national insurance as they are a cash payment rather than reimbursement of medical expenses,” she says. “We recommend taking independent taxation advice where an employer is keen to include them but this needn’t stall creativity when designing a trust.”

Greater integration

While trust branding and benefit structure can influence employees’ claims, organisations can make immediate savings by bringing more benefits into a trust. As well as the tax efficiencies that are available as a result of the trust structure, using a trust’s administrator for other benefits can sometimes drive down the cost.

Take cash plan benefits as an example. Saunders says that one of his clients realised savings of around £150,000 by moving its cash plan benefits into its healthcare trust.

“They’d been paying £200,000 a year for a cash plan but employees were only claiming back around £50,000 in benefits. This difference can be put towards other benefits,” he says.

As well as helping to spend healthcare budgets more effectively, bringing all the healthcare benefits under one trust unlocks efficiencies. Gone are all the different contacts and renewal dates, giving an employer a much simpler overview of their total healthcare spend through the trust. 

This streamlined structure can also deliver more insight into the way healthcare benefits are used across an organisation. Management information can show what’s being claimed, and for what conditions, across different countries, locations and even departments. This information can then be used to determine whether the most appropriate benefits are in place. For example, if one division generates a large number of musculoskeletal claims, an employer could use occupational health to investigate whether this can be addressed. 

This also makes benefits work more effectively together. Riley says that by combining healthcare products under a trust, an employer can avoid the benefit duplication common when products are run independently. “It’s easier to introduce a triage system with a trust,” she explains. “By enabling the employee to access the most appropriate treatment, benefits are used more effectively.”

And there are lots of opportunities to supercharge healthcare trusts. Although the need for scale and potentially greater involvement with the running of the trust means it’s a relatively small market, there are plenty of trusts that would benefit from an overhaul.

As an example Chamberlain recently took on a client who had had a healthcare trust since 1997 and hadn’t updated the benefits once. “When you think how much has changed in healthcare benefits since that time, the opportunities to be creative are huge,” she says. “Being able to shape healthcare benefits intelligently through a trust opens up a much more interesting debate with employers.”

BOX: Healthcare trusts – the mechanics

Healthcare trusts are legal arrangements that allow an employer to self-insure its healthcare costs, usually outsourcing the administration to a specialist insurer or third party administrator. At the heart of the trust is the claims fund, which is based on the estimated claims costs. In addition there is a fee for the administration and, on most trusts, some form of stop loss insurance to limit liability .

By arranging the benefits in this manner, it can be more tax-efficient than medical insurance. While insurance premium tax (IPT) at 6 per cent is charged against the medical insurance premium,  IPT only applies to the stop loss insurance. However, as it is a service, the administration fee does attract VAT. At 20 per cent this is higher than IPT, but it applies to a much smaller amount and some organisations will be able to claim this back from HMRC.

These tax efficiencies can lead to chunky savings as the following example from Simplyhealth demonstrates.

Although there are significant savings to be made, healthcare trusts aren’t right for every organisation. A group needs to be sufficiently large enough to benefit as size ensures an element of certainty around the claims fund. Just how large this is depends, with WPA recommending at least 500 employees while others will go as low as 250 if the claims fund is stable or even 100 where adequate stop loss insurance is taken out.

Additionally, due to the nature of a trust, an employer needs to be prepared for the extra work that is involved such as governance. Chamberlain adds: “It isn’t onerous, and we can provide training and support to our trust clients, but it is an important area to get right. In the last couple of years we’ve seen an increase in the number of audits HMRC is carrying out.”