The healthcare trust: the employee benefit you’re probably already paying for – just in the least efficient way

This is part 1 of “trusts you didn't know you had.” Part 2 explores a similarly neglected and overlooked reward trust arrangement. And no, it is not an EBT, an EOT or a SIP trust.  

Most employers buy private medical insurance in the same way they renew any other corporate policy: annually, reluctantly and with limited room to shape what sits underneath it.

That is often convenient. It is not always efficient.

Here’s the familiar scene. The renewal pack lands. Finance asks why the increase is double digits again. HR says, “We can’t be seen to cut healthcare.” The broker says the market is hardening, claims inflation is up and the best outcome is to “hold coverage” and take the hit. Someone suggests a cash allowance, everyone realises that would be expensive and messy and the meeting ends where it began: renew.

A healthcare trust is worth examining because it changes the funding model. Instead of paying a fixed insured premium and outsourcing most of the economics to an insurer, the employer funds medical claims through a trust structure with rules, governance and protection around the edges. That does not make healthcare costless. It changes who carries the economics, who keeps the upside in good years and who has real control over benefit design.

That distinction matters. For some employers, this is not a benefits curiosity. It is a different operating model for healthcare spend.

The “hidden tax” most employers never explicitly choose

One reason healthcare trusts are worth revisiting is brutally simple: Insurance Premium Tax (IPT) is baked into insured PMI spend. The standard rate is 12%. That is a material cost line for the privilege of buying an insurance wrapper.

A crude but board-friendly illustration: if your annual PMI premium is £800,000, IPT at 12% is £96,000. If the premium is £1.5m, the IPT line is £180,000.

That is not the whole case for a healthcare trust, and it should not be presented as one. The broader issue is that an insured model also prices in insurer economics, product rigidity and renewal dynamics. In other words, IPT is one visible leakage in a wider cost architecture.

A trust doesn’t make medical costs disappear. What it does is move the economics. Instead of buying a premium that includes tax and insurer margin, the employer funds claims directly, usually with administrator support and some form of downside protection. In good years, the employer keeps more of the benefit of benign experience. In bad years, the employer manages the downside rather than discovering it at renewal.

What a healthcare trust actually is (and what it is not)

A corporate healthcare trust is typically an employer-funded trust arrangement that pays employees’ medical expenses under a defined benefits schedule. Day-to-day claims are usually administered by a third-party administrator (TPA), so the employee experience can remain “PMI-like” (pre-authorisations, provider pathways, clear rules). HMRC guidance recognises that a trust can simply be the vehicle through which the employer meets employees’ medical expenses.

It is not:

• A tax gimmick.
• A pensions-style governance monster.
• An unlimited promise to fund all treatment, regardless of cost.

It is:

• A disciplined mechanism to self-fund healthcare claims.
• A way to retain surplus in good years.
• A governance framework that forces proper management information and decision-making.

When this is worth serious analysis

A healthcare trust is not for everyone.

It is usually more worth serious analysis where an employer has meaningful PMI spend, enough population scale to smooth experience or access to pooling options, and a genuine willingness to run governance properly.

It is usually less compelling where claims volatility cannot realistically be absorbed, credible data is unavailable or the organisation wants premium certainty above all else and has no appetite for operational involvement.

A healthcare trust is not “better” in the abstract. It is better for some employers with the right scale, data and governance discipline.

The myths that kill the healthcare trust conversation

Myth 1: “Self-funded means unlimited risk.”

It does not.

A sensible trust model is rarely naked self-insurance. Employers typically put protection around the structure: stop-loss cover, claim limits, carefully defined benefit schedules and, in some cases, pooling or master trust approaches. The volatility does not disappear. It is bounded and managed.

Myth 2: “This is just a tax play”

It should not be sold that way.

The real proposition is funding efficiency, control and design flexibility. The employee tax position still needs proper analysis. Employer-provided medical treatment or insurance is commonly within the benefits-in-kind framework unless a specific exemption applies and reporting and NIC class 1A consequences remain relevant.

Myth 3: “Employees will think we’re cutting healthcare.”

They will if you communicate it as a finance project. They won’t if you communicate it as: same access to care, smarter spend discipline and a better-funded benefit over time. The legal structure may be discretionary; the operational experience should be predictable.

The practicable upside (where this becomes more than just theory)

1) You stop paying IPT as a default

If you are currently buying insured PMI, IPT is part of the cost base. A trust model can remove that overlay because you are not paying an insurance premium in the same way. The tax point should not be oversold, but it is real.

2) You stop donating the “good years” to the insurer

With an insured premium, benign claims don’t typically come back to you as surplus; they become part of the insurer’s economics and the next renewal still starts from “medical inflation plus”.

With a trust, surplus can stay in the trust and be used more deliberately as:

• a reserve to smooth future years; and/or
• targeted benefit improvements (which is where employee experience improves rather than deteriorates).

3) You get real flexibility in benefit design

This is where trusts become strategically interesting. 

Instead of squeezing a workforce into an insurer’s standard product, the employer can tune cover around actual need. In practice, that can mean better mental health pathways, faster physio and musculoskeletal support, screening aligned to workforce demographics, or stronger return-to-work interventions.

4) You get decision-grade MI

A trust forces the organisation to look at healthcare spend properly: categories, trends, high-cost outliers, utilisation, pathway effectiveness. That enables you to manage cost drivers rather than absorb them at renewal.

For some employers, that visibility is almost as valuable as the funding change itself.

5) You can turn healthcare spend into a workforce tool

An insured model tends to drag the conversation back to annual pricing.

A healthcare trust lets the employer ask a better question: what are we actually trying to improve? Earlier intervention. Faster return-to-work. Better support for the conditions that drive absence and friction. A healthcare experience designed around the workforce rather than the default shape of an insurance product.

The trade-offs (and the honest reasons not to do it)

1) Volatility exists

You are replacing premium certainty with claims variability. You mitigate that with stop-loss, plan design and (if needed) pooling/master trust approaches. But the volatility doesn’t disappear - it needs to be managed.

2) Governance is real work

Trustees, conflicts, minutes, MI packs, service provider oversight: none of this is hard, but it is a discipline. If your organisation won’t run governance properly, you shouldn’t pretend you will.

3) Tax reporting still matters

Do not sell a trust internally as “a tax play”. Employee healthcare benefits are frequently taxable benefits in kind. Depending on the structure, employers may report via P11D/Class 1A or settle via a PAYE Settlement Agreement. The trust model can improve spend efficiency and control; it does not turn taxable healthcare into tax-free remuneration.

4) Employee relations and messaging are make-or-break

If you oversell “guaranteed cover” while your documentation is discretionary, you create avoidable friction. The right model is: legal discretion, operational predictability, with clear eligibility and rules.

5) Data protection and equality risks need deliberate management

This is sensitive health data. The administrator should handle claims-level detail; employer MI should typically be aggregated and purpose-limited. Plan design also needs an Equality Act lens so benefit differentiation is defensible.

Six questions that tell you in 10 minutes whether this is worth serious time

1. What are we spending today, all-in? Premium, IPT, fees, broker costs and the “black box” risk charge.
2. What do our claims experience actually look like? Not anecdotes - 3-5 years of credible data.
3. What downside do we need to cap? And what protection structure would make it tolerable?
4. Are we large enough to spread risk? If not, what pooling options exist?
5. Who owns the operating model? HR alone is rarely sufficient; finance needs to be involved.
6. What employee experience are we committing to? The trust should feel like healthcare access, not healthcare permissioning.

What good looks like (so this doesn’t become a governance ghost town)

A credible healthcare trust setup usually includes:

• A clear benefits schedule and eligibility rules.
• A strong administrator/TPA with a service model employees recognise.
• Formal governance rhythm (quarterly is good) with a standard MI pack.
• Defined protection structure (stop-loss and/or claim limits).
• Disciplined communications (employee proposition first, legal form handled carefully in the background).
• A policy on surplus (reserve versus benefit enhancements).

Make it boring. Boring is scalable.

At Burges Salmon, we advise employers on the legal and tax structuring of healthcare trusts so the arrangement is robust, governable and defensible. That starts with getting the architecture right: trust deed and rules, eligibility and benefit schedule, trustee powers and discretions, funding mechanics, amendment/wind-up, and clean delegation to the administrator without losing control.