Author: Chris Wilson
- Understand the role that health benefits have in a wider employee wellbeing strategy. (See Introduction)
- Understand the benefits that health-related benefits can bring to both the organisation and individual employees. (See Why provide health-related benefits?)
- Develop a health strategy for the organisation, being clear on what the organisation hopes to achieve from introducing a suite of health-related benefits. (See Building a health strategy)
- Review the full list of benefits available to address each stage of health intervention, from prevention and early intervention, through to treatment and financial and personal support. (See Health benefits available)
- Consider offering one or more of the most common health-related benefits. (See Private medical insurance)
- Communicate the available health-related benefits to employees, being sure to repeat this at regular intervals to maintain interest. (See Communication)
- Be aware of the tax status of employee health benefits, particularly those for which there are tax exemptions. (See Taxation of health-related benefits)
This section of the XpertHR good practice manual discusses the business case for investing in employee health benefits, which benefits are available, and what employers need to consider when providing the most common benefits to employees.
A well-designed health benefits package is an important element of a wellbeing strategy. Wellbeing strategies have become increasingly important to organisations in recognition of their influence on employee engagement, productivity and innovation, and in reducing the costs of absenteeism and labour turnover (see Health and wellbeing > Wellbeing for information on developing and implementing a wellbeing programme).
Why provide health-related benefits?
There are many good reasons why employers should invest in this area of benefits.
Healthy employees are more likely to be motivated, engaged, productive and innovative. Conversely, ill and absent employees are less likely to display these qualities, and are a major cost to the business. The Office for National Statistics estimates that 137.3 million days are lost due to sickness and injury each year in the UK. XpertHR research has found that employees take an average 6.4 days' sick leave per year.
In financial terms, direct costs of sickness absence include sick pay and paying for replacement staff, while indirect costs stem from a loss of productivity, delivery and customer service, and consequentially reputational damage for the employer. Less tangibly, sickness absence can also put additional stress on the remaining employees.
Studies have found that active absence management programmes and early intervention can have a major impact on reducing the costs of absenteeism, and can be effective in reducing the time away from work. Health benefits can focus on early intervention, as well as providing access to diagnosis, treatment, recovery and rehabilitation services when required. More widely, health benefits can play an important part in education on health, and the reduction of factors or conditions that can be detrimental to employee health.
Traditionally, health benefits beyond sick pay focused on provision for senior management and professional staff. But many employers now see the advantages of offering them to the wider workforce. This is particularly true in areas with skill shortages, and those that require high levels of investment in employee training and knowledge acquisition, where the employer wants to ensure maximum attendance from the individual. Using flexible benefits gives employers the opportunity to increase the range of employees who receive health benefits. It also provides employees with the opportunity to prioritise benefits that are important to them.
A comprehensive approach to health demonstrates the organisation's commitment to its people, potentially enabling it to recruit and retain key talent. Any organisation that fails to provide support on health and associated areas risks reputational damage particularly in relation to health conditions associated with the working environment, such as stress. Retail health products can be expensive, so employers that offer a benefit at corporate rates can increase the perceived value of the benefit and the overall value of the employment relationship.
Many organisations believe not only that the health of their employees is important, but that the health of their close families is too. They therefore offer health benefits to employees' families as part of their provision.
Building a health strategy
The range of health benefits available to employers is extensive. The health benefits that are appropriate for any one employer will depend on its individual circumstances.
Having a health benefits strategy will help an organisation to identify the most appropriate health-related benefits for its circumstances. In developing a strategy, the organisation should:
- identify the objectives and desired outcomes from the strategy implementation - which might include a desire to maintain a healthy workforce, provide a competitive benefits package, or reduce sickness absence;
- understand the current position within the organisation with regard to sickness absence rates and causes, and the costs of sickness absence, in order to understand where and how health benefits could have an impact;
- understand the market position in terms of recruitment and retention and competitor benefits offerings;
- calculate the current costs of health benefits to the organisation;
- have a dashboard of data, for example levels of engagement, productivity and employee turnover, information from stress audits and usage of employee assistance programmes;
- review the national/industry/sector information on sickness and absence costs to provide comparisons; and
- undertake a preliminary review of health benefits available and what would assist the organisation in achieving its desired outcomes.
The employer should use the information collected to build a business case from both a financial and a wellbeing perspective for a health benefits package.
Health benefits will usually form part of a broad wellbeing programme and maximum impact can be achieved if this wellbeing strategy is woven into the culture of the business. A successful implementation will require strong support from the top management team and from managers throughout the organisation.
An important part of a health strategy will be obtaining employee buy-in. For example, those who will benefit most from a health education programme may be the most reluctant to participate. Given the high cost of some group risk benefits, employers need to ensure that employees are using the services available to them. A communication strategy will be an important part of any health strategy implementation.
Structuring the health benefits offering
Employers can offer health benefits in a number of different ways. The appropriate method will in part depend on how the organisation has structured its overall benefits package.
- Core benefit. These benefits are provided at no cost to the employee. Employees may choose whether or not to use the benefit. If the benefit attracts tax on the employee, for example in the case of private medical insurance, an opt-out may be beneficial.
- Flexible benefit. Benefits offered within a flexible benefits plan give employees the choice of whether or not to opt in using their salary or benefit allowance. Core benefits can also be structured to offer enhancements within a flexible benefits scheme, for example increasing life assurance cover to a higher level, or extending private medical insurance to the employee's spouse and/or family. Health benefits are particularly suitable for inclusion in a flexible benefits plan, as many will be of interest to only a limited section of the workforce. For more information see How to introduce and manage a flexible benefits scheme.
- Voluntary benefit. Voluntary benefits are those chosen by employees and generally funded by them from net pay. The employer may arrange access to a voluntary benefit scheme, but is not involved in the provision of the benefit. For more information see How to introduce and manage a voluntary benefits scheme.
- Participant. These benefits require employees to choose to participate in them. Examples include blood pressure testing, stop smoking initiatives, and the use of health-tracking apps.
Health benefits available
Health benefits and initiatives can be divided into four main areas, each addressing a different stage of health intervention. By offering any of these benefits, employers hope to reduce the risk of employee absence and its associated costs.
Prevention and early intervention
Benefits and initiatives in this category are designed to help identify risks, prevent the development of conditions, treat conditions at an early stage, and encourage a healthy lifestyle.
Benefits available within this category include the following:
- Screening for specific issues, such as high blood pressure, high cholesterol, skin cancers, diabetes and weight/obesity. These screenings may be offered by providers of private medical insurance and permanent health insurance. Providers may be able to carry out these appointments on site at the workplace.
- Screening scans. These scans of particular parts of the body (such as the heart, lungs and intestines) are offered by specialist companies in order to identify early signs of a medical issue.
- Full health assessments. These are comprehensive assessments of employees' health, by way of a questionnaire and physical examination. They are often an opportunity for a doctor to provide advice on aspects of health such as fitness, weight management, smoking, drugs and alcohol, or other issues of particular relevance to the employee. The provider may conduct these appointments on site.
- Health support programmes. Health education can prove useful in raising awareness and providing action plans, such as initiatives on cessation of smoking, weight management, and alcohol and drug use, and wellbeing education, resilience training and mindfulness training.
- Healthy eating. Options include the provision of healthy food in the company restaurant, and free fruit for staff.
- Lifestyle benefits. Benefits such as gym membership, cycle-to-work schemes and weight management clubs are designed to make a healthy lifestyle easily accessible to employees.
- Employer sports and social clubs. These can encourage participation in sports and healthy activities, and provide a social context for these.
- Technology, for example the provision of personal health monitoring technology. This can help to encourage employees in monitoring their health and activity, which may be particularly beneficial if they are employed in relatively sedentary roles.
Benefits in this area provide or facilitate a diagnosis, a diagnostic review, and/or access to treatment that is timely and convenient for the employee, speeding up recovery, reducing stress, and facilitating an earlier return to work.
Benefits available within this category include the following:
- Private medical insurance (PMI). Private medical treatment is typically available quicker than treatment through the NHS, and can be accessed at a time convenient to the employee/employer.
- Health cash plans. These provide cash sums to employees when they have routine medical treatment.
- Second opinion consultants. These offer the opportunity for employees to have their diagnosis and/or treatment plan reviewed by an independent doctor to ensure that nothing has been overlooked and that the treatment plan is appropriate.
- Dental insurance. Dental insurance usually provides reimbursement of cost to a chosen level, often ranging from NHS-level costs to the level of private dental costs.
- Optical insurance. This assists with the costs of eye tests and vision correction, for example the purchase of glasses or contact lenses.
- Employee assistance programmes (EAPs). An EAP is usually a telephone service offering information, guidance and counselling on a number of issues, including those relating to employee health and wellbeing.
- Trauma counselling/bereavement counselling. Counselling to employees affected by a major incident, or the death of a fellow employee or family member is frequently offered by a life assurance provider as part of its policy.
- Occupational health services. Employees can access health services through their employer's occupational health service. This might include advice from and referrals to medical professionals, medical advice on fitness for work or for a particular job, medical treatment, second opinions, support for drug and alcohol issues, and rehabilitation services.
- On-site/remote GP services. Accessing a GP can be difficult, particularly if appointments are mostly in work time or have a long wait period. Offering on-site or remote access to a GP can help with early diagnosis and treatment, and a faster return to work.
- On-site dentist/optician/physiotherapy. On-site facilities mean that employees need less time off to attend appointments and appointments can be made at their convenience, often at short notice.
These benefits provide financial support to employees when they are unable to carry out their full job responsibilities as a result of injury or illness. Benefits available within this category include the following:
- Occupational sick pay. Subject to meeting the eligibility criteria, employees are entitled to 28 weeks' statutory sick pay for any one period of incapacity for work. However, many employers go beyond the minimum statutory provisions and offer an occupational sick pay scheme, which pays employees a proportion of their salary for the period specified by the scheme. Sick pay can be a considerable cost to an employer, so an occupational sick pay scheme should be designed to integrate with other benefits such as income protection. For more information see How to introduce and manage an occupational sick pay scheme.
- Permanent health insurance. Permanent health insurance or income protection pays an income to an employee who cannot work because of a long-term health problem.
- Critical illness insurance. This insurance pays out a lump sum to an employee on diagnosis of a serious or life-threatening illness.
- Life assurance. This will pay out a lump sum to a beneficiary or beneficiaries on the death of an employee.
- Personal accident insurance. This insurance can be tailored just to the work environment or provide full 24-hour cover against accidents and injury.
- Cash plans: health, dental, optical. There are several cash plans available covering medical, dental or optical, or all of these, which reimburse or make a payment to employees when they have paid for treatment.
Support and rehabilitation
Employers should encourage and support employees who have been sick or injured to return to work in either their previous role or another role appropriate to their changed capabilities. Benefits and initiatives available within this category include the following:
- Policies and practices supporting a return to work. When an employee has been away from the workplace for a while, work organisation, personnel and practices may have changed, new skills may be required, or the employee may have lost skills or confidence. Facilitating practices such as flexible/home working, gradual return to work, familiarisation/retraining, alternative roles, adapted work stations, and family/childcare support can support re-entry into the workplace.
- Early intervention initiatives. Treatments to facilitate early return to fitness in order to avoid potential long-term sickness cases include cognitive behaviour therapy, physiotherapy and medical review. Some group risk providers will fund these treatments as part of their policy provision.
- Permanent health insurance/income protection. Insurers may support employees returning to work by continuing full or partial payments during rehabilitation periods, for example if it has been necessary for the employee initially to take lower-paid work.
- Gambling, drug and alcohol support programmes and policies. Where such problems have been identified, employers can assist in the provision of confidential help and support and encouraging engagement with external support and self-help groups.
- Occupational health. An organisation's occupational health department can provide support in terms of advising on capability and adjustments to the work environment and job design, and provide on-going support and guidance.
Engaging health risk benefit providers
A third party often provides health risk benefits on behalf of an employer. Employers may choose to engage the services of a broker to identify suitable health risk benefit providers, or source providers themselves. However, employers should be aware that some providers do not offer their products through brokers or third parties. When choosing a provider, there are a number of factors for employers to consider.
Employers should ensure that they read and understand all details of potential policies prior to entering into a contract. The rules, benefits and omissions of each policy can often be negotiated as many providers will be flexible in their terms and costs.
Employers should advise all potential suppliers of the other healthcare initiatives that they operate. The cost of cover may be reduced where an employer can illustrate that it has policies and practices in place that promote good health and support employees through absence and illness, as these are likely to reduce the number of claims. For example, a company offering active absence management can often expect a reduction in income protection premiums.
Employers should scrutinise the claims procedures of providers, to ensure that they offer a simple and easy claims process. Employees' first contact with the provider will be important and they do not want to face bureaucracy or fail to get a satisfactory solution at a time when they may be stressed or anxious over a health condition. Employers should always visit the call centre before selecting a provider.
As a general guide, risk benefits should be rebroked every three years. If there are steep rises in premiums, action may be required more frequently. This is a constantly changing marketplace and can be very technical. The use of a respected and trusted broker who has specialist experience in this area can often provide great support particularly when it comes to negotiating between competitive bids to get the most cost-effective terms.
There are a number of ways in which organisations could seek to reduce the cost of their health risk benefits, including the following:
- Taking advantage of bundled benefits. Health benefit providers may charge lower premiums where organisations take two or more products with them. In addition, some providers offer additional services for little or no extra cost. For example, many income protection insurers now offer employee assistance programme services to an employer that takes out a policy with them, and private medical insurance (PMI) providers may offer discounted gym membership, or mass screening for conditions such as high blood pressure, diabetes or high cholesterol. Employers should investigate all possibilities in order to reduce costs and avoid duplication.
- Changing provider. Another insurer may offer similar cover at a lower price. However, employers should be aware that a new insurer might start at a lower cost per head, but then adjust this upwards in subsequent years as it builds in its claims experience.
- Introducing an excess. In the case of private medical insurance, it is possible to introduce an excess payment so that employees must contribute towards the cost of any claim, for example they might be required to pay the first £50 of a claim. Introducing an excess charge for PMI, or raising an existing one, will discourage individuals from making very small claims but is unlikely to put off anyone who needs treatment for a serious condition.
- Introducing a deductible charge. This is similar to an excess amount, but is not fixed since it is expressed as a percentage, such as 10% of the cost of the treatment. Deductible charges are usually subject to a maximum, for instance 10% of any claim up to £1,000.
- Cash limits. Some health risk policies will set a maximum amount that can be claimed for some forms of treatment. These are common in health care plans, while within a PMI scheme each employee could be allocated an "outpatient allowance", for example allowing them up to £1,000 of outpatient care in any year.
To help communicate the benefit details to employees, insurers may be willing to provide communications material and use the employer's chosen branding in these.
Ensuring data security
For all health benefits an organisation offers, it is important that all employee consents are in place and all medical and health-related data is covered by suitable data protection measures.
The General Data Protection Regulation (2016/679 EU) (GDPR), which came into force on 25 May 2018, introduces strict controls on the collection, processing and storage of personal data. In selecting a health benefits provider, an employer needs to satisfy itself that its chosen third-party provider understands its responsibilities as a processor of data and has in place appropriate technical and organisational measures to meet the requirements of the GDPR and ensure the protection of the rights of the data subjects. There must be a contract in place between the employer and the third party setting out specific details relating to the processing and the security measures (see FAQs > What are an employer's obligations under the GDPR if it contracts with a third-party provider to process its employee data?).
Information about an employee's health falls into the special categories of personal data under the GDPR (these are broadly the same as sensitive personal data under the Data Protection Act 1998). The Data Protection Act 2018, which supplements the provisions of the GDPR, allows such processing provided that the employer has in place a policy document that explains how it will comply with the principles of the GDPR in relation to the special category personal data and that explains its policies on retention and erasure of the data.
Private medical insurance
Private medical insurance (PMI) enables employees who need medical treatment to opt to receive that treatment as a private patient. Employers engage with a third-party provider to offer the benefit to their employees.
Few employers offer PMI to all employees. Where access to PMI is restricted to only some employees, employers need to decide where in the grading or pay structure the cut-off will be applied.
Employers need to decide on the level of cover to be provided, and whether or not this is the same for all employees. The three different levels of cover to choose from are:
- single cover, for the employee only;
- partner cover, for the employee and their partner; or
- family cover, for the employee and their dependants (partner and children).
Where the cost of full family cover is prohibitive to an employer, it may decide to fund employees' PMI fully and to subsidise the cost for partners and dependants. Alternatively the employer could offer the employee benefit as a core benefit, with the option to increase cover on a flexible benefit basis.
When PMI is offered as a core benefit it is normal for employers to offer an opt-out for employees who do not wish to participate on the basis of the taxation regime or on ethical grounds. Outside of a flexible benefits programme alternative compensation is not usually offered to those employees who opt out.
Choosing a PMI supplier
Each PMI policy is different and it is important that employers choose a policy that meets their needs. The key variables for employers to consider when choosing a PMI provider and policy include the following:
- The choice of hospitals. The insurer may offer a free choice of hospitals, a restricted choice, or just the network hospitals that it uses. Often the very expensive London hospitals are excluded.
- The choice of consultant. Some insurers will accept new policies only on an open referral basis, where the insurer rather than the GP refers the claimant to a consultant from its approved list.
- How pre-existing conditions are covered. Policies often do not cover pre-existing conditions, although if the population to be included is large enough it may be possible for the employer to negotiate their inclusion. This is termed "medical history disregarded underwriting". Different rules may apply where there is a small number of employees on the policy or where an employee does not take up cover at the first opportunity or has previously opted out and is opting back in.
- The insurer's coverage for cancer diagnoses. This can vary significantly. For example, some insurers will limit the types of drugs available and funded by the plan to those approved by the National Institute for Health and Clinical Excellence (NICE) and some policies will specify that cancer patients are transferred to the NHS after diagnosis. Cover for cancer diagnoses is a major cost area in relation to the premiums charged but can also be a critical benefit for employees, so arriving at the best solution can be a difficult balance.
- Any limits on treatment. Some policies set limits on the treatment that can be claimed. For example, treatment for psychiatric conditions is often limited to a number of "units" or inpatient days.
- The use of NHS facilities. Some insurance policies will provide access to private medical care only if the condition cannot be treated by the NHS within a certain time frame.
- Limits on the cost of outpatient work in a benefit year. Some insurers and policies set a limit on the cost for particular types of treatment over a 12-month period.
- Acute and chronic conditions. Conditions that are considered acute are likely to be covered by a PMI scheme, whereas those considererd to be chronic are often not covered. Employers should ensure that the definitions of both are clearly stated.
- The type and level of fertility treatment and maternity cover. Cover for infertility treatment is unlikely to be covered, and where available may be limited to investigations only rather than any treatment. Routine maternity treatment is not typically covered, but policies may cover medical treatments related to pregnancy.
- The age at which children are covered under family policies. This will vary between insurers - some will cover children until they reach age 25, and others only until age 18 or over, or where the child is in full-time education.
- Whether or not the insurer offers bundled-in benefits. Some PMI insurers offer additional benefits at no extra cost, such as gym membership reductions or health screening.
Many of these terms are negotiable with the insurer during the tender process but will affect the level of premium to be paid. All of these terms should be considered both at the outset and when any contract is renewed. It is important that employees understand what is covered under the PMI scheme before they join the scheme. The structure of the PMI scheme can also affect the level of premiums (see below).
The cost of PMI
The third-party provider will charge a premium per employee for PMI. Where the PMI is offered as a core benefit, the employer will pay the annual premiums for the employees covered. However, employers and employees should be aware that PMI is a taxable benefit for employees who are paid more than £8,500 per year. The employee will be liable for income tax and national insurance on the amount, while the employer will also have a Class 1A national insurance liability.
According to the XpertHR 2020 employee benefits survey, the typical annual premium for single private medical insurance cover is £704. Providers will review the premium level annually. Ways in which PMI policies can be structured to reduce premiums include the following:
- Introducing an excess on claims. Where there is an excess on claims, the employee pays all or part of the claims up to a maximum amount, such as £200. This tends to discourage first claims and claims for conditions that can be well managed within the NHS.
- Co-insurance. Under a co-insurance arrangement, the employee pays part of each claim, often subject to a maximum. This can discourage employees putting all claims through the insurer.
- Use of NHS facilities. Some PMI policies will pay employees a specified sum for each night in an NHS bed instead of a private hospital bed. This can encourage employees to use the NHS instead of private care.
- The level of cover. Premiums may be reduced by changing the level of cover for certain conditions, most commonly limiting psychiatric cover and reducing cancer cover, restricting hospitals and using only open referral for consultants.
- Introducing outpatient annual limits. PMI policies can set a limit on the number of appointments such as consultations, blood tests and physiotherapy. Some insurers believe that this limits medical professionals holding consultations unnecessarily, although some insurers do not limit these as they believe that dealing with conditions outside of hospital admission is now more common and can be more cost effective.
Different payment plans are available. What is appropriate will depend on the size of the PMI scheme membership, the employee profile and the organisation's approach to risk. The payment plan chosen will affect the level of premiums. Payment options include:
- Fully insured. This will tend to be the most expensive as the employer takes no risk.
- Profit sharing. Under a profit-sharing arrangment, if the claims fund is not fully utilised the savings can be split between the employer and the insurer. Agreement needs to be reached on what happens if the claims fund is exceeded.
- Limited claims fund. Where there is a limited claims fund claims in excess of the agreed limits are met by the employer. The employer may take out a separate stop-loss insurance policy to limit its liability.
- "Corporate deductible". In this model, the employer agrees to meet part of the claims fund directly. As this is not insured, it can reduce the insurance premium element of the benefit.
- Medical trust. Employers can set up and fund a trust, from which the cost of the claims is met. An administrator is required to run the trust.
These different types of funding can be complex and employers should retain the services of a specialist to advise on the best approach in their particular circumstances.
Organisations should review all claims made under their PMI scheme on a regular basis with the insurer and/or broker to identify issues and areas that are likely to affect the costs at renewal. This exercise may also identify areas that would benefit from company intervention, for example a particular department with high levels of musculoskeletal claims may indicate that more training is needed on handling or posture.
Regular rebroking will help in keeping costs down as individual insurers will judge the risks differently, and some will have lower overheads and administration costs. However, as each change of provider means a change of policy and terms it is important for employers to communicate carefully with employees about changes as some may find that conditions or treatment covered in the past are no longer insured and vice versa.
Accessing PMI services
Access to private medical care usually follows the employee receiving a referral from their GP, although some insurers allow employees to self-refer for some physiotherapy and other limited interventions. The employee then makes contact with the insurer, to obtain approval for the treatment to be accessed.
Permanent health insurance
Permanent health insurance (PHI), sometimes referred to as income protection, provides an income for employees who are absent from work because of illness for an extended period. In return for an annual premium, employees receive a percentage of their salary each month while absent.
A third party provides this insurance. Payments to employees under the scheme are made to the employer to pass on to the employee. PHI protection can either be taxed as a benefit on the premiums or taxed in payment, which is the more usual approach.
Where PHI is available, it is usually offered as a core benefit as insurers are generally reluctant to accept participation on a voluntary basis. However, upgrades on the level of cover can be offered as part of a flexible benefits programme. For example, a core benefit of 50% of salary may be offered but with the option for the employee to increase it to, for example, 60% or 75% of salary in return for higher premiums as part of a flexible benefits programme.
Choosing a PHI supplier
Factors for employers to consider when choosing a PHI provider include the following:
- The level of protection. Benefits under this type of insurance are expressed as a percentage of salary. XpertHR's 2020 employee benefits research shows that the most common levels of benefit are 75% and 50% of salary.
- Definition of salary. PHI payments are usually based on a percentage of annual salary, but the employer may wish to base the insurance payouts on average earnings where an employee receives a high level of bonus or commission.
- The deferred or waiting period. This is the period before claims start to be paid out. The most common deferral period found by XpertHR is six months (26 weeks) of continuous absence.
- The period for which payments will continue. PHI policies typically state that payments continue until the employee returns to work, retires, dies, or is dismissed from their employment. There is an exemption from age discrimination legislation for group-insured benefits such as PHI, so employers can cease providing them once an employee reaches state pension age; or cover can be provided for a fixed number of years, for example five, seven or 10 years, after which payments cease. During payment, the contract of employment is still in force. After payments cease, if the employee cannot return to work a process for terminating the contract may need to be invoked.
- Indexation of payments. A level of annual indexation of the payments can also be set, with common options being the consumer prices index or the retail prices index.
- Pension contributions. The level of pension contributions (either the employer's or the employee's, or both) during the period in which PHI is being paid can also be set in the insurance policy. It is important to have fixed rules in this area, particularly when there is the opportunity for the employee to set the level of contribution with an employer-matching scheme.
- Lump-sum payment. Where employees are dismissed from their employment while in receipt of PHI payments, a final lump-sum payment can be built into the contract, paid in place of any further amounts due. The payment is made to the employer, which can use it to meet or contribute to any termination payments for the employee.
PHI policies will usually have a free cover limit, which is the maximum annual benefit that will be paid without the need for underwriting (the process of assessing the risks involved in providing the insurance and adjusting the level of premium accordingly). In PHI, this will be determined by an employee's salary. When the benefit value goes above the free cover limit, each participant will need to be underwritten. This will need to be carefully monitored to ensure underwriting takes place as an employee's pay meets and progresses above the free cover limit. The underwriting process may result in increased premiums.
Insurers may reduce the cost of premiums where there is evidence of the employer operating an active absence policy with early intervention to support employees getting back to work as soon as possible.
Accessing PHI payments
The process of admitting a claim under a PHI scheme may take some time, so employers should notify the insurers immediately it becomes apparent that an absence may become eligible for payment. This allows the insurer time to examine possible interventions and carry out any procedures necessary to admit the claim.
All decisions on payments and eligibility are taken by the insurers according to the terms of the insurance policy. Employers should ensure that the contract of employment is clear and does not make them liable to make any payments to employees in the event that the insurer has refused for any reason to make a payment under the policy, either at the start of the process or later following medical reviews (see Permanent health insurance contract clause). If an employer chooses to pay an employee while their PHI application is being considered, it should have a clause requiring repayment from the employee if the claim is declined.
The insurer will usually review cases on a regular basis to ensure that the employee's condition continues to comply with its policy terms. Therefore it should be included in the terms of the contract that, to remain eligible, the employee consents to undergo a medical examination and review on a regular basis. It may be worth the employer having a clause that states that PHI and sick pay cannot be paid for the same period of absence but that the employee will receive whichever is the higher sum.
The insurer is likely to welcome any intervention to support employees getting back to work as soon as possible. The employer should keep the insurer informed as the absence progresses, as the individual may be able to utilise any early intervention opportunities offered by the insurer, for example cognitive behaviour therapy, telephone access to a GP, or a fund for use at the organisation's discretion for early treatment of conditions.
An employee receiving PHI may ultimately return to work after an extended period of absence. In these situations, the insurers role in supporting this will need to be discussed. For example, the employee may require a phased return to work, during which the insurer continues to make PHI payments for part of the week and the employer pays salary for the other days.
Critical illness cover
Critical illness cover pays an employee a cash lump sum on diagnosis of one of a list of serious or potentially life-threatening illnesses and diseases. A payment under a critical illness plan can offer great assistance to employees who need to make changes to their home or lifestyle following a diagnosis, for example adapting a home for wheelchair use or employing a carer. It could equally be used to pay for medical treatment, or to cover lost income.
Critical illness cover is made available to employees on payment of an annual premium to a third-party supplier. The level of the premium will vary according to the lump sum payable. Where paid for by the employer, the premiums are taxable and subject to Class 1A national insurance. The value of the lump sum can be set by the company, or chosen by the employee where the critical illness cover is offered as part of a flexible benefits programme.
Critical illness cover is offered by a minority of organisations - XpertHR's 2020 employee benefits research found that 16.3% of organisations offer it as a core benefit, while 20% have it as an option in their flexible benefits plan.
Employers should consider the following factors when introducing or reviewing a critical illness policy:
- The list of conditions covered. Policies will typically have a set list of medical conditions for which the policy will pay out. However, some may offer the option of increasing the number of critical conditions covered.
- An employee's medical history. In many policies, any indicator of the presence of the illness or of a precursor of the disease in an employee's medical history prior to joining the critical illness plan will invalidate the claim even though the employee may not be aware of these medical indicators.
- Cover for other family members. Some policies will offer cover for children at no extra cost, and there may be options for cover for partners (at additional expense).
- Survival time before payment is made. Policies will typically specify that the individual must survive for a stated period after diagnosis, such as 10, 14 or 28 days.
- Bundled-in services. A critical illness insurer may also offer other benefits at no extra cost, for example second opinion services, treatment sourcing and personal nurse support, fast tracking to see expert consultants, and an employee assistance programme.
- The level of cover. Policies can be offered on a decreasing cover basis (the payment decreases over time) or increasing cover basis (the payment increases over time). Premiums remain the same during the life of a decreasing cover policy, but will increase under an increasing cover arrangement.
- Underwriting. Cover may be offered without the need for underwriting (a full assessment of the risk involved in providing the insurance, resulting in higher premiums if necessary), but may be required, depending on the employee profile.
- Employee age. Premiums are often age related.
Second opinion services
Second opinion services offer employees an independent second opinion on their medical condition or treatment plan, by referral to a specialist consultant. This can be helpful to an employee who wishes to have reassurance on the diagnosis and associated treatments plans, ensuring that the most up-to-date treatments are considered.
This benefit is usually offered as part of another health-related insurance package, such as permanent health insurance, critical illness or private medical insurance. Larger employers may be able to provide it independently of another insurance service - in these cases it would normally be a core benefit, given the relatively high number of participants required by the supplier for the provision of the service. The plan may allow cover for partners, children and other family members depending on its structure.
The second opinions provided can be extremely helpful and supportive for employees, and can lead to more effective treatment. The provision of these services might reduce other insurance premiums.
This benefit is triggered by the employee contacting the provider. The provider will need to obtain the necessary consents for access to the relevant information, following which the diagnosis/treatment plan is reviewed with an expert doctor in the appropriate field. The review and report are sent to the employee, from which they can decide on the best course of action.
Life assurance is a one-off sum of money paid to an employee's nominated beneficiary or beneficiaries when the employee dies in service. Group life assurance schemes need to be registered with HM Revenue and Customs.
Traditionally life assurance was linked to a pension plan and in many cases life cover applied only to pension scheme members, but it is now more common for life cover to be offered to all employees irrespective of pension membership. Life assurance is usually set up as a trust with the insurer being the trustee; in this way, the payments do not form part of the employee's estate. However, payments from life policies are regarded as part of the lifetime allowance for taxation purposes (see Employment law manual > Pensions > Lifetime allowance).
Life assurance is usually offered as a core benefit, although it is a relatively common option for employees to be able to enhance it through a flexible benefit option, for example an employer may offer three times base salary as a core level of cover with a flexible benefit option to enhance it to higher levels. Premiums payable for life assurance do not attract any tax. Some employers also offer life assurance to the employee's partner at competitive rates as part of a flexible benefits programme; where this is done the premiums are subject to tax and Class 1A national insurance.
The areas for an employer to consider when introducing or reviewing a life assurance policy include the following:
- The level of payout. The level of payout is typically expressed as a multiple of an employee's salary, such as two times, three times or four times salary. However, multiples of 10 times salary and higher have been put in place by some employers. A policy can be structured to pay a fixed sum of money rather than a multiple of salary, and different amounts can be set for different groups of staff, for example by seniority.
- The free cover limit. This is the maximum amount that an employee can be insured for without underwriting (a full assessment by the insurer of the risk involved, which may result in higher premiums).
- The frequency of underwriting reviews. Many policies require underwriting if salaries increase by a certain amount or are increased frequently. Underwriting can also be required if an employee does not opt for life assurance at the first opportunity or if the life assurance is linked to a pension plan that the employee chooses not to join at the first opportunity. By negotiating with the life insurer, it can be possible for employers to limit the amount or frequency of underwriting required. It is important for employers to monitor pay changes and membership to ensure that the underwriting is up to date and that employees who choose not to submit to underwriting are aware of the implications, ie that any pay-outs may be limited to the free cover limit.
- Opt-in opportunities. Some life assurance policies allow employees to join only at an anniversary date. If these plan rules are in place it is important for the employer to communicate the annual opportunity to all employees who are not currently covered.
- Exclusions. The employer should check the insurer's policy for any exclusions that may apply, for example cover may not be provided for employees who are in some way responsible for their own death (such as due to suicide, drug use or extreme sports), or for people living with HIV.
- Catastrophe limits. These set a maximum payout linked to a single incident, for example a coach or plane crash or a major fire. Employers and employees should be aware that these clauses exist (although there is the option to self-insure the difference). A catastrophe limit may also impact travel policies as to how many individuals can fly together or travel in a car, if for example they are attending a business meeting or conference.
Some insurers will offer complimentary access to bereavement counselling and probate assistance as part of their life assurance provision.
Health cash plan
A health cash plan offers a cash sum to employees to cover routine medical costs, the exact mix of which is specified by the policy. The level of premium paid will be determined by the list of healthcare costs covered, and the level of payments that will be made. XpertHR's 2020 employee benefits research found that the typical employer-funded premium for a healthcare cash plan is no more than £10 per month. Where the employer pays the healthcare cash plan premiums, they are taxable and subject to Class 1A national insurance.
In choosing a health cash plan to offer, employers should consider:
- the healthcare costs that can be claimed;
- any annual limit on claims;
- the percentage of each individual cost that can be claimed;
- the waiting period before employees can make a claim - waiting time may vary for the different costs covered, with waiting limits for maternity costs typically upwards of nine months;
- whether or not pre-existing conditions are covered;
- whether or not employees are required to undergo a medical before joining;
- the upper age limit for participants;
- the minimum number of employees that must be included in the plan;
- the time limit in which employees must make a claim following treatment;
- whether or not the policy allows employees to upgrade - or downgrade - their cover; and
- whether or not children are included in the policy at no extra cost.
The policy will list the healthcare costs that employees can claim. These typically include:
- optical check-ups, and prescription glasses or contact lenses;
- dental care;
- prescription costs;
- health screening;
- virtual GP;
- hospital stays;
- consultant appointments and associated investigatory tests or scans;
- homeopathy, reflexology and aromatherapy;
- physiotherapy, osteopathy, chiropractic, acupuncture; and
- maternity, paternity and adoption.
Employees access the scheme by paying for any treatment upfront, and then making a claim with the scheme provider. A healthcare cash plan will have an annual limit for claims for each of the costs listed in the plan. For example there may be a limit of £300 per year for dental treatment, and £200 for optical costs. Reimbursement may be for 100% of costs, or a percentage (typically 75% or 50%), which may vary between the different costs covered.
Employers offering a health cash plan as a core benefit may choose to include the option of increasing the level of cover through a flexible benefits option.
Dental insurance works in the same way as a health cash plan, paying a fixed cash amount when dental treatment is required. There are often different levels of cover offering 100% reimbursement for NHS treatment or a percentage of private dental treatment. There are usually limits on the number of examinations and treatments available in a claim year although these are often increased if there is dental trauma from an accident (although not always including sports injury). Oral cancer treatment may be covered separately to other treatments. Some policies offer emergency treatment while abroad subject to limits. Some insurers offer benefits only if approved dentists are used.
Optical insurance works in the same way as a health cash plan. Under such a scheme, an amount is reimbursed to cover eye tests and optical devices such as glasses or contact lenses.
As many employees are covered by the Health and Safety (Display Screen Equipment) Regulations 1992 (SI 1992/2792), which provide for employee eye tests and contributions to glasses in limited circumstances, some organisations may see optical insurance as duplication of cover. Eye tests required for using computer screens are not a taxable benefit.
Employee assistance programmes
An employee assistance programme (EAP) is an important element of healthcare support. It provides employees with confidential advice about a wide range of issues relating to their personal life or work life including relationships, and legal and financial issues. A key element of an EAP will be a counselling service, which is usually telephone based.
When sourcing an EAP it is important for employers to understand the provider's internal quality control and monitoring processes, and the type of counsellors used in terms of qualifications and expertise.
Employers can provide an EAP to employees with no tax liability. However, if the advice is provided to a family member rather than the employee the benefit becomes taxable.
EAPs are often offered as part of a bundle with permanent health insurance and other group risk products, but there are many independent providers.
For further information on EAPs see Wellbeing > Employee assistance programmes.
New health initiatives and trends
Mental-health first aid
There is an increasing awareness of the importance of employees' maintaining good mental health, and the role the workplace plays in this. Some employers that are mindful of the potential long-term absence and costs associated with mental illness have introduced mental first aid. This involves training a group of individuals and managers in how to spot early signs of stress and mental illness, to encourage early intervention treatment.
Health engagement and technology
Some employers are now introducing a health portal to encourage employee engagement with the various health-related initiatives on offer. This allows employers to provide benefit information, and encourage employees to learn more about health issues and to take control of their health and wellbeing.
Having designed a health benefit strategy and implemented it alongside a suite of health benefits, employers must then encourage employees to use the services available. Communications can be assisted by branding and linking the individual services so that employees see a comprehensive range of benefits to help and support them and, if applicable, their families.
Employers should ensure that they provide clear communications to employees about benefit availability and entitlements, and how to access the services. These should be renewed and refreshed regularly to maintain employee interest. The messages should be endorsed by senior management and reinforced by managers throughout the organisation.
It is important for employers to present in a simple and understandable way the range of benefits available. However, it will also be necessary to provide the details behind some of these benefits, for example any group risk benefits. Not providing the details in full can lead to employee misunderstandings and frustrations when claims are challenged and/or turned down. The insurer should provide user-friendly summaries that can link to the full policy if required. Organisations should not summarise the policies or the terms themselves as key elements may be missed and the omissions could make the organisation liable. It is important that employees understand the full benefits and limitations of any health benefit before signing up to it.
Communication is particularly important when there is a change in the terms and conditions of a benefit, or a change of provider. The earlier the communications start the smoother the transfer will be. The new provider may provide cover on the previous providers terms for a transition period in order to further smooth the switch. In the case of private medical insurance, it is important that employees are given advance warning and are advised of any change of cover and what will happen for individuals who are in the middle of a treatment plan.
Taxation of health-related benefits
Generally speaking, all benefits provided by employers are taxable, and subject to Class 1A national insurance contributions. However, within the health benefits field there are some exceptions, these being:
- life assurance for employees only;
- one health screen per year;
- eye testing if the test is required by health and safety legislation for employees using computer screens;
- employee assistance programmes, provided that the advice/counselling is for the employee; it becomes taxable if it is provided to an employee's family;
- trivial benefits such as blood pressure testing where the cost of provision is less than £50 per employee;
- medical treatment to help an employee return to work up to a value of £500 where the employee has been assessed by a medical professional as being unable to work, or likely to be unable to work, due to sickness or injury for 28 days or more, or has been absent from work for at least 28 consecutive days;
- income protection premiums, although there is an option for the premiums to be taxed and the benefit to be paid free of tax but this is rarely used by employers; and
- sports and social clubs provided that the facilities are available to all employees and are not available to the general public.