Potential disadvantages to offering health insurance as a startup

If you're reading this wondering whether to offer health insurance to your employees while your business is still getting off the ground, you've probably already thought of some reasons why you aren't ready. However, the reality may be different.

It costs too much

As a new business owner, you'll pull long hours to get revenue into your startup and focus on keeping outgoings low while funds are tight. You'd be forgiven for wanting to wait until your company is profitable before you invest in health insurance. However, health benefits may cost less than you think. There are lower-cost options that will enable you to offer health insurance to your startup employees, which you can scale up as you grow.

We'll talk about some of the policy options shortly, but it's important to remember that you don't have to pay premiums yourself initially. A group health insurance plan costs less per head than most individual policies, so you can set up a voluntary scheme and let employees pay premiums themselves if they want to join. You can change this later when your business is more established.

You don't have time to administer a scheme

If money is short when you first start a business, time is at an even greater premium. You may have left a job to start your business, only to find yourself working even longer hours than before. The idea of spending significant time searching for the right health insurance and then having to administer the scheme could easily put you off.

Working with an insurance broker takes the legwork out of finding a policy. They'll take details of your needs and budget before obtaining quotes from suitable providers. A broker will also help you to compare quotes, ensuring you understand the terms and coverage options.

When you've chosen a policy, most group health plans provide services to make it simpler to administer your scheme, including online portals to add new starters and remove leavers and digital tools for employees to make claims and access services.

You might not qualify

Most group health plans are only available to businesses with two or more employees. If you're a sole trader startup, you may not qualify. However, you can opt for self-employed health insurance and may be able to benefit from a reduced premium. WPA offers discounts to self-employed people.

Alternatively, you can take out an individual policy and pay premiums through the business.

The benefits of health insurance for startups

Investing in health benefits for your startup employees has many advantages that help you to get your business off on the right foot.

It gets key people back to work more quickly

Getting a new business off the ground involves lots of time and commitment from you and your employees. An illness or injury can disrupt that. NHS waiting list figures remain high, which could mean a lengthy absence from work.

Offering group health insurance enables you to access private healthcare more quickly so you can get back to building your business. You can provide small business health insurance to your whole team or only cover key personnel.

It helps you to attract the best people

Health insurance is a highly valued employee benefit. It can form part of an attractive benefits package to help you attract top talent. Gen Z employees look for employers whose values match their own and who are committed to supporting their health and wellbeing. Offering group health insurance is a great way to do that. As well as providing access to private healthcare, group health plans include other tools and services. These typically include mental health support and help to develop a workplace wellbeing strategy.

Offering health benefits also demonstrates your commitment to long-term growth. Attracting experienced staff can be challenging. While working for a startup provides opportunities for flexible working and greater innovation, this can also come with less job security, lower pay and longer hours. Employees with family commitments and mortgages to pay may baulk at the idea of leaving a relatively secure job to take that risk. However, when you provide health insurance as part of your employee benefits package, you show potential recruits that you're taking your new business seriously from the outset.

Employee perks

 As a new business owner, you may have limited resources to invest in employee benefits. Your group health insurance can provide more than just health coverage. It can also offer employee perks such as free coffee and discounts on everything from cinema tickets and holidays to gym memberships and fitness tracking technology. These can help you to build a more impressive benefits package at no extra cost.

Group of diverse business people discussing charts with quartal sales growth in office interior

How does health insurance for startups work?

 Group health insurance plans allow businesses to provide health insurance to all employees. Your health insurance company can spread the risk of a scheme member claiming over more people, meaning it's typically cheaper than individual health coverage.

You choose an insurance company and policy that suits your needs, and you can also tailor your insurance coverage with optional extras and additional services. You can pay premiums for your staff or ask that employees pay them themselves if it's a voluntary scheme.

Once your health insurance is in place, you and your team can contact your insurer to make a claim and start treatment or to claim back their out-of-pocket healthcare costs, depending on your chosen plan.

You'll also be able to access services such as virtual GP appointments and health helplines offering 24/7 health advice to fit your other commitments.

What isn't covered

Health insurance plans cover acute illnesses or injuries that can be resolved with a course of treatment. They don't cover chronic conditions that need long-term monitoring and management.

Each health insurer also has a list of exclusions that typically include straightforward pregnancy and birth, cosmetic surgery and weight loss treatments, and care for drug or alcohol addiction.

Other exclusions are based on an employee's medical history, with conditions that have needed advice or treatment in the past five years excluded for the first two years of the policy.

Health insurance policies for startups

 There are several different types of health insurance plans to choose from, including individual policies, small business health insurance or corporate health plans, depending on the size of your company. Here are a few options to consider.

Self-employed health insurance

You may not qualify for a group health insurance plan if you're a one-person small business. However, you can still get health coverage through your company. You could opt for an individual health insurance plan or look at a specialist self-employed health insurance policy.

Several major insurance companies offer health insurance for the self-employed with various benefits. WPA health insurance provides excellent coverage and a discount for self-employed people.

Small business health insurance

Small business health insurance is available to businesses with between two and 249 employees. The group health plans provide health insurance to all of your employees. However, you can place conditions on which staff are eligible to join the policy. For example, you might limit coverage to key staff, full-time employees or those who've completed a probationary period.

Small business health insurance typically includes a range of treatment options as standard and optional extras that you can choose to include depending on your needs and budget. You'll also be able to access tools to help you administer the scheme, for example, an online portal to add new starters.

Most insurance companies have small business and corporate group health plans, meaning you can scale your coverage as your business grows. Corporate plans offer the same coverage options as small business health insurance but include additional services to reflect the demands of managing a larger workforce. 

Cash plans

If comprehensive health insurance is beyond your budget when your startup is in its infancy, a cash plan offers an alternative. Cash plans come with lower premiums because they don't offer the same level of coverage as group health plans.

How cash plans work

Cash plans differ from group health insurance as they don't cover private treatment. However, they enable your employees to claim back the out-of-pocket costs of their routine medical expenses. These include eye tests, dental check-ups and physiotherapy treatment. If your employees are already paying these costs, a cash plan can save them money.

Some plans allow you to claim a fixed sum if you spend the night in an NHS hospital. Many plans also offer access to virtual GP appointments and health advice.

As well as being low cost, a cash plan doesn't have any exclusions for pre-existing conditions like group health plans.

What isn't covered

Cash plans cost less than group health insurance because they don't give you access to private treatment. They don't offer coverage for private surgery, diagnostic tests or cancer treatment in the way that health insurance plans can. This can be a significant disadvantage if you're a business owner who needs quick access to care so you can get back to work or if you want your key team members to benefit from private treatment. However, it does cost a lot less.

Choosing the right health insurance policy

Finding the right group health insurance plan for your business involves considering many options. Health insurance providers vary in their offerings, with some insurance companies having a family-friendly focus, allowing scheme members to add their spouse or children at no extra cost. Others prioritise helping your staff to improve their health and wellbeing with incentives for hitting their health goals.

Your company ethos and business goals will play a part in helping you to choose the right insurer.

Core coverage and optional extras

Each health plan offers core coverage, typically in patient care, cancer treatment, and some mental health care. You can then add optional extras to extend your coverage. These extras usually include outpatient treatment and optical and dental care. You can also increase coverage limits on some treatments and offer enhanced mental health coverage.

Tax benefits

Depending on your chosen policy, group health insurance has some tax benefits. Group health insurance premiums are an allowable business expense that can be deducted against corporation tax, allowing you to reduce your bill. That's great news when you're trying to keep funds in the business.

However, if you're a sole trader, your health insurance may be considered a personal benefit which isn't tax deductible. It's essential to take professional advice on what expenses you can claim.

HMRC treats health insurance as a benefit in kind, so your employees must pay income tax on the value of the benefit. You must report the benefit to HMRC and pay employer's National Insurance contributions.

Smiling happy young woman talking with male colleagues at shared workplace

How much does group health insurance cost for startups?

Several factors influence the cost of your health insurance. These can relate to the business itself and the policy. Your insurance company uses these criteria to assess the risk that a claim will be made on the policy. Insurance companies each have different methods, so quotes can vary.

Here are the most common factors:

The number of employees you want to cover

If you want to cover a lot of employees, the overall cost of your health plan will be higher, but the price per head will likely be lower as your insurer can spread the risk and the cost of the policy over more people.

Your employees' average age

The older your employees are, the higher your monthly premiums will be.

Your location

It costs more to run a city centre hospital than a regional one due to increased rents and staffing costs, so you'll pay higher monthly premiums if you want to access treatment in a city.

The higher cost is also reflected in the hospital list you choose. Insurance companies each have a standard hospital list showing you where you can have treatment using their insurance. Depending on your location, you may want to pay more to add a premium list covering city centre hospitals or those in Central London.

The work you do

Your premiums will be higher if your work is high-risk and lower if you're mainly office based.

How much insurance coverage you want

A cash plan costs much less than a comprehensive policy because it provides less coverage. Adding more optional extras and increasing the financial limits on each type of treatment will increase your premium.

Your insurance underwriting

As we've already mentioned, health insurance excludes any pre-existing conditions during a two-year moratorium period when an employee first joins the scheme. However, there are different approaches to this depending on the type of underwriting that applies to your policy.

Moratorium underwriting

With moratorium underwriting, your employee doesn't provide health information when joining the scheme. If they make a claim, your insurer investigates their medical history to see whether their condition is covered. Claims can often take longer, and there's an increased risk of a claim being refused.

Full medical underwriting

With full medical underwriting, your employee provides details of their medical history when they join, so there's more certainty about what's covered. Their claim is far less likely to be rejected. Full medical underwriting generally offers cheaper premiums too.

Medical history disregarded

This is the most expensive option but is ideal to ensure your employees get treatment even if they have a complex medical history.

It can also help to maintain their privacy as they won't have to explain why they need to wait for NHS care rather than being treated privately.

Get professional advice

Finding the right health insurance plan for your startup can be complex and time-consuming when you want to focus on building your new business. We're experienced health insurance brokers offering a service tailored to your business. We'll use our knowledge of the UK insurance market to help you find health insurance that meets your needs.

Contact us for a comparison quote.

Matt Fletcher
Senior Broker

Matt Fletcher

Matt, one of our senior brokers, joined us from Axa several years ago. His knowledge and expertise span health, life and income protection insurance alongside critical illness cover.

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