How does health insurance work?

Private health insurance enables you and your employees to access private healthcare that helps them to recover from illness or injury. It's great for their quality of life as private health coverage generally allows them to access treatment more quickly than on the NHS. Your small business also benefits as it means your valuable team member won't need to be away from work for an extended period.

When you take out employee health insurance, you pay the premiums and health insurance coverage is provided to all your staff. They can contact your health insurance company to make a claim and start treatment when they need medical care.

What are the benefits of small business health insurance

Small business health insurance offers a range of benefits to your business and employees. Health insurance is highly sought after as an employee benefit, which means it can help you attract high-quality employees in a competitive job market.

Employee benefits

Your employees can access excellent care quickly without spending time on an NHS waiting list. Depending on your policy, they'll have more choices over their consultant and hospital. Private healthcare providers also invest heavily in new technologies and treatments, so they may be able to access drugs, surgical techniques and therapies that aren't currently available via the NHS.

Every health insurance provider also offers some form of mental health support which allows your team to access services that help them to manage stress or seek advice on mental health or financial issues.

Small business health insurance benefits

If you have a small team, the loss of one employee can significantly impact your finances and other staff you may ask to cover. One of the most significant ways small business health insurance benefits your company is that it can substantially reduce absenteeism. Access to quick treatment means your employees will have shorter periods of absence. However, the support services that come with private health insurance can also help reduce stress-related absences or support your employees in improving their overall health and well-being.

When you offer health insurance, you also demonstrate a commitment to looking after your people, which can help you recruit the best staff and improve employee retention.

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Group health insurance vs individual policies

Small business health insurance is available for businesses with as few as two employees. A group health insurance plan provides health benefits to all of your employees. You may wonder whether it's worth taking out group health insurance coverage when you could simply buy individual policies for each staff member. However, group health insurance plans tend to be cheaper per head than individual plans as they allow your insurers to spread the risk and reduce the cost of your employee premiums. It also means that if your business grows, you'll be able to add new staff to the policy, so there's less paperwork involved.

Alternatively, suppose you only want health benefits for yourself and don't want to offer health insurance to all of your staff. In that case, you can take out an individual policy and pay premiums through your business. This can be a more affordable health insurance option if you are the primary income earner in your small business.

What do small business health insurance policies cover?

 All health insurance providers offer coverage for acute conditions. These typically need a single course of treatment, for example, physiotherapy, surgery or most cancer treatments.

However, the treatment your small business health insurance covers will vary depending on your chosen policy coverage. Health insurance plans include some features as standard, and there is also a range of optional extras that you can add. Health insurance providers can vary in terms of what's included as standard, so it's vital to understand what's covered before you choose a policy.

A good starting point is to consider what your small business needs and what will benefit your staff.

Core coverage

All health insurance coverage includes access to inpatient and day patient treatment and cancer care as standard. If your employees need to be admitted to a hospital for treatment, they can access private care no matter which health insurance policy you choose.

Inpatient cover pays for surgery costs and may include a small amount of rehabilitation, such as post-operative physiotherapy.

Cancer coverage includes treatments such as surgery, chemotherapy and radiotherapy, and some also offer health insurance coverage for support services, including wigs, prosthetics and nutritional advice.

Most policies also offer some mental health insurance, varying from telephone counselling to CBT.

Optional extras

There are many different options you can choose to tailor your health insurance to your small business. In our view, one of the most significant is outpatient coverage. Outpatient care isn't typically included as standard, but it brings a range of health insurance benefits, so we think it's worth investing.

As the name suggests, outpatient cover pays for outpatient treatments and therapies, for example, physiotherapy. More importantly, it allows your staff to get a private diagnosis as it pays for initial consultations, diagnostic tests and scans. If you don't have outpatient cover, they'll need to wait for an NHS diagnosis before they can access private treatment. This speeds up the whole process, so it's worth investing in more extensive coverage to give your staff the best chance of returning to work quickly.

Health and well-being support

Health insurance typically includes some health and well-being support. Individual policies usually include mental health support services and bonuses or discounts for individuals who hit their well-being goals. However, when you buy small business health insurance, you'll likely be able to access support to help you create a health and well-being strategy. Health and wellness programs promote a healthy lifestyle in your workplace and can help you to create a positive business culture. Depending on the insurance company you choose, it can also help you to achieve cost savings on your employee premiums.

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Dental and optical cover

It's likely that your employees are already paying for their dental check-ups and treatment unless they meet the criteria for free care. Dental coverage is available as an optional extra and can play a valuable role in maintaining your staff's overall health. There's a proven link between oral and general health, and dental check-ups can act as an early warning system for other health conditions, for example, heart disease or diabetes.

You may already be paying for your employees' eye tests and/or glasses if they use a screen as part of their role. It's worth assessing whether optical coverage will help you to save costs. Eye tests can also help to identify other health conditions, allowing your staff to seek early treatment.

Other services

Health insurance enables your employees to seek medical advice as well as treatment. Traditional GP surgeries typically work office hours, which often means taking time off work to attend an appointment. This can be inconvenient but may also mean that your staff put off seeking medical advice until their symptoms become more serious. In some cases, delaying treatment can mean a less favourable prognosis. Health insurance includes access to 24/7 virtual GP services, so your team can book appointments that fit around their other commitments. Some also offer helplines staffed by specialist nurses.

Health insurance for small businesses can also include other support services and information. Some health insurance companies offer legal and financial helplines. Whilst these services don't provide health advice, they can help to reduce stress and anxiety related to money or legal worries.

Employee discount schemes

If you want to support your employees through the cost of living crisis, offer health insurance. Most insurance companies have discount schemes that can offer savings on everything from cinema tickets to gym memberships and holidays. Vitality's programme promotes healthy living so members can earn rewards with exercise or healthy eating.

What isn't covered?

As we've already mentioned, small business health insurance provides health coverage for acute conditions. If you have a chronic illness, for example, asthma, diabetes or heart disease, these won't be covered. They require ongoing monitoring and management by your GP or NHS consultant and may also benefit from multidisciplinary care that private providers aren't set up to offer.

Other exclusions depend on the insurance company you choose and your medical history.

Standard exclusions

Each insurance company has a list of exclusions that its health insurance plans don't cover. You'll typically find the following exclusions:

  • Treatment for alcohol abuse or other addictions
  • Straightforward pregnancy and birth
  • Cosmetic or weight loss treatment
  • Fertility treatment
  • Accident and emergency

Some policies have a long list of exclusions, sometimes because they offer health insurance with a higher level of coverage as standard. It's vital to check the small print before choosing a health insurance plan to understand the coverage offered.

Pre-existing conditions

A pre-existing condition is anything that an employee had needed medical treatment or advice for in the five years before they joined the health insurance policy. Treatment for the condition will be excluded for the first two years of the policy.

For example, if you had physiotherapy for hip pain a year before joining the policy and then need a hip replacement a year after joining, your health insurers won't cover the medical expenses related to the surgery, and they'll need to have treatment on the NHS. However, if the symptoms don't recur in the first two years of the policy, the condition can be added to your health insurance plan.

This type of exclusion depends on the type of underwriting you choose; more on that shortly.

How much does small business health insurance cost?

Your health insurance premiums can vary depending on a range of factors. When you provide health insurance benefits to your employees, health insurance companies assess the risk that a scheme member will make a claim and set the premium accordingly. Insurance companies assess risk differently, so it's worth shopping around to find the best coverage for your budget.

Here are some of the factors that can affect your health insurance premiums.

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Business factors

Your health insurance costs are influenced by the type of business you run, where you operate and the people you want to cover.

How many employees the business has

Group health plans allow your insurer to spread the risk over all of your employees, thereby reducing the cost per head. However, the more employees you have, the higher the cost. You can choose to provide health insurance based on specific criteria. For example, you might add new employees only when they've completed their probation period or only offer coverage to full-time workers. Many small business owners decide to take out an individual policy that only covers them rather than the rest of their team.

Your employees' average age

As a general rule, the older you are, the more expensive your health insurance will be. With small business health insurance, your insurance company uses the average age of your workforce to assess your premiums.

Where you do business

Where your business is located will influence your health insurance costs. You'll pay more if you're based in a large city, particularly London, and less in a more rural location. This is because the costs of providing private healthcare, such as rents, utilities and staffing costs, are typically higher in cities.

If your staff regularly travel for work or work overseas, you'll also pay higher monthly premiums if you want to enable them to have private healthcare coverage abroad.

The type of work you do

Your health insurance premium will be higher if your work is high-risk. For example, if you work as an electrician, your typical working day will inevitably expose you to some hazards, increasing your premium. By contrast, an office-based legal or finance business is much lower risk.

Insurance companies will also look at the individual roles within your business to assess your level of risk.

Policy factors

Your health insurance premiums also vary depending on your choices regarding the policy.

Level of coverage

As we've already discussed, a basic health insurance plan includes core coverage as standard, and you can then add optional extras to tailor your coverage to suit your business needs. Core coverage offers some health insurance benefits and can keep your premiums low.

Comprehensive coverage will cost more but can offer a better return on investment, particularly if it includes outpatient care and diagnostic tests to provide employees with quicker diagnoses.

Financial limits

Placing financial limits on the level of coverage your health insurance provides. For example, if your policy covers outpatient physiotherapy, you can limit the number of treatment sessions that the policy covers or specify a financial limit on costs. Health insurance companies typically offer different levels of coverage within each policy, so you can choose the level you want.

You can also add a policy excess where your employee pays for part of their treatment. Some health insurance plans also offer a '6-week wait' option, where treatment is only covered if you need to wait more than six weeks for treatment on the NHS.

Hospital list

Health insurance companies offer a range of treatment locations. Some operate networks of private hospitals and clinics, whilst others work in partnership with other insurance providers and the NHS to share facilities.

Standard health insurance for small businesses includes a list of hospitals and treatment centres covered under your policy. Your insurance provider will likely also offer an 'extended' list and an 'extended + Central London' list. Each of these will cost more. However, if you're based in Central London, choosing an enhanced list may allow your employees to seek treatment closer to their home or work, making life easier at an already stressful time.

Underwriting options

The type of underwriting your policy has affects the cost of your premiums and the overall claims experience.

Moratorium underwriting

With moratorium underwriting, all pre-existing conditions will be excluded from cover for the first two years of the policy. You won't need to provide any medical information when a new starter joins the scheme. Claims often take longer to process because your insurer will check an employee's medical history when they make a claim. The downside can be an increased wait for treatment and a higher risk that your health insurer will refuse your claim.

Full medical underwriting

Full medical underwriting has the same two-year moratorium period on pre-existing conditions as moratorium underwriting, but employees must provide details of their medical history upfront. This gives you and your insurance company more certainty, as they can assess the risk more accurately, and your employee will know what's covered from the start.

The claims process is typically quicker, and there are fewer rejected claims. Premiums are usually cheaper too.

Medical history disregarded

As the name suggests, this type of underwriting disregards your medical history, which means that pre-existing conditions are covered. It's the most expensive type of underwriting, but it means that your employees can access quick treatment regardless of their medical history.

Health insurance tax considerations

Before you provide health insurance for your employees, you must consider the impact on your small business in terms of taxation.

The employee premiums for a group health plan are paid using gross profit and are an allowable business expense for corporation tax purposes. Health insurance can help you reduce your tax bill.

However, health insurance is treated as a benefit in kind, which means that your employees will need to pay income tax on the value of the benefit (this is equivalent to the cost of the premium). You'll need to report the benefit to HMRC on form P11D and pay employers' National Insurance contributions on the benefit.

Get professional advice

A wide range of health insurance options are available, with varying coverage and benefits. Finding the right small business health insurance for your company can be complex and time-consuming. A specialist health insurance broker can help you to obtain and compare quotes, offering tailored advice to support you in making an informed choice.

Contact us for a comparison quote.

Kingsley Agbo
Senior Broker

Kingsley Agbo

Kingsley has over a decade's experience in health, group life insurance and relevant life insurance. He's a talented broker with a passion for his work and for supporting his clients.

Frequently asked questions