Why do health insurance premiums increase over time, and what can your business do about it?

You can provide your employees with health insurance by purchasing a group health insurance policy that covers all of them. Private health insurance policies include core coverage that providers offer to everyone, and you can tailor your policy by adding optional extras. Providers vary in the coverage they offer as standard, so always check the small print to see what each policy offers and what matches your needs and priorities. Most providers also offer policies tailored to small businesses and corporate plans that reflect the demands of managing a larger team.

If you pay your health insurance premiums yourself, you can deduct them from your corporation tax bill. Alternatively, you can introduce a voluntary scheme in which employees pay their health insurance premiums if they choose to join.

Insurers set health insurance premiums by assessing the risk that your employees will claim on their health insurance. The risk assessment considers various factors, and providers vary, meaning it's worth shopping around to get the best coverage for your budget. A broker can help you compare quotes, understand the pros and cons and the treatments and services your health insurance premiums cover.

Here are some of the factors insurers consider when assessing health insurance premiums.

Your business

Your business profile affects health insurance premiums in multiple ways. Most of these are outside your control and will depend on the nature of your business and the people you need to carry out the work.

Employees’ average age

When setting health insurance premiums, insurers typically assume that older workers are more likely to make claims, as the risk of health issues increases with age. With a group health insurance policy, your insurers will base your insurance premium on the average age of your workforce. This works in your favour if you have a few senior staff members managing and supervising more younger workers. However, this may not be the right approach for your business if you rely on extensive qualifications and experience.

It's also increasingly likely that you'll have older workers. The state pension age is rising, and more people work into their late 60s and early 70s. This may be due to financial necessity, a desire to enjoy a better quality of life or simply because they're still fit and well and enjoy their work. These days, employers can set a compulsory retirement age of 65 only if it's justified by business necessity or the public interest.

Of course, higher health insurance premiums are likely a price worth paying if your business benefits from highly skilled and experienced staff.

Your location

Your location affects health insurance premiums because healthcare costs are higher in some parts of the country than in others. Employees typically seek treatment close to their homes or workplace, meaning your health insurance premiums need to reflect the amount your insurers will pay for their care.

As you might expect, healthcare costs are typically higher in major cities, particularly London. However, this can vary depending on the treatment an employee needs. You have some control over the treatment providers and hospital services your policy covers. Most policies include a standard hospital list detailing the private hospitals and private NHS units your policy covers. If you want your coverage to include hospitals in major cities, you'll usually need to invest in an extended hospital list, or an extended list plus London. You may be tempted to stick with the standard list. However, if workers must travel far from home or work to seek treatment, they may avoid using their health insurance, meaning you don't get the benefits of investing in coverage, such as quicker treatment times and less time spent on sick leave.

Employee numbers

Health insurance premiums are based on the risk that someone will make a claim under the policy. The more employees you have, the further insurers can spread the risk. This means that the cost of your insurance premium per head will typically drop as employee numbers rise, even though the overall cost will be higher.

This can make voluntary schemes, where employees pay their own insurance premium, attractive as staff can typically pay lower premiums than they would when buying an individual health insurance policy.

Your industry

Insurers will consider the risks associated with your industry sector when setting health costs. Your work affects health insurance premiums, as some industries carry a higher risk of injury or ill health than others. For example, if your work involves heavy manual labour, workers are at higher risk of musculoskeletal conditions or injuries that may require surgery, physiotherapy or other physical therapies. Sedentary work can also lead to health issues, such as back problems from sitting in the same position for long periods, or cardiovascular disease from a lack of physical activity.

As we've mentioned, insurers differ in their approach to assessing risk. Many insurers will also consider the risks associated with professional services that involve high stress levels and their impact on mental health and overall well-being. All of these factors can affect health insurance premiums, but the cost will often vary depending on your chosen insurer's approach to risk and which factors they consider most important.

Occupational profile

We've mentioned how your industry affects health insurance premiums, but the occupational profile within your business also matters. For example, you might have a small number of people performing higher-risk work, supported by a team of people in low-risk, office-based jobs. While no profession is entirely risk-free, your insurers will consider the overall balance of your workforce when setting health insurance premiums.

The extent to which preventative care can reduce the risk can also help you avoid sharp increases in your health insurance premiums. The first time you buy health insurance, many insurers will take a broad-brush approach. However, on renewal, they'll have more data to help them assess your risk profile.

Most insurers offer employee health assessments and healthy living support as part of their core coverage. Using workplace well-being initiatives and encouraging employees to engage in health assessments can improve health outcomes, leading to fewer claims and potentially reducing premiums.

Your chosen policy

As we've discussed, providers differ in their approach to health insurance premiums. Some offer generous benefits as part of their core health insurance coverage, while others let you tailor your coverage with a wide range of optional extras. The approach that works best for you will depend on your budget, workforce and healthcare needs.

It's a good idea to consider which treatment types and services your employees are most likely to need. These will likely vary based on the risks associated with your work and employee demographics such as age, life stage, and lifestyle. Your business values will also influence your approach. For example, if you prioritise family-friendly policies, health insurance that lets staff add their children or other resident family members will likely be highly valued.

Here are some ways your health insurance coverage affects your premiums.

What does your policy cover?

As you might expect, the more treatment and services your policy covers, the higher your health insurance premiums will be. Providers vary in the core coverage they offer, so a basic policy with an extensive range of treatment types may be enough to meet your needs, depending on the insurer you choose. Adding optional extras to extend or enhance your coverage will increase the cost but can give you a better return on your investment. Many policies also have financial limits within each treatment category. Unlimited coverage will cost more than a policy which limits how much treatment an employee can claim. Speaking with a health insurance broker will help you choose a provider and policy, and tailor the coverage to your needs.

It's also worth considering who your policy covers. Group health insurance can cover your whole workforce or a section of it. For example, you might want to offer health insurance benefits to senior staff, or wait until a new employee has passed their probationary period before adding them to the policy. You must proceed with caution and take professional advice to ensure you avoid unlawful discrimination before restricting access to health insurance coverage. You can also consider whether to allow employees to add their children to the policy. Some providers will cover the first child free of charge. A health insurance broker can help you assess the impact on your premium.

Policy underwriting

Underwriting is a complex process and affects health insurance premiums depending on the type you choose. An insurer may offer you options or apply an underwriting type when they send the quote. We'll discuss how you can tailor your underwriting to help you avoid short-term increases in health insurance premiums, but first, here's a guide to the different types.

Moratorium underwriting

Moratorium underwriting places a two-year moratorium period on pre-existing medical conditions. These are medical conditions for which an employee sought advice or treatment within the five years before joining the policy. They're excluded from coverage for the first two years, but insurers can remove the exclusion if an employee stays symptom-free during that period.

With moratorium underwriting, insurers don't request medical history details when an employee joins. However, they will investigate each claim to determine whether an exclusion applies, which may mean claims take longer.

Full medical underwriting

Full medical underwriting applies the same two-year moratorium period, but insurers ask for medical information when an employee joins. It offers more certainty about exclusions from the outset and often makes the claims process quicker. It can also help reduce premiums in the long term, as you'll have fewer rejected claims, which can lead to higher health insurance premiums at renewal.

Medical history disregarded

As the name suggests, medical history disregarded (MHD) underwriting means that an employee's medical history is irrelevant, as there are no exclusions for pre-existing conditions. It's typically the most expensive underwriting option, but it means employees can access treatment quickly. They also won't have to disclose their medical history to you to explain why they're facing a longer wait for treatment.

Most insurers only offer MHD underwriting to companies with at least 20 staff, so it isn't suitable for small businesses.

Underwriting when you change providers

Changing your health insurance provider can be complex but can reduce premiums. The main risk of switching is that your new insurer may add exclusions based on treatment your employees received under your existing policy. If an employee is halfway through their moratorium period when you switch, they may have to start from scratch, staying symptom-free for another two years rather than one.

Continued Personal Medical Exclusions (CPME) underwriting lets you change providers while keeping your existing exclusions. Continued Moratorium (CMORI) underwriting lets staff transfer the moratorium period they've already earned to the new insurer, in the same way as you'd transfer your no claims bonus to a new car insurer.

Your claims history

When a health insurance policy comes up for renewal, insurers use your claims history to consider whether to apply premium increases. Higher health insurance premiums can result from high claim volumes or rejected claims, and the healthcare costs your insurers have paid. Health insurance policies also offer no-claims discounts that can reduce premiums if your employees don't make a claim. Again, the way insurers use no-claims discounts varies between providers.

Encouraging your workers to use their well-being and preventive health services can help you avoid premium increases and build a healthier workforce. On corporate plans, insurers often provide support to help you develop well-being initiatives. Many insurers also provide educational resources to support your efforts.

Economic factors

Economic factors can significantly affect your health insurance premiums. Unfortunately, these are typically beyond your control, as they result from national and global trends.

There are two main ways in which the economy can lead to rising premiums.

Inflation

Economic inflation influences costs across the board. The cost-of-living crisis affected housing costs, food prices, and utility bills, leading to higher living costs for your employees and increased operating costs for your business.

These rises also contribute to rising premiums. You may find yourself paying more to keep the same health insurance coverage, or having to reduce the treatments and services your health insurance provides if you want to avoid premium increases. Insurance companies are businesses with operating costs. Price increases mean they're likely paying more for their premises, utilities, and staffing, leading to higher premiums.

Medical inflation

Medical inflation relates directly to rising healthcare costs. It affects health insurance premiums for two main reasons. Firstly, it increases the healthcare costs insurers must pay for claims. Hospital costs increase due to higher fees for medications, facilities, and staffing, all of which are reflected in health insurance premiums.

Secondly, rising healthcare costs can be due to investment in new treatments and technologies. Private health insurance providers pride themselves on offering their customers access to cutting-edge treatments and medications approved for use in the UK but not yet available through the NHS. The NHS must carry out a careful analysis of the costs and associated benefits of funding a new treatment, but private providers can often move more quickly. They may be able to spend more on new medication or invest in equipment to offer pioneering diagnostic techniques or less invasive surgical procedures. It means that advances in medical treatment drive up costs.

This offers many benefits as it can help your staff recover from illness more quickly, but it comes at the expense of higher premiums.

Providing your employees with health benefits supports business growth by boosting productivity and employee engagement and reducing sick leave by giving them quick access to medical treatment. While health insurance premiums are an allowable expense for corporation tax purposes, they still need to work within your budget.

You may be reviewing health insurance quotes for the first time and considering how to pay less for your first year of coverage. Alternatively, you may have received your renewal quote and face much higher premiums. In those circumstances, you might wonder whether to reduce coverage or economise elsewhere.

There are various ways to reduce your health insurance premiums. If you've previously paid your health insurance premiums monthly, switching to an annual premium can reduce your premium, even though it means paying a lump sum instead of spreading the cost.

Here are a few ways to reduce your health insurance premiums, along with the pros and cons of each method.

Reduce your coverage

Reducing the coverage your policy provides can help to counteract rising premiums. However, rising healthcare costs and medical inflation can mean you find yourself paying more for the same coverage. Reducing your coverage level can take several different forms.

If you added optional extras to your policy, you could choose to remove some of them when you renew. This can mean providing your team with core rather than extended coverage, or removing some additional treatment options. For example, most insurers offer mental health support, including 8-10 counselling sessions, as part of their core coverage. Extending your mental health treatment options adds in-patient and out-patient treatment with a psychiatrist, psychologist or other mental health professionals. Adding coverage for additional physical therapies could cover chiropractic treatment and osteopathy, where basic coverage only covers a few sessions of physiotherapy. Reducing coverage in this way risks removing something your employees value or disrupting ongoing treatment. Asking for feedback and checking usage data before making changes can help you make an informed decision.

If you'd prefer to continue offering a broad range of treatments, you can reduce the financial limits for each treatment category. Many insurers provide a range of coverage levels, which cap the amount your insurer will pay per year in each treatment category. Some may also specify the maximum number of treatment sessions each employee can have. If you currently have unlimited coverage, reducing it to a fixed financial limit can prevent premium increases while still allowing you to offer a range of health benefits. However, you should ensure that you don't make the limits overly restrictive, as this could disrupt treatment or discourage staff from using their health benefits.

It's worth speaking to a health insurance broker, as they'll be able to advise you on the changes that will most impact your health insurance premiums while also ensuring you keep essential coverage.

Change your underwriting type

Changing your underwriting type can help reduce your premium in the short term, but it's wise to speak to a health insurance broker to understand the long-term implications of your decision. As we've mentioned, medical history disregarded (MHD) underwriting is the most expensive underwriting type and is typically only available to businesses with at least 20 staff. If you currently have MHD underwriting, switching to moratorium or full medical underwriting can reduce your premium. However, you should consider the impact on your team. Employees who have previously received medical treatment under the policy will likely face extensive exclusions, particularly if they have a complex medical history.

You could also consider switching to moratorium underwriting instead of full medical underwriting. Moratorium underwriting can be significantly cheaper initially, but these differences typically diminish over time. Full medical underwriting involves more paperwork when an employee first joins the policy, as insurers request details of their medical history. However, this can be an advantage, as it provides greater certainty, speeds up the claims process, and helps workers start treatment more quickly.

Change your provider

At renewal time, you may choose to request quotes from other insurers to see whether they can offer you a better deal. Seeking professional guidance from a broker will help you compare quotes and assess how the coverage and terms and conditions the new insurers are offering compare to your existing policy. There's always a risk that a different provider will offer less favourable terms and conditions, but the practical impact may not be clear until after you've switched.

As we've mentioned, if you decide to switch, your new provider may add exclusions for pre-existing conditions based on the treatment your employees have received under your existing policy. Alternatively, they could lose the moratorium period they've already accrued. CPME or CMORI underwriting can help to prevent this, but insurers don't guarantee access to these underwriting types and using them requires careful guidance from a broker.

Add a policy excess

Adding an excess to your policy can reduce your health insurance premiums, as it lowers the amount your insurer must pay per claim. A policy excess creates set employee contributions that they must pay towards their treatment. An excess can work in two different ways. Some insurers require a single annual excess payment, which an employee pays the first time they claim. Even if they make further claims during the same period, they won't have to pay an additional excess. Alternatively, insurers can request an excess per claim, meaning employees must pay for every new claim.

You can typically decide what level of excess to apply and whether the excess applies per claim or per policy year. When considering your options, think about what your employees will be willing and able to pay. A higher excess may help to lower premiums, but it could also be unaffordable, meaning employees avoid using their health insurance and you lose the business benefits. A lower excess may mean higher premiums, but it could also bring a greater return on your investment.

Guided consultant option

We've mentioned the different hospital lists insurers offer, from a standard list that includes lower-cost hospitals to extended lists that cover higher-cost hospitals. These options give employees greater freedom of choice when they need treatment. However, there is another option that can help to lower premiums.

A guided consultant option limits employees' options over who treats them and where. When they claim, they'll be offered a choice of 3-5 consultants in their area. This can be frustrating if they have a particular consultant in mind who isn't included on the list. However, it can help to reduce feelings of overwhelm. Some employees may also be happy to have some guidance.

This option supports lower premiums by focusing on consultants with lower fees. They're still highly qualified and experienced doctors, but may work in an area with lower treatment costs or have a business structure that supports reduced overheads. Some consultants who typically charge higher fees also agree to take on a limited number of patients at a reduced price to allow access to more specialised treatments.

Some insurers offer a guided consultant option as standard, offering upgrades to standard or extended lists. Others offer it as a lower-cost option.

Add a six-week wait

Adding a six-week wait option to your policy can significantly reduce your health insurance premiums, but it's a risky choice. This option means that your health insurance will only cover an employee's treatment if they will wait longer than six weeks for NHS care. Current waiting list data sources suggest that many patients will wait longer than six weeks for elective, non-urgent treatment. However, it can put employees at a disadvantage if they receive emergency treatment at A&E or an urgent care centre. For example, say an employee falls and fractures their wrist. They'll likely have an X-ray and be put into a cast or other support to stabilise the bone within a few hours. If they need additional surgery, physiotherapy or rehabilitation later, they won't be able to use their health insurance as they received treatment within six weeks. Without a six-week wait option, they can use the policy to access follow-up care.

Choosing the right health insurance for your team and ensuring it works with your budget can be challenging. We help you compare policies so you can make an informed choice, whether you’re investing in health insurance for the first time or considering making changes to your existing coverage. Contact us today for advice tailored to your needs.