What is a Corporate Healthcare Trust? Is it worth it?

How Healthcare Trusts Work

Instead of an insurance policy, which would attract Insurance Premium Tax, a Business Healthcare Trust is a pool of funds the company pays into a trust instead of paying premiums.

This creates a trust fund that is used to pay for staff healthcare.

Once paid into the trust, the money cannot be returned to the employer for tax reasons. However, any surplus in the trust not used for claims in a given year can be ‘rolled over’ to the following year.

As the employer is self-funding medical treatments for employees, they can cover whatever they see fit without being bound to an insurer’s terms and conditions.

For instance, most Corporate Health Insurance policies won’t cover chronic conditions; coverage for such conditions can be extended by a Healthcare Trust, however, because it is up to the employer to decide what they will and won’t fund.

Similarly, Healthcare Trusts are specially tailored and maintained around the needs of you, your employees and your business, so you ultimately get the solution that works best for you.

How do I create a Company Healthcare Trust?

• Get legal advice
  Trusts can be tricky business, so whether this is from internal legal counsel or an external source, we recommend getting professional advice on any trust you look to set up in the company’s name for the benefit of employees.
• Establish a trust deed
  A formal deed of trust establishes the trust. This, alongside a membership handbook, includes all of the rules setting out the scope of the Health Insurance Trust and the extent of benefit entitlement within the rules of the trust.
• Appoint your trustees
  These can be individual trustees, which might include directors or employees of the business, a corporate entity, or you could use an insurance company’s master trust, which appoints trustees from the insurer. Trustees are there to operate the trust in accordance with the rules, provide the administrator with the correct information, such as employee data and updates, and ensure there are funds to pay claims.
• Appoint your administrators
  This is often delegated to a third party, such as an insurer. Administrators are responsible for the day-to-day running of the trust (e.g. the assessment and payment of claims).
• Consider Stop Loss Insurance
  Under Health Insurance the insurer is bound to meet the total bill for all eligible treatment. A Healthcare Trust has a similar obligation but, unlike an insurer, it has a finite pot of money to do so. It’s common for the employer’s liability to the trust to be capped, with Stop Loss Insurance stepping in (which will be subject to IPT) if necessary to pay claims above the cap.

How Much Does a Company Healthcare Trust Cost?

A Health Trust can save money for larger companies with higher healthcare expenditure needs due to the lack of Insurance Premium Tax due on the trust compared to a Health Insurance policy.

If you as a company can afford to self-fund your healthcare, it can offer savings over a Health Insurance policy. Insurance Premium Tax is charged at 12%, so there are immediate potential savings there given that a Healthcare Trust is not liable for IPT.

Of course, there are other fees to be concerned with, such as legal fees for the setup of the trust and ongoing administration fees, usually paid to a professional administrator and typically being subject to VAT, for the servicing of the trust and the payment of claims when they arise.

Whether or not a Healthcare Insurance Trust will be a viable, cost-effective option for your business depends on:

• The size of your business
• If you were previously insured, your annual premiums and the cost of claims for your employees
• If you weren’t previously ensured, it will depend on the expected cost of claims for a group of employees just like yours
• Your company setup — limited liability partnerships and close companies, for example, are set up differently and so may not be subject to the same tax benefits.

Taxation of Healthcare Trusts

Insurance Premium Tax

Insurance Premium Tax is due on certain insurance contracts, including Private Health Insurance — it’s currently levied at 12%. However, as Corporate Health Trusts aren’t considered an insurance product, it’s not applicable.

What you will have to pay Insurance Premium Tax on is any Stop Loss Insurance you opt for to cover payouts in excess of a cap set on eligible treatment either per employee or a total amount per year.

VAT

Most Healthcare Trusts require specialised administration. This is commonly outsourced, perhaps to the insurer you opt to work with to set up the trust.

Any fee you pay to them for this administration will be subject to VAT. However, neither the sums paid into the trust or the claims going out of the trust are typically subject to VAT.

National Insurance Contributions

As an employer, your Class 1A National Insurance Contributions are payable on the total contribution into the Trust, which includes money paid in to cover both claims and the Trust’s administrative expenses.

Income Tax

The benefits provided by the Healthcare Trust are usually considered a P11D or Benefit in Kind and are calculated the same way as they would be for a conventional insurance scheme — based on the cost per employee incurred by the employer.

Simply put, this is typically the total annual inflow into the trust divided by the number of employees covered by the trust.

It’s important to ensure that employees are taxed this way and not based on what comes out of the trust in the form of claims / payments to individuals, since this would result in an imbalance of taxation towards those who are ill and therefore need to use the trust more.

To achieve this, you’ll need to ensure the benefit provided to the employee is the ‘right to reimbursement’ of specified medical expenses rather than the actual reimbursement itself. HMRC has produced guidance on the conditions that must be satisfied to ensure this, which include:

• The trust must give each employee an absolute right to reimbursement of specified medical treatment; in practise, this means that only a trust which is non-discretionary will satisfy HMRC conditions;
• The contribution into the trust each year for each worker must be identifiable, meaning it should typically be calculated in a similar way to insurance premiums, i.e. based on predicted claims per employee per year;
• Contributions to the trust must be irreversible and the employer as an entity needs to be excluded from benefiting;
• The trust cannot be terminated before all claims for treatment for periods for which contributions have been made by the employer have been met.

Corporation Tax

Corporation Tax relief is usually available on the sums paid into the trust meant for providing employees with healthcare.

Difference Between Company Health Insurance and a Corporate Healthcare Trust

Get Expert Advice on Business Healthcare Trusts

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