Healthcare trusts can prove complicated to set up and require keen governance, but master trusts are increasingly making this a more viable solution to rising private medical insurance (PMI) premiums for employers.
The flexibility trusts provide can give more mechanisms for organisations to support their workforce health while also reducing insurance premium tax (IPT) costs.
Recent and ongoing reviews led by Sir Charlie Mayfield and Alan Milburn respectively have thrown down the gauntlet to employers to take greater responsibility for the health of their workers, to which trusts could play a valuable role.
Trusts are also growing in popularity as allowing private hospital groups a direct relationship with the employers who want to keep their colleagues in health and working.
Emergence of master trusts
For Rachel Western, health and risk principal at Aon, there are two key reasons why trusts are becoming of more interest to clients.
“One is the emergence of umbrella master trusts which are now giving smaller corporate schemes the opportunity to explore trusts as a funding option without the legal and administrative burden that wholly owned trusts can bring,“ she says.
“The second is the flexibility and ownership that a trust can bring allowing a more flexible approach on benefit structures, especially for new and emerging benefits where insurers are less comfortable carrying liability.“
But for Kristian Breeze, director of healthcare at Ascend Health, cost and control are the main drivers to the growth in the popularity of trusts.
“Employers are under sustained pressure from rising PMI premiums and are looking more closely at alternatives that give them clearer line of sight over spend,” Breeze explains.
“At the same time, there is a stronger focus on productivity, absence and retaining people in work. Healthcare trusts allow employers to shape provision around those outcomes.
“They can target faster access to diagnostics, musculoskeletal support or mental health services in a way that better reflects their workforce.
“That flexibility, alongside the ability to reinvest any surplus back into employee health, is where trusts are stepping ahead of more traditional insured routes.”
Cost and control
While these are valid benefits, Mike Hesch, head of UK employee benefits at Engage, points out that from the onset there are extra costs and time needed to set up a trust and then there are the ongoing fiduciary duties.
“Though many private medical providers are offering their own master trusts to mitigate this,” Hesch notes.
“Of course, the claims risk now sits with the employer and while they can purchase stop-loss insurance, this does tend to eat into the savings made by moving to a trust.
“Cash flow management also needs to be considered: once you put money into the trust it can only be used to pay the claims of the policy, therefore it cannot be removed if needed for something else.
“Due to the cost and complexity of setting up these arrangements it’s rarely suitable for employers with less than 500 employees on cover. However, insurer master trusts are lowering the barrier to entry.”
Carrying complexities
Indeed going down the trust route is not without its complications, as Kelly Morris, corporate distribution director at Axa Health, notes.
“Establishing and managing healthcare trusts involves certain complexities,” Morris explains.
“They must be set up in compliance with legal, tax, and actuarial considerations, which requires careful planning and expert oversight.
“Employers need to appoint trustees or work with experienced administrators to ensure governance and fiduciary duties are properly handled.
“Ongoing administration, oversight, and fiduciary responsibilities are essential to prevent mismanagement and sustain the trust’s viability. Without proper governance, trusts risk becoming ineffective or unsustainable.”
However, Ian Talbot, CEO of Healix Health, argues healthcare trusts can be relatively simple to set up, especially where employers use a master trust whereby the trust provider handles the onboarding and ongoing administration of running the trust.
“Unlike PMI, where risk is transferred to an insurer, a trust is self-funded, so organisations need the confidence, governance and data to manage claims volatility appropriately,” Talbot says.
“Trustees provide governance, and trust providers share management information with employers to show claims data and forecasting to help manage costs. That same management information can also be used to evolve benefit design over time, ensuring the right support is in place in the right areas as workforce needs change.
“In practice, that means trusts tend to suit larger or more mature schemes best, where employers have the scale and appetite to take a more active role.”
Thinking like employers
Ellis Turley, head of corporate at WPA, maintains that in the longer term, a trust helps employers think like a healthcare manager rather than an insurance buyer, becoming integral to their overall health and wellbeing strategy.
“Trusts are less suitable to schemes with volatile claims,” Turley notes.
“Although there are set up costs with governance, regulatory and legal considerations, these can quickly be recovered through savings made by targeted benefits and the cost-efficient nature of a trust compared to insurance.”
Linking workplace health and economic performance
Another driver behind healthcare trusts coming into sharper focus for employers has been last year’s Keep Britain Working Review which urged the exploration of pooling mechanisms to help make investing in workplace health provision affordable for SMEs.
This has been followed by a review led by former health secretary Alan Milburn into youth labour market inactivity, with an interim report from the review indicating that changes not seen for two centuries to the health of the country’s youth populations is impeding economic growth and contracting supply to the labour market.
Sharon Harwood-Davis, head of corporate healthcare pricing at Broadstone, maintains that both of these reviews have brought the link between workforce health and economic performance into sharp focus, and that is directly influencing employer behaviour.
“Sir Charlie Mayfield’s Keep Britain Working Review has been particularly influential in reframing ill-health as one of the primary drivers of economic inactivity, with more than one in five working-age adults now out of the workforce largely due to health conditions,” Harwood-Davis says.
“Critically, the review places employers at the centre of the solution – highlighting the need for earlier intervention, better workplace health support and a more preventative approach, rather than relying solely on the NHS.
“That directly aligns with the strengths of corporate health trusts, which enable employers to take greater control over healthcare delivery and invest more proactively in workforce health, rehabilitation and return-to-work pathways.”
Scale of the challenge
According to Harwood-Davis, the Milburn Review has underlined the scale of the challenge at the younger end of the workforce, with more than one million young people now not in education, employment or training.
“The report is clear that this is not a lack of willingness to work, but a whole-system failure, with health – particularly mental health – identified as a key barrier to participation,” she continues.
“From an employer perspective, this reinforces the growing importance of early intervention and accessible healthcare support, particularly for entry-level and early-career populations.”
Shared responsibility
But the task of driving down labour market inactivity is not the sole responsibility of employers as Nick Scrimgour, director, health and benefits at WTW, explains.
“One of the core recommendations of the Mayfield report is that there must be shared responsibility for workplace health with employers, employees and the NHS collaborating,” Scrimgour says.
“Employers should focus on prevention and early intervention and the NHS on diagnosis and treatment,” he continues.
“Employees are expected to actively participate in maintaining their own health and wellbeing and engage with workplace health initiatives.
“The review calls for workplace health to be positioned as a national priority and proposes to integrate workplace health into neighbourhood health strategies, making sustained employment a health outcome.
“As such, we might expect to see growth in the number of employers investing more broadly in the health of their employees. This growth will necessitate the need for greater flexibility in terms of how employers deliver benefits and services, both from a design and operational perspective, which play directly to the key USPs of healthcare trusts.”
Greater opportunity
Those key USPs are also contributing to private hospital groups increasingly seeing the potential of healthcare trusts.
Indeed, research released by the Independent Healthcare Providers Network’s (IHPN) this spring showed that 53% of private hospital groups now see company schemes as the greatest opportunity for growth.
The data points to a dramatic turnaround with 53% of private hospital leaders now citing trusts and other company schemes as an opportunity for growth compared with just 31% in the previous year.
Shedding some light on what may be behind this trend is Soraya Chamberlain, vice president corporate sales at HCA Healthcare UK.
“Growth in healthcare trusts is influenced by two key factors, when comparing the benefits they bring vs an insured solution; the ability to create a more flexible and tailored healthcare scheme and cost reduction,” Chamberlain explains.
“Claims incidence among the larger schemes made a stepped change following the pandemic, up from 20% pre-Covid to around 30-35% today, and this has driven sustained premium inflation, and is pricing some employers out of the traditional private medical insurance (PMI) model,” she continues.
Reshaping the market
It is this, Chamberlain maintains, that has fundamentally reshaped the market and has acted as a catalyst to alternative funding mechanisms being sought out by employers to better control cost and adapt schemes to the new environment of employee healthcare.
“As costs rise, more organisations find that trust structures are becoming a feasible option,” Chamberlain adds.
“They offer more mechanisms to actively manage spend and reduce IPT, making them particularly appealing in a period of extraordinary cost inflation.
“These cost pressures have also driven up demand to demonstrate the value of employee healthcare to an all-time high, particularly among smaller and medium-sized businesses.”
Positive future
Consequently, given all of these underlying trends, the future for healthcare trust usage is overwhelmingly positive, according to Carolyn Derrington, head of healthcare trusts at HCML.
“The future for healthcare trusts looks positive as employers increasingly seek healthcare solutions that are flexible enough to fit in with their workforce and offer tangible benefits to their employees which ultimately helps to keep them working,” she says.
And Derrington adds healthcare trusts are “well positioned” in this environment because they allow employers to tailor benefits around specific workforce challenges and adjust provision as needs evolve.
“Combined with IPT savings and increasing availability of master trust solutions, trusts may become an increasingly attractive option for larger and mid-sized employers,” she continues.
“The market is likely to evolve towards more personalised, outcome-focused healthcare models that provide greater flexibility, preventative support and demonstrable value for employers.”
