If you are a large employer paying high premiums for your group medical insurance and facing significantly higher tax bills as the cost of insurance premium tax continues to rise, it may be time to consider an alternative approach.
Our experts offer their eight top tips to any employer considering setting up a healthcare trust.
1. Work out how many employees you want to cover and whether you have the critical mass to support a healthcare trust
Benefit consultants and providers generally don't advise employers with fewer than 1,000 employees to adopt a trust as the funding effect of extraordinary or unpredictable claims making the trust unaffordable (and potentially damaging to the business) can be greater. However, if you're a mid-size or larger employer the potential savings and the increased flexibility that a healthcare trust offers can be beneficial to both your bottom line and the health and happiness of your workforce.
2. Speak to your accountants and benefit consultants to work out how much you're paying in insurance premiums and tax
Insuarance Premium Tax (IPT) has been increased rapidly over the past few years. This, combined with the rising costs of care and the linked increase in insurance premium costs, means that you may be able to save significant sums by moving to a trust-based approach. However, you should check this position with your accountants and check the overall ongoing running costs of the trust (including administration contracts) with your benefit consultants at the outset before embarking on a project to set up a healthcare trust.
3. Consider the other advantages the healthcare trust offers
The benefits of the trust-based approach are not limited to tax and premium costs potentially reducing. Employers benefit from the greater flexibility to tailor the treatments offered to their workforce and the unbundling of services can allow broader access to specialist benefits. The employer also benefits from the ability to spread contributions throughout the year rather than pay a lump sum premium, and can off-set any surplus each year against the costs of funding the trust the following year, to avoid wasted costs.
4. Check employment contracts to see what your staff are entitled to
The employer needs to be clear what it wants to cover, but also to understand any obligations it has under employment contracts to provide cover. Any restrictions in these contracts may need to be amended, and the employer will need to inform its workforce that it is moving from an insured to a trust-based approach.
5. Ensure you are familiar with the tax and trust law implications of setting up a trust
Expert legal advice is essential when a healthcare trust is set up. Unless the trust deed and rules are carefully drafted the favourable tax treatment on the employer contributions can be jeopardised. Care also needs to be taken to ensure that the employer is not offering insurance, which is illegal and potentially opens up significant regulatory issues.
6. Prepare a project plan and consider who you will appoint as trustee and administrator
The role of the trustee is vital in setting the claims fund and appointing advisers such as the administrator. The administrator is responsible for the day-to-day running of the trust and will be the direct point of contact with the members. These two roles need to be carefully thought out. The employer needs to ensure the trust deed and rules contain sufficient powers to enable it to balance its powers with those of the trustee.
7. Obtain stop-loss insurance if you are concerned about high-value claims or an underestimate of the claims fund
If you are concerned about potentially large claims in the first year then a buffer can be established by obtaining stop-loss insurance for claims over and above a certain level. Risk averse employers often favour this approach, but this comes with costs and insurance premium tax will be payable on this policy.
8. Review the arrangement each year to ensure you've tailored the trust to your needs
The trust can only be amended at the end of each scheme year. Ultimately the employer can alter and even terminate the trust at the end of each year, and it is important that the benefits payable and treatment options available are regularly reviewed to ensure they reflect what the employer wants to provide.