The pros and cons of health trusts

Are healthcare trusts suitable for all organisations looking to boost productivity and reduce absenteeism?

Against a backdrop of challenges in accessing NHS support, increasing numbers of employers are seeing the value that offering healthcare benefits to employees brings in:

Reducing absenteeism and increasing productivity
Supporting health and wellbeing; at the same time as
Forming part of a competitive benefits package.

Several models exist for financing and administering healthcare benefits: lower-cost cash models, traditional insured approaches, hybrid insurance and trust vehicles, and master and standalone healthcare trusts. The trust approach is of particular interest to medium and larger employers.

So, what benefits do health trusts bring and where might they be less suitable?

1. Cost savings

Medical inflation is a real issue, with a projected UK medical trend of 12% for 2026 equating to a real increase of 9.9% after adjusting for general inflation, and some employers experiencing far higher. Healthcare trust costs are directly based on their own experience, and therefore increases are not linked to market rates or standard insurer increases.

Profits from good experience stay within the trust, and downside risks can be protected through stop-loss insurance. As they aren’t considered insurance, healthcare trust contributions (net of stop loss) are exempt from insurance premium tax (IPT), currently at 12%. With IPT often mooted as a place where the government could choose to raise taxes, the exemption reduces uncertainty and potential headaches around cost.

2. Greater cost transparency

The cost of health provision needs to reflect not just the cost of claims, but also insurer costs, administration fees, broker/consultant commission/fees and other adviser costs. Different models may bundle costs in different ways.

A standalone trust allows all these costs to be clearly identified and managed, and the trustee structure provides a robust framework for scrutiny.

The trustee and sponsor will want consistent and regular dialogue with the administrator around trust solvency, increasing certainty and confidence around costs. A consultant can help, through benefit benchmarking and funding projections, as well as advising on stop loss insurance.

3. More focused benefit design

Unlike many off-the-shelf insurance products, healthcare trusts allow the tailoring of healthcare benefits offered to meet employee needs. Employers need not pay for services they don’t need and employees get the medical benefits they require to stay truly healthy and productive.

It’s not “set and forget” either: employers can draw on claims data to dial up the benefits that are most needed and remove the ones that aren’t being accessed. With a trust, that can include incorporating elements beyond the administrator’s standard package.

4. Flexibility of support

Trusts offer a wider range of specialist support options, including administration from dedicated trust administrators as an alternative to insurers, and specialist governance and trusteeship support.

5. Trustee responsibility

By their nature, healthcare trusts are presided over by trustees, who are responsible for ensuring the trust is properly funded and administered in line with documentation, to deliver for the beneficiaries.

Trustees are often in-house, but employers may choose to appoint professional trustees. They can add real value to this process through their experience, as well as their independence, e.g. in reviewing employee claims objectively, protecting the sponsor’s HR and benefits team from potential or perceived conflicts of interest.

What are the disadvantages?

For the trust to be effective, and mitigate potential risks, a robust trustee and governance framework is needed. Key-day to-day aspects can be outsourced to a combination of independent trustee, consultant and administrator, allowing the sponsor to focus on their key areas of interest: benefit design, employee experience and cost control.

Smaller organisations may find the cost and setting up of a healthcare trust outweigh the benefits. The benefits of a trust really come with scale, which can be difficult to achieve for smaller employers. A master trust approach may suit a company with a few hundred lives. Above 1,000 employees or with healthcare costs above £1 million a year, a standalone trust would often be the most cost-effective option.

As with pension trusts, the role of a healthcare trustee requires a level of expertise and experience, and carries a degree of personal risk.

Finding the appropriate trustees to oversee a healthcare trust may have been an issue for employers. This can be mitigated through the appointment of a professional trustee.