When it’s time to consider a new funding model for healthcare

When it comes to healthcare costs, many organisations are weighing up whether they can afford to stand still while workforce health challenges continue to shift.

UK employers are facing unprecedented pressures around healthcare costs. With pressures on the NHS increasing, private medical insurance premiums are expected to increase. At the same time, data showed that average sickness absence increased to 9.4 days per employee last year, up from 7.8 in 2023.

Traditional private medical insurance remains valuable, but it's struggling to keep pace. Administrative processes can create barriers when employees need swift access to care.

And benefit structures are often too rigid – what works for one workforce doesn't necessarily suit another. Yet, most employers find themselves locked into standardised packages that don't reflect their people's real needs.

The case for greater control and flexibility

The challenges extend beyond rising premiums. Mental ill health remains the leading cause of long-term absence, along with musculoskeletal conditions. Organisations need healthcare solutions that respond to what's happening in their workforce, not generic packages designed for everyone and no one.

Traditional insurance models work from fixed benefit schedules. The problem is that these schedules often bear little resemblance to how employees use healthcare or what health issues are emerging in the business.

An organisation with a young workforce facing stress and anxiety has very different needs to one managing chronic conditions in an ageing demographic. Yet both may pay for identical packages with limited scope to redirect resources where they would deliver greatest impact.

This inflexibility comes at a cost. When healthcare provision doesn't align with need, organisations miss opportunities for early intervention and employees who could benefit from support may find that the benefits offered don't match their requirements.

The result is often higher absence levels, increased healthcare utilisation, and ultimately greater expenditure.

How master trusts provide an alternative approach

Healthcare trusts, particularly master trusts, represent a different type of funding model. Rather than purchasing traditional insurance with predetermined benefits, employers contribute to a trust fund that pays claims based on tailored healthcare benefits designed specifically for workforce needs.

A master trust operates as a non-discretionary trust serving multiple employers. For organisations with over 500 employees, this offers comprehensive healthcare benefits without the burden of establishing independent trust structures. Professional trustees manage regulatory compliance, financial oversight and governance, thus removing these responsibilities from employers while maintaining their flexibility.

The core advantage lies in customisation and control. Organisations can design benefit packages that address their specific workforce challenges.

If mental health support is a priority following employee feedback or absence data, resources can be directed accordingly. If musculoskeletal interventions would reduce absence more effectively than other benefits, those can be emphasised.

The benefits aren't fixed by external insurer templates, they evolve based on real workforce data, claims patterns and changing health priorities identified through ongoing monitoring.

From a cost perspective, master trusts introduce greater transparency and efficiency. Unused funds can reduce future healthcare costs, creating an incentive for prevention that doesn't exist where unused premiums represent insurer profit.

For employees, this can mean broader coverage than they would receive through standard private medical insurance. Without being locked into rigid policy templates, organisations can build in preventative services, wellbeing programmes and early intervention support. These are things that don't always make it into traditional policies.

Health screenings, mental health resources, physiotherapy and workplace health assessments (and more) all become possibilities rather than add-ons that push premiums up.

The return on investment

Organisations are increasingly looking for a clear return on investment from their healthcare plans and master trusts, in terms of benefits utilisation, as well as tangible workforce outcomes.

An integrated approach to health and wellbeing enables employers to see how early access to clinical support, particularly for conditions such as musculoskeletal and mental health issues, can reduce sickness absence, prevent short-term issues escalating into long-term absence and support sustainable returns to work.

By connecting healthcare provision with absence and wellbeing data, employers gain greater visibility of what is driving absence and where targeted intervention delivers the greatest value.

With rising sickness absence rates and growing cost pressures, healthcare plans and master trusts can support proactive and preventative health management measures that deliver measurable savings through improved productivity, reduced absence costs and a healthier, happier, more resilient workforce.

Making an informed decision

Moving to trust-based funding isn't suitable for every organisation. Smaller employers may find administrative requirements outweigh benefits, while those with stable, predictable healthcare needs may prefer insurance certainty.

Several factors warrant evaluation. Claims volatility represents a key consideration – master trusts offer potential savings, but they also transfer more risk to employers. Organisations need sufficient scale and financial resilience to manage claims fluctuations and governance requirements, although handled by professional trustees, still require employer engagement.

Data capability matters too. The healthcare provider should analyse an organisations data and make recommendations, while taking into account the internal structures, culture and capability for change within the business.

Communication is equally important. Employees familiar with traditional insurance need clear explanation of how trust-based healthcare works and how to access benefits. The transition requires investment in education and ongoing support to ensure uptake matches investment.

Looking ahead

The healthcare funding landscape is evolving. With costs rising and workforce health challenges becoming more complex, organisations are exploring alternatives to traditional insurance. Master trusts represent one such alternative by providing greater flexibility, control and alignment between provision and actual need.

Recent market developments reflect a growing interest. New healthcare trust solutions are bringing this model within reach of mid-sized organisations, offering professional governance alongside the flexibility that makes trusts attractive.

For organisations struggling with rising costs or inflexible benefits, it is worth analysing whether you have the scale and capability to make alternatives work.

Healthcare remains one of the most valued benefits employers offer. How it's funded will keep evolving, and those willing to look beyond traditional models may well find better outcomes for everyone involved.