Analysis: Corporate healthcare trusts - is corporate deductible the future?

Corporate healthcare trusts are a hotbed of innovation at the moment, as Sam Barrett reports

Corporate healthcare trusts have taken on a new lease of life in recent years. Sam Barrett reports on how Aviva UK Health and WPA are taking things on even further

Medical expenses trusts have given large corporates a tax-efficient and flexible way to fund their healthcare for many years. But the options were increased when WPA launched its Corporate Deductible arrangement two years ago with Aviva UK Health joining it with its Corporate Excess contract earlier this year.

"We launched our Corporate Deductible plan in 2010, using principles employed in the reinsurance market to enable large corporates to better structure their healthcare funding," explains Rachel Riley, managing director at WPA Protocol.

Nick Reynolds, head of PMI at Aviva UK Health, also points to the benefits that its new contract brings to employers.

"With the introduction of the Corporate Excess option on our Optimum medical insurance scheme, a wider range of employers can benefit from the same cost efficiencies that our larger corporate healthcare customers enjoy," he says. "It will help more companies control their health insurance costs."

Mechanics

Although there are differences between WPA’s and Aviva’s plans, both are based on the same principle. Rather than pay a premium for insurance, a notional claims fund is calculated based on previous years' experience. A percentage of this is then set as the corporate deductible or excess and used to meet claims. This element is regarded as risk-free so there is no insurance premium tax (IPT) paid on it.

How much a company can set as its corporate deductible varies. Aviva sets its corporate excess at around 80% while WPA offers anything from 60% to 85% for its lower corporate deductible, with smaller groups tending to go for lower deductibles as there is less certainty over their claims profile.  

Whatever the size of the corporate deductible, the balance between it and the notional claims fund becomes a claims reserve and this, alongside an administration fee and insurance charge, are paid to the insurer. This ensures that, if claims exceed the excess, they are picked up by the insurer. Further, while this element is subject to IPT, it would clearly generate a much smaller bill than if the organisation had opted for a fully insured scheme.

As well as offering a lower corporate deductible, WPA also offers an upper version. This allows the company to set their deductible at 125% of the notional claims fund. By taking the additional risk, the company reduces its IPT liability, paying it only on the administration fee and some stop loss insurance to protect itself against claims that exceed 125% of the notional claims fund.

Benefits

A saving on IPT is the most significant benefit of taking a corporate deductible plan. For example, a company with a notional claims fund of £2,000,000, opting for a corporate deductible of 80% would save itself £96,000 in IPT simply by turning the 80% (£1,600,000) into an excess.

Riley adds: "It does depend on the numbers but the IPT savings are around 3.5% for a lower corporate deductible and between 5% and 5.5% for an upper one. On top of this there are savings on national insurance."

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