An introduction to healthcare trusts
What are healthcare trusts, and why they are used?
Many employers offer healthcare benefits to their employees (and often their dependants), to:
- support health and wellbeing;
- reduce absenteeism and therefore increase productivity;
- make up part of a competitive benefits package.
The employer may buy insurance, to manage the variability of cost, and protect against high claims. A corporate healthcare trust (sometimes also known as a health or medical trust) is an alternative way to finance these benefits. A trust can be an attractive option for larger employers – with costs over £1M a year, or offering benefits to say 1000 or more employees – because it allows:
greater flexibility of benefit design
greater transparency of cost
retention of any funds arising from good experience
cost savings – because trusts are not considered insurance, the funding is not subject to insurance premium tax, at 12%.
A healthcare trust operates similarly to a pension trust, with the sponsoring company funding a separate trust to provide benefits. The trust is overseen by trustees, supported by an administrator and typically consulting support. With a corporate healthcare trust, instead of retirement benefits, the funding supports medical benefits. However, Keystone Law’s (and recent Shaping Tomorrow guest) healthcare trust specialist Kevin Gude notes that healthcare trusts are “quite a lot more straightforward” than their pensions counterparts, but “the flexibility [that they bring] is absolutely key.”
In practice, it’s a self-insurance solution, though the risk of large claims can be mitigated through stop loss insurance.
How are healthcare trusts regulated?
Healthcare trusts are governed by trust law, but there’s no specific regulation, unlike the mass of regulation for pension trusts. HMRC does have an interest, because medical benefits are subject to P11D on employees, and so it’s important that the contributions are clearly separated from the sponsor and identifiable, so they can be used for tax purposes.
How is trusteeship handled?
The role of trustees is to ensure the delivery of benefits is in line with the trust documentation. Company ‘in-house’ trustees are common, but trusts can appoint professional trustees as chair, co-trustee or indeed sole trustee. This can help with independence, managing conflicts of interest and continuity. They can also bring wider experience to expand the expertise of the in-house trustees.
In particular, professional trustees can support oversight of the claims processes, reducing conflicts of interest by providing independent input on disputed claims, for example.
Several of the key administrator/insurers offer the alternative of a master trust, where all services are wrapped up in one package. There is typically less flexibility, including on benefits choice, and being tied to one provider, and these can appear expensive. They are therefore most commonly used by smaller companies, e.g. 500 – 1000 employees.
What are the governance options?
It’s important to document and manage decisions, to avoid potential disputes or concerns. Best practice means applying the same rigour to managing a healthcare trust as to a pension trust, with regular, clearly-documented meetings, active oversight of administrators and funding, conflicts of interest and risk registers.
Some consultants provide governance support, and this may also be carried out in-house. As independent trustees and governance experts we are also able to offer governance and practical support, such as bank accounts, to complement the roles of others and create a robust structure.
What does the future hold for healthcare trusts?
Medical inflation continues to be a concern for employers, with figures of 8% per annum across the market, and double-digit increases for many companies. While companies are looking to improve the healthcare experience for employees, they want to retain cost control. This makes the flexibility and control of a trust particularly attractive. In a 2025 survey from the Reward and Employee Benefits Association and Axa, 26% of respondents were looking at moving to trust and similar models, with 9% in the next two years, and those numbers go up to 52% and 33% respectively for companies with over 10,000.
One of the barriers to going down the bespoke trust route may have been the trusteeship: master trusts are typically for smaller groups and can be expensive for large companies, so companies have been left trying to find volunteers in-house with the time, interest and experience, which can be difficult – as with pension trusts.
This challenge can be met by bringing in independent professional trustees, allowing company representatives to focus on their key objectives, with the result that the healthcare trust can be a really valuable tool in support of companies’ strategies for health, wellbeing and productivity, and within the broader reward picture.
If you’d like to learn more about healthcare trusts, you can listen to Jeremy on our Shaping Tomorrow Podcast or visit our healthcare and medical trusteeship page.
