Should you include employees' families in their health insurance?

You can provide your employees health coverage via a group health insurance policy. You choose a health insurance provider and choose a policy to cover all your employees. Insurers calculate health insurance premiums based on the risk that someone will claim. Group health insurance lets your insurance company spread that risk, meaning premiums are typically lower than on individual policies.

You can choose the coverage your group health insurance policy offers. Every insurance company provides a basic policy that typically includes in-patient treatment, cancer care, limited out-patient services and mental health support. Private medical insurance also includes services such as virtual GP appointments and telephone helplines.

Health insurance also offers a range of optional extras so you can enhance the coverage employees receive. For example, you can add more out-patient treatment, physical therapies, alternative treatments or extend your mental health coverage.

Most insurance companies also let you add employees' families to your business health insurance policy. Terms and conditions vary, so always check the small print. Some policies will only cover employees' dependents, while others offer coverage to extended family members.

Group health insurance has many benefits for your employees and your business. Your team can access private healthcare quickly at a convenient time and location without spending time on an NHS waiting list. Private medical insurance offers health checks and preventative care to reduce the risk of serious health issues. Health insurance can also support employees' mental health and well-being with counselling or telephone advice on any financial or legal worries. These services benefit your business as they can reduce employees' risk of burnout, let them seek treatment outside working hours, and reduce absenteeism. Providing group health insurance is also an attractive employee benefit that can increase employee engagement and retention and enhance your reputation, helping you attract new talent. Research suggests it can also increase productivity.

Including employees' families in coverage gives them all of these benefits. It also gives your team peace of mind knowing their loved ones are being looked after and can increase employee loyalty. Personal concerns outside work can affect employees' well-being and performance during working hours. Giving them the tools to seek medical advice for family members demonstrates your commitment to their well-being.

Group health insurance offers many benefits and is a highly-valued employee benefit, meaning the decision to provide health insurance to your team could be an easy one. However, it still carries cost and tax implications that you must consider to make an informed choice. Providing employees' families with health insurance adds to the complexity.

Here are some of the essential points to consider when investing in group health insurance and extending health insurance coverage to your team's family members.

Premium Cost

When buying group health insurance, you must pay your chosen insurance provider a monthly or annual premium. Group health insurance policy premiums are typically lower per head than personal policies. However, the more people your policy covers, the higher the cost. Those costs will inevitably rise if you fund the premium to add employees' families to the policy. However, health insurance premiums are an allowable expense for corporation tax purposes, so you can also reduce your company's tax bill. Getting professional advice will help you weigh the advantages and disadvantages before deciding.

Adding more people to your business health insurance policy can impact the cost in other ways. The amount of coverage your policy provides increases the price — the more private treatment options each policy offers, the higher the premium. When providing quotes, insurance providers consider various factors, including the average age of the people covered, their overall health and whether they smoke or use nicotine products. Adding employees' children could decrease the average age, while adding parents may increase it, which will also increase the cost. Your insurer will also consider your claims history when your policy is due for renewal. If adding employees' family members increases the number of claims, your premium will likely rise.

Some factors are outside your control. Insurance providers look at the current cost of private treatment and the volume of claims they've received when setting premiums.

Additional administration

Providing your team with private medical insurance carries hidden costs alongside your annual premium. You'll likely have a nominated person or team within your HR, occupational health or administration department to deal with employee benefits. You'll also need financial and legal advice when deciding whether to extend health insurance to employees' families and the potential consequences should you need to withdraw or reduce coverage later. Providing health insurance to a larger group of people may entail more time spent on administration. These tasks include onboarding processes and assistance with claims if you decide to provide it. Speaking to an insurance broker for advice on coverage is a good idea, but some also offer claims support, which can help reduce the administrative burden.

Clear and effective communication helps employees and their family members to understand what the policy covers, thereby reducing the number of enquiries you receive. Most providers have apps or online set-ups and claims processes so employees and their families can start a claim or contact the provider with questions directly rather than going through you. Insurers also offer online portals to make administration more straightforward for businesses, particularly for companies with a larger workforce.

Your chosen provider

Insurance companies' terms and conditions vary, as does their approach to assessing risk, which impacts premium costs and influences whether their business health insurance is the right fit for your employees. Most insurers let you cover employees' family members, but the policy terms impact which relatives are eligible and how much it costs to add them.

For example, some insurers focus on being family-friendly and will cover your employees' children at no additional cost. Others charge an extra premium for the first child but will cover any subsequent children free of charge. Each insurer also has different definitions of what counts as a child. The cut-off for some is 18, while others extend that to 21 if they're in full-time education. Others will cover your kids until they're 25 or older if they still live with you.

Policy terms also affect whether employees can add their parents or extended families to their health insurance. Some insurers will only cover families living at the same address, meaning your employees won't be able to add their parents if they live at a different address. Of course, this provision may also apply to children who are away at university, even if they meet the age requirements.

Tax considerations

The tax implications of providing business health insurance are complex, and you should always seek professional advice tailored to your circumstances before proceeding. Paying more in premiums can help reduce your corporation tax bill but can also increase each employee's income tax bill, as HMRC classes health insurance as a benefit in kind.

Your employees pay additional income tax based on the value of the benefit, which is equivalent to the premium, and the cost will likely be higher if the policy covers several family members.

HMRC classes a benefit provided for an employee's family or household as a benefit in kind. The definition of family or household includes an employee's:

• Spouse or civil partner
• Children and their spouses or civil partners
• Parents
• Domestic staff and guests

The definition applies to any benefit you supply to your employees and their families, not just health insurance. They also offer more detailed guidance on private health insurance and how to split group health insurance premiums between employees. Your insurer should include details on apportioning payments between employees within their terms and conditions. If they don't, you must determine a reasonable approach your workforce will accept.

You must consider how this will impact your employees' tax affairs, as this will likely affect whether they welcome the additional benefits.

There are several ways to provide your employees and their families with health insurance coverage. You can offer the same health coverage to everyone or take a hybrid approach. The same applies to paying for the policy. As we've mentioned, insurers differ in their approaches to health insurance coverage, and the same applies here. Some policies are more easily tailored than others; coverage can also vary depending on how many employees you want to cover. Terms and conditions for small business health insurance policies often differ from corporate health insurance.

Seeking advice from a broker can help you find insurers and policies whose approach best meets your needs. Let's consider the different approaches you can take.

Your business pays the premium

Depending on your circumstances, you can provide health insurance to your whole workforce and their families, with your business paying the premium. New team members can provide their details and those of any eligible relatives they'd like to add during their onboarding process, meaning each employee decides who they want to include and provides any relevant information your insurer needs to add them to the policy.

You can apply eligibility criteria to your group health insurance policy, such as waiting until an employee has completed their probation before adding them. You can also specify which relatives are eligible. For example, you could limit coverage to dependents such as their spouse and children or those living at the same address.

Providing clear information to employees about the tax implications of adding family members to their health insurance policy is essential so they can take independent advice if needed.

Employees pay to add family members

Say you want to give your team the option to add their families to your business health insurance but don't want to pay the premium yourself. In that case, you can invite employees to extend their coverage to their families and cover the premium themselves. As mentioned, premiums for group health insurance are typically lower than personal policies, making coverage more affordable.

This approach means employees can avoid paying extra income tax on health coverage for their family, as HMRC won't classify it as a kind benefit. They can pay their premiums via previously taxed net income. Alternatively, you can offer payment via salary sacrifice, reducing their tax bill and your employers' National Insurance contributions.

You can make medical insurance enrolment voluntary, meaning employees pay for their coverage or take a hybrid approach where you fund insurance for employees, and they pay for any additional family members.

Health cash plans

Health cash plans differ from medical insurance as they don't provide access to private medical care. Instead, they provide cashback on routine medical expenses such as dental treatment, eye tests and private physiotherapy. They also offer a fixed sum if you have NHS treatment. Members arrange care themselves and claim back the cost later.

Cash plans are typically more affordable than medical insurance as they offer less extensive coverage. However, they're still valuable as they can help employees and their families save money on regular medical expenses. If funds are tight, you can provide an employee cash plan as an alternative to medical insurance. Some insurers also offer cash plans with their medical insurance policies to give customers more choice. They're ideal for anyone with pre-existing conditions that are excluded from medical insurance coverage as there are no exclusions for pre-existing diseases.

Some insurers let you take a hybrid approach and provide medical insurance to your employees and a cash plan to their families. You can also choose whether to pay all the premiums through the business or make it a voluntary scheme.

Extending your employees' health insurance to their families demonstrates your commitment to looking after your workforce and their loved ones, which can have many advantages for your business. However, it's vital you make an informed decision by consulting with your legal and financial advisers. At Globacare, we help our clients choose health insurance coverage that suits their needs and budget. Contact us for tailored advice on the right policy for your business.