We’ve seen a shift in the private medical insurance market over the past 12 months with more businesses asking about medical trusts and how they work.
As a result, an increasing number of schemes are either moving to, or seriously considering, a different way of funding healthcare. Particularly on larger schemes, we’re seeing more trusts being used. Or what you might call hybrid trusts.
In our latest blog, Bespoke Benefits’ Director, Gareth Carroll, takes a closer look at medical trusts, explaining everything you need to know so you can decide if it’s a trend worth following.
What’s changing?
Historically, medical trusts were reserved for the very largest schemes, typically 500+ employees, often much higher. Anything below that, and they weren’t relevant.
But that’s starting to shift. Now, most insurers seem far more comfortable offering hybrid trust arrangements, often structured around a corporate excess or deductible, at around 250 – 300 employee businesses.
That’s a meaningful change and it opens the door to a much wider group of employers who previously wouldn’t have considered this route.
In the last year, we’ve seen product development in this space. Some insurers have been exploring new corporate excess models, although not all of these have made it to market as quickly as expected, particularly where compliance is still being worked through.
What is a medical trust?
At a simple level, a medical trust is a different way of funding healthcare benefits. Instead of paying a fixed premium to an insurer, the employer sets aside funds to pay claims as they arise. There’s still usually an insurer involved but they’re administering the claims and providing protection for higher-cost events, rather than insuring everything.
Hybrid trusts sit somewhere in between:
- Lower-level claims are paid from the trust
- Larger or less predictable claims are insured
Why are more employers looking at trusts now?
A number of pressures have been building in the industry, these include:
- Rising medical costs (and premiums)
Medical insurance premiums have been increasing for some time now. For many employers, renewals can feel disconnected from their actual claims experience and that naturally leads to the question: is there another way of funding this?
- Insurance Premium Tax (IPT) is becoming more visible
This is a big reason. If benefits are funded through a trust, they are not classed as insurance, which means Insurance Premium Tax (currently 12%) doesn’t apply. As premiums increase, that 12% becomes a more noticeable and sometimes uncomfortable cost. For employers looking at cost control, it’s an obvious area to explore.
- Greater appetite for control and transparency
With a trust, employers have:
- More visibility over how money is being spent
- More flexibility in how benefits are structured
- The ability to align funding more closely with actual usage
For some, that level of control is becoming increasingly important.
- A shift in employer mindset
More broadly, employers are starting to take a more active role in how benefits are designed and funded. Healthcare is no longer just a product you buy, it’s something you manage and trusts are a good option to do that.
Why hybrid trusts are becoming popular
For many employers, a full trust can feel like a big leap.
- You’re taking on more risk.
- You need more oversight.
- You need a longer-term view.
Hybrid arrangements soften that, allowing employers to:
- Step into self-funding gradually
- Limit exposure to high-cost claims
- Still benefit from reduced IPT and improved transparency
That’s why we’re seeing more of them, particularly in that 250 – 300 employee range.
Who does this work best for?
In reality, trusts (and hybrid trusts) tend to suit employers who:
- Have 250+ employees (typically more effective as numbers increase)
- Are comfortable with some level of financial risk
- Want greater visibility and control over healthcare spend
- Are thinking longer-term, not just at renewal
For smaller employers, or those who prioritise certainty, traditional insurance is often still the better fit.
A note of caution
It’s easy to focus on the potential upsides, particularly around cost and tax. But trusts do come with added responsibility.
- Governance and oversight matter
- Funding needs to be planned properly
- And the structure needs to be right from the outset
This isn’t just a product switch, it’s a different approach.
Is this a real trend?
Yes, but with context. Medical trusts have been around for a long time but some things are changing, including:
- More appetite from smaller (but still mid-sized) employers
- More willingness from insurers to facilitate hybrid models
- More pressure on cost, making alternatives more attractive
It’s not about something new emerging, it’s about something established becoming more accessible.
Should you be considering a trust option?
If you’re running a larger scheme and:
- Premiums are rising
- You’re questioning value
- Or you want more control over how your scheme operates
Then it’s worth exploring. Not because it’s the right answer for everyone, but because it’s increasingly a viable option, where previously it wasn’t
If you’re considering whether a trust is a viable option for your business, we’re happy to help you weigh up your options. Get in touch with our friendly team today for a no-obligation chat.
This article is for informational purposes only and does not constitute financial, medical, or legal advice. The information provided reflects general trends and insights as of the date of publication and may not apply to all circumstances. For income protection insurance or employee benefits, we recommend consulting with a qualified professional or insurance advisor.
