Guide to company health insurance and how it works

Company health insurance is no longer the preserve of large corporations. Businesses of all sizes now use it to protect productivity, support recruitment, and give employees faster access to diagnosis and treatment. What’s more, the cost is often lower than many people assume.

Updated: 05.10.26

By Alex Mhandu

However, choosing and setting up the right scheme can be complex, especially without expert advice. A well-designed group private medical insurance policy needs to reflect your workforce, your budget, and the level of support you want to provide. Cover levels, underwriting options, tax treatment, hospital choice, excesses, and optional benefits can all affect how the policy works in practice.

For employers, a well-thought-out scheme can form part of a wider strategy to manage absence, support wellbeing, and offer a more competitive benefits package. This guide explains how company health insurance works, what it can cover, what it may cost, and how to set up a policy that suits your business.

What is company health insurance?

Company health insurance is a private medical insurance policy arranged by an employer for its employees. It is often called group private medical insurance, group PMI, or business health insurance.

The policy gives employees access to private healthcare for eligible medical conditions. Depending on the policy, this may include private consultations, diagnostic tests, hospital treatment, surgery, cancer care, mental health support, or access to virtual GP services.

The main purpose is to help employees get advice, diagnosis, and treatment more quickly than they might through the NHS. This can be valuable for the employee, but it can also help the employer. If a member of staff is waiting months for treatment, their work may suffer, or they may be absent for extended periods.

Company health insurance is designed to cover acute conditions. These are illnesses, injuries, or medical problems with defined symptoms that are expected to improve with treatment, such as cataracts, hernias, broken bones, or some types of surgery.

Group PMI does not replace the NHS. Employees should continue to use the NHS for primary and emergency care, A&E treatment, and the ongoing management of chronic conditions.

Is company health insurance the same as a health cash plan?

No, company health insurance and health cash plans are different products.

Company health insurance is designed to provide access to private diagnosis and treatment for eligible medical conditions. It may pay for consultations, scans, hospital treatment, or surgery, depending on the level of cover chosen.

A health cash plan helps employees claim back some of the cost of routine healthcare. This can include dental check-ups, eye tests, physiotherapy, prescriptions, or other everyday health costs, depending on the plan.

Some employers offer both. For example, a company might use a health cash plan to support routine wellbeing, while using group PMI to provide access to private treatment when a more serious, eligible condition arises.

How does company health insurance work in practice?

Company health insurance is arranged by the employer. The business chooses the insurer, agrees on who will be covered, selects the level of cover, and pays the premiums. Premiums are usually paid monthly or annually.

Some employers pay the full cost of cover for their employees. Others ask employees to contribute or allow staff to upgrade their cover or add family members at their own cost.

From the employee’s point of view, the typical process is:

The employee becomes unwell or needs medical advice
They speak to a GP, virtual GP, or other approved service
If treatment or further investigation is needed, the employee contacts the insurer
The insurer confirms whether the claim is covered, and they may provide a list of approved hospitals or consultants that the employee is covered to use.
The employee receives eligible private treatment
The hospital, consultant, or clinic invoices the insurer directly

The exact process depends on the insurer and the policy. Some policies include virtual GP access, mental health helplines, nurse support, or online claims systems. Others may require a GP referral before treatment is authorised.

Employers do not manage employees’ medical claims directly. The employee, insurer, and medical provider handle claims confidentially – the employer is not involved, as GDPR governs against this.

What does company health insurance cover?

Cover varies by insurer and by policy. A basic scheme may focus on core hospital treatment, while a more comprehensive scheme may include outpatient treatment, diagnostics, therapies, mental health support, and additional services such as dental and optical cover.

Most company health insurance policies are built around a core level of cover, with optional extras added where needed.

Standard cover

Most policies provide inpatient and day-patient treatment for acute conditions. This typically includes surgery, consultant-led treatment, and associated hospital care, up to an annual policy limit. Policies may also include an excess that the employee must pay (or that is deducted from reimbursement if the policy includes cover for dental or optical treatment). An employer may also choose to reimburse the excess to the employee, which is permitted.

Optional extras

Employers can extend cover to include outpatient consultations, diagnostic tests such as MRI or CT scans, mental health support, and dental and optical cover. Adding these increases the premium but can make the benefit significantly more useful – outpatient cover, in particular, can help employees get a diagnosis faster, rather than waiting for an NHS referral.

What isn't covered?

Company health insurance is not a replacement for the NHS. A&E and emergency treatment will always be through the NHS. Cosmetic surgery is excluded, as is ongoing management of chronic conditions such as asthma or diabetes, although a policy may cover an acute episode related to a chronic condition in some circumstances.

What is the six-week rule?

Some company health insurance policies include a six-week rule. This means private treatment is only funded if the NHS waiting time for the eligible treatment exceeds six weeks. If the NHS can provide treatment within six weeks, the employee will usually be treated through the NHS instead.

This can reduce premiums, but it also means employees may not always receive private treatment, even where the condition itself is covered. Treatment may take longer than when taken privately (although within the six-week period).

How much does company health insurance cost an employer?

The cost of company health insurance depends on the business’s activities, location, workforce, and chosen level of cover. There is no single standard price.

A business’s workforce profile is one of the main factors insurers consider. A scheme covering a larger or older workforce will often cost more than one covering a small, younger team. Location can also affect the price, particularly where employees may need access to private hospitals in London or other higher-cost areas.

The policy's design makes a significant difference. Basic inpatient and day-patient cover will usually cost less than a more comprehensive scheme that includes outpatient consultations, diagnostic scans, enhanced cancer cover, mental health support, or dental and optical benefits. The underwriting method, the business sector, and any relevant claims history may also affect the premium.

It’s also worth carefully considering the excess on any policy. A higher excess can reduce the premium, but employees will generally need to contribute more towards a claim.

Some businesses manage costs by choosing a core level of cover for all employees, then allowing staff to pay for upgrades or to add family members at their own expense. This gives employees flexibility without inflating the employer's overall cost.

The tax implications for businesses and employees

Company health insurance has tax implications for both the employer and the employee.

For the business, premiums are usually treated as an allowable business expense for Corporation Tax purposes, provided the policy is arranged wholly and exclusively for business purposes. Employers should check the position with their accountant or tax adviser.

For employees, company health insurance is normally classed as a Benefit in Kind. This means the employee pays income tax on the value of the benefit.

Employers also have reporting obligations. Where medical or dental insurance is provided and paid for by the employer, Government guidance says employers must usually report it on form P11D and pay Class 1A National Insurance on the value of the benefit.

The value of the benefit is generally the cost to the employer of providing the insurance. If the arrangement involves salary exchange, different valuation rules may apply.

Employers should make sure payroll, finance, and HR teams understand how the scheme will be reported before it is launched.

Is company health insurance worth it for small businesses?

For many small businesses, the answer is ‘yes’, and the good news is that schemes can usually be set up for as few as two employees (or one if it is a one-person, limited company). You do not need a large workforce to access the same benefits as larger organisations, enabling you to offer a competitive benefits package to attract and retain employees. Benefits to the employer include:

Reduced absenteeism. If an employee is waiting weeks for a diagnosis or treatment on the NHS, the impact on a small business is felt quickly. Projects slow down, colleagues come under pressure, and customer service suffers. Private medical insurance helps employees get a diagnosis and treatment sooner, reducing the length and impact of absence. The Health and Safety Executive reports that work-related ill health and non-fatal workplace injuries led to the loss of 40.1 million working days across Great Britain in 2024/25 – a figure that underlines why employers of all sizes take workforce health seriously. There is also a financial context. While employers must pay Statutory Sick Pay to eligible workers, this is only a minimum legal requirement. It does not help employees access treatment more quickly or reduce any disruption caused by absence.
Recruitment and retention. In a competitive job market, a strong benefits package can help reduce staff turnover. Company health insurance is a sign that a business invests in its people, which in turn can help attract candidates and reduce staff turnover.
Employee wellbeing. Offering private medical cover can improve employee wellbeing, resulting in stronger engagement and productivity.

A health scheme can sit alongside a wider employee benefits package, including pensions, life cover, and income protection. For businesses that depend heavily on one or two key people, key person insurance is also worth considering – it is designed to financially protect the business if a critical individual dies or suffers a serious illness and works alongside, rather than instead of, a private medical insurance scheme.

How to set up a group health insurance policy

Setting up company health insurance can be broken down into these four steps.

1. Assess your needs and budget

Start by deciding who will be covered by the policy. Some employers cover all staff, while others begin with directors, senior managers, or employees who have completed probation.

You should also decide which benefits are essential. For example, you may want core inpatient and day-patient cover only, or you may want to include outpatient consultations, diagnostic tests, mental health support, dental or optical benefits. Your budget will help determine how comprehensive the scheme should be.

2. Speak to an independent broker

Going directly to one insurer limits the options you can consider. Conversely, an independent broker can compare policies from across the market and help you find one that fits your workforce and budget.

With health insurance, the cost of the policy is usually the same whether you go through a broker or directly to the insurer. Providers typically charge the same price to all brokers, so there is no price advantage to changing brokers solely to secure a cheaper premium. The real difference is the level of advice, service, and ongoing support you receive.

3. Choose your underwriting method

You will need to choose an underwriting method. This determines how the insurer treats employees’ medical history.

Some schemes use moratorium underwriting. This usually means employees do not complete a full medical questionnaire when they join, but pre-existing conditions are assessed if they make a claim.

Larger schemes may be able to use medical history disregarded (MHD) underwriting. This can provide broader cover for previous medical conditions, although it will usually cost more.

4. Implement the scheme and communicate it clearly

Once the policy is set up, employees need to understand how to use it and how it will affect their pay and benefits. Explain what is covered, any cost to the employee (such as Benefit in Kind), what is excluded, how to make a claim, whether a GP referral is needed, and whether any excess applies.

Clear communication helps staff get proper value from the benefit and reduces confusion when someone needs to make a claim.

Get help with company health insurance

Company health insurance is valuable for businesses of all sizes, including SMEs. It can help employees access private healthcare for qualifying conditions, support their wellbeing, and help reduce absence by increasing access to treatment.

However, the right policy depends on your workforce, budget, and priorities. Cover levels, underwriting choices, excesses, hospital lists, and tax treatment all need careful thought.

Alan Boswell Group can help you compare group private medical insurance options and build a scheme that suits your business. Speak to our friendly team today: we’ll help you compare your options, understand what different insurers offer, and build a scheme that works for your workforce and your budget.

Need help with insurance?

At Alan Boswell Group, our private medical team can arrange policies with different levels of cover, along with bespoke options tailored to your business.

For more information, speak to our team.

Speak to us: 01603 967955

Guide to company health insurance and how it works

In this article

In this article

What is company health insurance?

Is company health insurance the same as a health cash plan?

How does company health insurance work in practice?