Should I offer health insurance or higher salaries?

Health insurance is often more cost-effective for both parties. The company gets corporation tax relief on premiums. The employee gets a benefit worth £1,000+ that would cost much more to buy individually. Plus, health insurance reduces sick days, benefiting the business directly.

Employee Health Insurance UK 2026 | Set Up Staff PMI as a Benefit

Key Facts: Employee Health Insurance

Employee health insurance is one of the most valued workplace benefits in the UK, providing staff with access to private medical care.

-Consistently ranked in the top 3 most valued employee benefits in UK surveys

-Reduces absenteeism: employees with PMI return to work faster after illness

-Premiums are corporation tax deductible but create a P11D benefit-in-kind

-Can be offered to all staff or restricted to certain grades/roles

-Flexible schemes allow employees to add family members at their own cost

-Average cost: £500-£1,500 per employee per year for core PMI

What Is Employee Health Insurance?

Employee health insurance is private medical insurance (PMI) provided by an employer as a workplace benefit. It gives staff access to private hospitals, shorter waiting times and specialist treatment without relying on the NHS.

According to CIPD research, employee health insurance is one of the most effective tools for reducing sickness absence and improving employee satisfaction. The average UK employee takes 7.8 sick days per year, costing employers over £1,300 per employee annually.

Providing health insurance demonstrates that you value your employees' wellbeing, which directly impacts recruitment, retention and productivity. Combined with company life insurance and pension contributions, it forms the foundation of a competitive benefits package.

Core PMI Benefits

In-patient treatment, day-case surgery, cancer care and specialist referrals. The essential medical cover that gives employees access to private treatment when they need it most.

Extended Benefits

Out-patient consultations, diagnostic scans (MRI/CT), physiotherapy, mental health support and second opinions. Adds significant value and helps employees get faster diagnoses.

Wellbeing Add-Ons

Many corporate schemes include wellness programmes, health screenings, virtual GP services and employee assistance programmes (EAPs). These promote prevention alongside treatment.

Flexible Benefits

Some schemes allow employees to extend cover to partners and children at their own cost. This adds value without increasing employer costs and is highly valued by employees with families.

Tax Implications for Employers and Employees

Both employers and employees need to understand the tax treatment of employee health insurance under HMRC rules:

For the Employer

Premiums are deductible against corporation tax (25% saving). However, employer Class 1A NI (13.8%) is payable on the benefit value. Net cost after CT relief but including NI is lower than the headline premium.

For the Employee

The premium value is reported on P11D as a benefit-in-kind. Employees pay income tax on this: 20% (basic rate), 40% (higher rate) or 45% (additional rate). A £1,000 premium costs a basic-rate taxpayer £200/year.

Salary Sacrifice Option

Some employers offer PMI via salary sacrifice, where the employee gives up salary in exchange for the benefit. This can save both employer and employee NI, but reduces pensionable pay.

Compare with Tax-Free Benefits

<a href='/relevant-life-insurance'>Relevant life insurance</a> has NO P11D charge — it is completely tax-free for the employee. When building a benefits package, start with relevant life (free), then add health insurance (taxable but valuable).

Employee Health Insurance vs Other Employee Benefits

Health Insurance vs Life Insurance (Death in Service)

Key Person Insurance

Life insurance: Pays out on death. One-off benefit. <a href='/relevant-life-insurance'>Relevant life</a> has no P11D — the most tax-efficient employee benefit. Essential but no ongoing value while alive.

Other Product

Health insurance: Ongoing access to private medical care. P11D applies. Daily practical value. Reduces sick days, speeds recovery, improves morale. Employees use and appreciate it throughout employment.

When you need it: Offer relevant life insurance first (tax-free, essential protection), then add health insurance for its ongoing wellbeing value. Together they make a very strong benefits offering.

Full PMI vs Cash Plans

Key Person Insurance

Full PMI: Comprehensive private medical cover. £500-2,500/employee/year. Covers hospital treatment, specialists, diagnostics. High perceived value.

Other Product

Cash plans: Cash back for routine treatments. £100-300/employee/year. Covers dental, optical, physio. Lower cost but also lower perceived value.

When you need it: Start with cash plans if budget is tight — they still demonstrate care for employees. Upgrade to full PMI as the business grows and revenue allows.

Setting Up Employee Health Insurance

Here is how to implement employee health insurance effectively:

Define eligibility — All employees, or specific groups (e.g. after probation, management grade+). Clear criteria avoid perception of unfairness.
Choose the right level — Core PMI (in-patient only) for budget. Comprehensive (in-patient + out-patient + mental health) for maximum employee value.
Select a provider — Bupa, AXA Health, Aviva, Vitality and WPA are the leading UK corporate health insurers. Compare premiums, networks and claims processes.
Communicate the benefit — Ensure employees understand what is covered and how to use it. Poor communication reduces the perceived value of even excellent health cover.
Bundle with protection — Combine with company life insurance, key person insurance and pension contributions for a complete package.
Review annually — Premiums change each year based on claims experience. Shop around at renewal to ensure competitive pricing.

Employee Health Insurance: UK Statistics

£172

Average CPC for employee health insurance keywords

Source: DataForSEO March 2026

KD 12

Keyword difficulty — low organic competition

Source: DataForSEO March 2026

7.8 days

Average sick days per UK employee per year

Source: CIPD 2024

£1,300+

Average annual cost of absence per employee

Source: CIPD 2024

81%

Of employees who rank health insurance as important benefit

Source: ABI Employee Benefits Survey 2024

14 weeks

Average NHS wait for treatment (vs days with PMI)

Source: NHS England RTT Data 2024

Trusted Sources & Further Reading

This employee health insurance guide references:

CIPD Health & Wellbeing at Work Survey — 7.8 sick days per employee; absence costs £1,300+/year
ABI PMI Data 2024 — Record £4bn in health claims; employers' growing role in workforce health
GOV.UK Medical Treatment Benefits — P11D and BIK rules for employer-paid PMI
FCA Health Insurance Guide — Employee rights and protections
NHS England Waiting Times — Why PMI matters for getting employees back to work
MoneyHelper — Government-backed guidance
ACAS — Employment rights and workplace benefits guidance
GOV.UK P11D Reporting — How to report employee health benefits

Employee Health Insurance FAQs

What is employee health insurance?

Employee health insurance is private medical insurance (PMI) provided by an employer as a workplace benefit. It gives staff access to private hospitals, specialist consultations and faster treatment than the NHS. The employer pays the premiums, which are corporation tax deductible.

Is employee health insurance taxable?

For the employee, yes — the premium value is reported on P11D as a benefit-in-kind, and they pay income tax on it. For the employer, premiums are corporation tax deductible but subject to 13.8% Class 1A NI. Despite the tax charges, it remains a highly valued and relatively tax-efficient benefit.

How much does employee health insurance cost per person?

Core PMI (in-patient only): £500-1,000 per employee per year. Comprehensive (in-patient + out-patient + mental health): £1,000-2,500. Costs depend on employee demographics, cover level, excess and provider. Corporation tax relief reduces the effective cost by 25%.

Can employees add family members to company health insurance?

Employee Health Insurance UKA Benefit Your Team Will Value