Private medical insurance (PMI) is an employer-funded benefit that gives employees access to private healthcare for eligible medical conditions. The employer pays the premiums, and the employee can be treated privately rather than waiting for NHS appointments and procedures.
PMI is one of the most popular employee benefits in the UK. According to industry data, around 4 million people have employer-funded PMI, making it a mainstream part of many benefits packages.
Unlike group life insurance, PMI is treated as a taxable benefit in kind and must be reported on the employee’s P11D.
What PMI Covers
Typically Covered
| Treatment | Detail |
|---|---|
| Inpatient treatment | Surgery, hospital stays, specialist procedures |
| Outpatient treatment | Consultations, diagnostic tests, scans (MRI, CT, ultrasound) |
| Cancer treatment | Chemotherapy, radiotherapy, surgery |
| Mental health | Therapy sessions, psychiatric consultations (often capped) |
| Physiotherapy | Treatment following injury or surgery |
| Day-case surgery | Procedures that do not require an overnight stay |
Typically Not Covered
| Exclusion | Reason |
|---|---|
| Pre-existing conditions | Conditions present before the policy starts (unless moratorium period passes) |
| Chronic conditions | Ongoing management of long-term conditions (diabetes management, for example) |
| GP services | Routine GP visits remain with the NHS |
| Pregnancy and childbirth | Standard maternity care (some policies cover complications) |
| Cosmetic surgery | Unless medically necessary |
| Dental and optical | Usually separate policies |
| Emergency treatment | A&E and emergency care remain NHS |
PMI is designed for acute conditions – problems that can be diagnosed, treated, and resolved. It is not a replacement for the NHS but a supplement that provides faster access and choice of consultant.
Cost to the Employer
PMI premiums depend on several factors:
| Factor | Impact |
|---|---|
| Age of employees | Older employees cost significantly more |
| Group size | Larger groups benefit from better rates |
| Cover level | Comprehensive cover with low excesses costs more |
| Claims history | High claims in previous years increase renewal premiums |
| Industry and location | London and the South East tend to cost more; manual occupations cost more |
| Family cover | Extending cover to spouses and children increases the premium substantially |
Indicative Premiums (per person per year)
| Age Band | Basic Cover | Comprehensive Cover |
|---|---|---|
| 20-29 | £300 - £500 | £500 - £800 |
| 30-39 | £400 - £700 | £700 - £1,100 |
| 40-49 | £600 - £1,000 | £1,000 - £1,600 |
| 50-59 | £900 - £1,500 | £1,500 - £2,500 |
| 60+ | £1,500 - £2,500 | £2,500 - £4,000 |
These are illustrative figures. Actual premiums vary significantly between insurers and depend on the specific scheme design.
Tax Treatment
For the Employer
- Premiums are an allowable business expense for Corporation Tax
- The employer pays Class 1A National Insurance at the employer rate on the value of the benefit
- The NIC liability is calculated on the cost of the premium (not any claims paid)
For the Employee
- The premium paid by the employer is a taxable benefit in kind
- It must be reported on the employee’s P11D form
- The employee pays income tax on the value of the benefit at their marginal rate
- If the employee is a 20% taxpayer and the annual premium is £800, they pay an additional £160 in income tax
- If they are a 40% taxpayer, the additional tax is £320
P11D Reporting
The employer must report the cost of PMI on the P11D for each employee who benefits from it. The relevant section is Section I (Private medical treatment or insurance).
| P11D Requirement | Detail |
|---|---|
| What to report | The cost of insurance premiums paid or the cost of medical treatment provided |
| When to report | By 6 July following the end of the tax year |
| NIC due | Class 1A NIC at the employer rate, payable by 22 July (electronic) or 19 July (cheque) |
Payrolling Benefits
As an alternative to P11D reporting, employers can payroll the benefit. This means adding the value of the PMI premium to the employee’s taxable pay each month, so tax is collected in real time through PAYE. This eliminates the need for a separate P11D entry for that benefit.
To payroll benefits, the employer must register with HMRC before the start of the tax year.
Scheme Design Options
Excess (Deductible)
An excess is the amount the employee pays towards each claim before the insurer covers the rest:
| Excess Level | Effect on Premium | Employee Pays |
|---|---|---|
| Nil excess | Highest premium | Nothing per claim |
| £100 excess | Moderate saving | First £100 of each claim |
| £250 excess | Significant saving | First £250 of each claim |
| £500+ excess | Largest saving | First £500+ of each claim |
Introducing an excess can reduce premiums by 10-30% and discourages minor claims.
Underwriting Basis
| Method | How It Works | Best For |
|---|---|---|
| Moratorium | Pre-existing conditions are excluded for the first 2 years; after 2 years symptom-free, they are covered | Simple to administer; no medical forms |
| Full medical underwriting | Each employee completes a medical questionnaire; insurer decides exclusions | More clarity on what is covered from day one |
| Medical history disregarded | All pre-existing conditions covered from day one (for groups, typically 20+ employees) | Larger groups; maximum cover for employees |
Who to Cover
| Option | Typical Arrangement |
|---|---|
| Employee only | Most common; covers the individual employee |
| Employee plus spouse/partner | Extends cover to a spouse or partner |
| Employee plus family | Covers the employee, spouse/partner, and dependent children |
| Directors only | Some small companies provide PMI only to directors |
If different levels of cover are provided to different groups of employees (e.g., directors get family cover, other staff get employee-only cover), each level is a separate benefit for P11D purposes and the value reported reflects what each individual receives.
PMI and the NHS
PMI does not replace the NHS. In practice, most PMI policyholders continue to use the NHS for:
- GP services – PMI requires a GP referral before seeing a specialist in most cases
- Emergency care – A&E remains the first point of contact for emergencies
- Prescriptions – routine prescriptions continue through the NHS
- Maternity care – standard pregnancy and birth care
PMI adds value by providing:
- Speed – consultations and diagnostics within days rather than weeks or months
- Choice – the employee chooses their consultant and hospital
- Comfort – private rooms, flexible appointment times
- Access to treatments not available on the NHS (in some cases)
Accounting Treatment
Profit and Loss Account
PMI premiums are recorded as a staff cost:
| Account | Debit (£) | Credit (£) |
|---|---|---|
| Employee benefit costs (PMI) | 12,000 | |
| Bank / Creditors | 12,000 |
The Class 1A NIC cost is a separate charge. With an illustrative Class 1A rate of 15%, the charge on £12,000 of premiums is £1,800:
| Account | Debit (£) | Credit (£) |
|---|---|---|
| Employer NIC costs | 1,800 | |
| HMRC creditor | 1,800 |
Year-End Considerations
If the PMI policy renewal date does not align with the company’s financial year end, an accrual or prepayment may be needed to ensure the correct amount of premium is charged to the correct accounting period.
Managing Claims Costs
PMI premiums are heavily influenced by claims experience. Employers can manage costs by:
- Promoting employee wellbeing – healthy employees make fewer claims
- Using an employee assistance programme (EAP) for early intervention on mental health and musculoskeletal issues
- Introducing an excess to discourage minor claims
- Reviewing the policy annually and comparing quotes from multiple insurers
- Adjusting cover levels – reducing outpatient limits or adding a hospital list restriction can lower premiums
- Encouraging NHS use for non-urgent, straightforward conditions
PMI as Part of a Benefits Package
PMI works alongside other protection benefits:
- Group life insurance – lump sum on death
- Income protection insurance – replaces income during long-term absence
- Workplace pension – retirement savings
- Employee benefits – the broader package of perks and entitlements
Together, these benefits form a comprehensive protection package that helps attract and retain staff. PMI consistently ranks among the top three most valued benefits in UK employee surveys, alongside pension contributions and flexible working.