How employers can manage private medical insurance costs

Private medical insurance (PMI) has long been a key benefit for UK employers, offering a solution to growing healthcare challenges. However, in the face of increasing renewal costs — some as high as 70% — employers are struggling to balance employee wellbeing with financial sustainability. 

Rising PMI costs are driven by various factors, from an ageing workforce to a crisis in NHS service delivery, making it more crucial than ever for businesses to reassess their health benefits strategy.

What’s driving the surge in PMI costs?

• Ageing workforce: As people live longer, their healthcare needs increase. The resulting demand for medical care means higher claims under PMI policies, pushing up premiums.  
• Declining public health: The UK faces a worrying trend of deteriorating public health. By 2040, nearly one in five adults is expected to live with a major illness, further increasing claims under PMI.
• NHS struggles: Ongoing issues within the NHS, including long waiting times, are driving more people to seek private healthcare, which increases demand for PMI.
• Younger employees more likely to use private healthcare: A survey by Independent Healthcare Providers Network found over a third of 18 to 44-year-olds had used private healthcare compared with just over a quarter of 45 to 64-year-olds.

These factors, combined with rising medical inflation and fewer providers in the market, mean that PMI is becoming more expensive, with the costs increasingly passed on to employers.

Why managing PMI costs is critical for employers

With 7.3 million people in the UK now covered by PMI, and the majority of plans company-funded, rising premiums are forcing businesses to reconsider their health benefit offerings. Many are considering reducing coverage or, in some cases, discontinuing PMI altogether. This comes at a time when employers need to keep their workforce healthy and productive to maintain business resilience.

It is no exaggeration to describe this as potentially the biggest challenge for 2025 for UK employers.

Practical steps to manage rising PMI costs

Despite these challenges, there are proactive steps employers can take to control PMI costs without compromising on the quality of care for their workforce.

• Challenge claims calculations: It’s important to question the assumptions behind your provider's claims fund calculations. At Barnett Waddingham, we use actuarial analysis to examine claims experience, membership characteristics, and plan design to provide more accurate models. This approach can lead to significant savings — some clients have achieved savings of approximately 15% in 2024, compared to insurers' initial renewal rates.
• Cost-efficiency through innovation: There are ways to reduce claims under your PMI policy by using standalone services such as musculoskeletal (MSK) or cancer support. These services not only provide targeted care but also help limit claims under your PMI, making future premiums more manageable.
• Tailored funding solutions: Employers can benefit from exploring alternative funding methods such as Health Care Trusts, which allow for greater control over healthcare costs while still providing comprehensive and more tailored coverage for employees.

How we can help

At Barnett Waddingham, our Group Risk team specialises in health, protection, and wellbeing risk. We work closely with employers to design cost-effective PMI solutions, negotiate with insurers, and ensure that healthcare benefits remain sustainable.

Whether it's through detailed actuarial analysis or innovative benefit structuring, we help you manage rising costs while keeping your workforce healthy and productive.

• Get in touch today to find out how we can help you navigate these challenges and keep your PMI costs under control.