What is Private Medical Insurance?

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 13.8% 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 13.8%, 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:

Account	Debit (£)	Credit (£)
Employer NIC costs	1,656
HMRC creditor		1,656

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.