How to review your private medical insurance scheme

Before you start

Legal basis. GOV.UK sets out how to value and report medical insurance as a benefit [2]. HMRC's Notice IPT1 covers IPT [7]. Eligibility rules must comply with the Part-time Workers Regulations 2000 and the Equality Act 2010 [9][10].

Who to involve. Reward or HR, finance, payroll, your broker and insurer, and employment law advice for any contract changes.

What you need. The policy schedule and wording, the renewal date, membership by grade, the insurer's claims reports, last year's P11D figures and contract wording.

Step 1: Work out the tax cost

The taxable value is the cost to you of providing the insurance [2]. That includes IPT, charged on medical insurance at the standard rate of 12% [7][8]. You pay Class 1A at 15% on the value, and the employee pays income tax at their marginal rate [3].

Worked example (illustrative premium).

Rates shown are for England, Wales and Northern Ireland; Scottish rates differ [3].

Where employees give up salary for PMI, report the salary given up if it exceeds the cost [2]. Someone giving up £1,300 (illustrative) for cover costing £1,120 is taxed on £1,300.

Step 2: Prepare payroll for April 2027

For 2026/27 benefits reported on form P11D, submit forms P11D and P11D(b) and give employees copies by 6 July 2027. Pay Class 1A by 22 July 2027 (19 July by cheque) [4].

HMRC has confirmed that from April 2027, company cars, vans, fuel and employer-provided medical benefits must be reported through payroll, with income tax and Class 1A worked out as you pay. Most other benefits follow from April 2028 [5]. In July 2027 you will pay Class 1A for 2026/27 under the P11D system while also paying it through payroll for 2027/28 [6]. HMRC will not charge penalties for certain non-deliberate payrolling errors in 2027/28 [5][6].

Ask your payroll provider how their software will spread the premium, handle joiners, leavers and non-April renewals, and report on the Full Payment Submission [6].

Step 3: Decide who is eligible

In the lumi reward benchmark, 85.0% of organisations with PMI restrict eligibility by grade or level (common). 7.5% offer it to all employees (rare), and 7.5% apply a length-of-service requirement (rare) (n = 187). 71.7% say 10–24% of employees are eligible (common; n = 187, not-applicable answers excluded) (full findings).

Less favourable treatment of part-time workers because they are part-time must be objectively justified [9]. The Equality Act 2010 lets you end insurance cover at 65 or State Pension age, whichever is later [10]. Take advice before using any other age limit.

Step 4: Choose the underwriting basis

Underwriting sets how the insurer treats conditions members had before joining. Ask your broker which bases are available, and read the policy definitions.

Step 5: Set the excess and cost-share

In the lumi reward benchmark, 49.5% of organisations with PMI have no excess (common). 22.6% apply an excess per claim (alternative), 16.7% an excess per year (rare), and in 11.3% the employee co-pays the premium (rare) (n = 186).

Worked example (illustrative). A member makes two claims in a year, of £2,400 and £600, with a £250 excess. Per claim, the member pays £500 and the insurer £2,500. Per year, the member pays £250 and the insurer £2,750.

Step 6: Review mental health, digital GP and cancer cover

In the lumi reward benchmark, organisations with PMI include these beyond standard cover (n = 187; more than one answer allowed): out-patient cover, 75.4%; virtual or digital GP access, 67.9%; full mental health cover, 48.7%; a cancer care pathway, 43.3%.

Across all organisations, 76.8% don't fund private diagnostics or fast-track cancer pathways beyond core PMI (common). 15.4% have a dedicated pathway (rare) and 7.9% provide one via PMI (rare) (n = 267).

Step 7: Review claims, then renew or re-tender

Well before renewal, review claims paid against premium by policy year, claims by category, large or continuing claims, and how the renewal price was set. Claims data concern health, a special category under the UK GDPR [11], so ask for aggregated reports that don't identify individuals.

If you use a broker, check the firm on the FCA's Financial Services Register [12] and agree in writing how it is paid: fee, commission or both. Ask each insurer whether members keep cover for existing conditions and ongoing treatment on transfer.

Step 8: Consider other health benefits

In the lumi reward benchmark, 71.0% of organisations have no health cash plan (common). 13.8% offer a voluntary plan (rare), 9.3% pay for all employees (rare) and 5.9% for some (rare) (n = 269). 43.5% provide a standalone virtual GP service for all employees (common), 13.4% for some (rare) and 10.8% via PMI only (rare). 32.3% don't (alternative) (n = 269).

Some medical benefits are tax-exempt, including one health check a year and, subject to conditions, up to £500 of costs to help an employee return to work after 28 days' sickness absence. Exemptions don't apply through salary sacrifice [2].

Step 9: Agree changes and communicate

If PMI is contractual, reducing cover or adding an excess or contribution may need employees' agreement. From 1 January 2027, dismissing employees to force through certain changes, such as a pay cut, will be automatically unfair unless a narrow financial-difficulty exemption applies [13]. A consultation on which benefits they cover closed on 1 April 2026, with no response published by 20 September 2026 [14]. Take advice before changing terms without agreement.

Tell employees who is eligible and from when, what is covered, the underwriting basis and excess, how to claim, and when to use the digital GP or EAP first. Explain that PMI is taxable, with examples, and that from April 2027 the tax will be deducted through payroll.

Checklist

• Worked out taxable value, IPT and Class 1A per member
• Agreed a payroll plan for April 2027, including July 2027 cash flow
• Recorded the eligibility and family cover decisions
• Checked eligibility against part-time and age rules
• Confirmed the underwriting basis and its definitions
• Set the excess and any employee contribution
• Mapped mental health, digital GP and cancer cover
• Reviewed aggregated claims data
• Decided to renew or re-tender; checked the broker on the FCA Register
• Taken advice on contract changes and briefed employees

Related

• Private medical insurance: UK benchmark 2026 — the benchmark findings behind the figures in this guide.
• How to set up group income protection
• How to build a financial wellbeing programme
• How lumi works: methodology — how these figures are collected and calculated.