Healthcare benefits are at a turning point as costs and demand rise

Small and medium-sized enterprises (SMEs) are used to operating in uncertainty. Inflation, regulation, recruitment pressure, rising costs. None of it is new.

But when it comes to health and wellbeing, there is a noticeable shift. The ambition to support employees is strong. Confidence in delivering the right outcomes is less so.

In our recent poll, 2 in 3 SME employers said they are concerned about achieving a good health outcome for their business and employees in 2026. This was in the context of balancing rising costs together with delivering better benefits to their employees.

That gap is telling. We believe it comes from the recognition that health and benefits are more important to SMEs than ever, in terms of supporting recruitment and retention, and supporting wellbeing and productivity.
 

The pressure is structural, not temporary

Healthcare demand continues to rise. Claims incidence has increased by as much as 30% in some schemes and take up of funded cover has grown by up to 15%, more people feel the need for the cover and more people again are needing to use it.

With greater demand for health benefits, SMEs need to know that the costs will be sustainable in the long-term. The problem is that, at present, SMEs feel at the mercy of the insurance industry, when it comes to the pricing of their schemes.

And for businesses where they are time poor, not just cost-conscious, getting to a good outcome is harder than ever, without the right information and support on your side.
 

SMEs recognise the need to pull on different levers for success

So, what can SMEs do to improve their chance of both short-term and long-term success? In the same poll, SMEs told us that they recognise the need to make change, not accept the status quo.

1 in 3 believe they need to change benefits design and coverage, 1 in 5 recognise the need for a more structured approach to wellbeing and overall, 4 in 5 recognise the need for some form of change in the next 12 months.

It is great to see the sense of urgency from the SME audience, as they say, “knowing the need to change is the first step.” The challenge is then, how SMEs know what the right changes are and what are the pitfalls to avoid, to ensure you don’t cut the most valuable parts of cover or waste money.
 

Assessing Coverage and Provider options

When it comes to making changes to benefits design and coverage, there are areas to embrace and ones to avoid. The challenge for SMEs is often that the claims data is not available to aid understanding of what adds most value to employees and what would negatively impact health outcomes. That is where having a broker who works day-in-day out with providers to understand underlying health trends, care pathways and commercial options is key to balancing commercial negotiations and cost containment measures (reducing cover) to get within budget.

More wellbeing is happening, but impact is the next step

Encouragingly, almost 6 in 10 of respondents say they have planned wellbeing initiatives running through the year. However, 3 in 10 rely entirely on their insurance provider, and 1 in 10 do nothing.

Our view is that whilst 40% are playing catch-up, it’s likely that everyone needs to turn action into impact and help make sure that investment of time and money translates into business performance.

Again, conscious of the time constraints facing most SMEs (often doing wellbeing off the side of their desks) there is recognition that more emphasis should be placed on brokers and consultants to help SME employers achieve their goals.

The strongest signal came with over 50% of respondents saying they need to improve how they promote wellbeing internally. And when UK industry data shows the absence is still near all-time highs and mental health is worsening, it is a concern that needs focused action in 2026.
 

This is a reset moment for healthcare benefits

SMEs are not retreating from health investment. Nor are they blindly accepting cost increases. Instead, they are reassessing how medical insurance and other health benefits are designed, negotiated and linked to wider wellbeing strategy. The key is being proactive, not reactive.

As Matthew Gregson, Executive Director at Howden Employee Benefits, observes:
"What we are seeing in the SME market is not panic, but realism. Healthcare demand is rising and budgets are under pressure, so employers are rightly questioning whether their current approach still works. This requires a re-evaluation of all of the moving parts involved in running these benefits,  the broker, the provider, the pricing basis, the benefits coverage and delivery to employees."

The confidence gap revealed in the poll is therefore not simply a warning sign. It is an indication that SMEs are asking the right questions.
The next phase will be defined by how clearly those questions translate into informed, measured decisions about design, risk and communication.