HMO or medical allowance: which is better for your company?
Some companies pay a monthly medical allowance instead of buying an HMO plan. We compare the two honestly, from the side of the business and the employee.
A common question from founders is: "Why don't we just add a medical allowance to salaries and let people sort themselves out?" It sounds simpler. But the two options work very differently when someone actually gets sick.
How each option works
A medical allowance is extra cash in each payslip, meant for health costs. An HMO plan pays a premium for each person, and the HMO pays hospitals for their care.
The key difference is pooling. With an HMO, everyone's premium goes into one pool. The few people who need expensive care in a year are covered by the many who do not. With an allowance, each person only has their own money.
Side by side
| Medical allowance | HMO plan | |
|---|---|---|
| Small bills (e.g. malaria) | Usually enough | Covered |
| Big bills (surgery, admission) | Rarely enough | Covered up to plan limits |
| Where the money goes | Often spent on other needs | Only on health care |
| Access to hospitals | Pay upfront, then hope | Walk in with an ID card |
| Cost to company | Fixed | Fixed |
| Admin for HR | Low | Moderate, but a platform helps |
When an allowance can make sense
- As a small top-up on top of an HMO plan, for things the plan does not cover (like certain drugs or glasses).
- For very small teams that cannot yet join a group plan, as a temporary step.
Speak to your accountant about how each option is treated for tax, as this can change the true cost to your business and your staff.
Our view
For most companies, an HMO plan is the better base, because it protects people from the big bills. If you want to be generous, add a small allowance on top for the extras.
Action plan
Your decision action plan
- 1
Check what you spend today
Add up allowances, salary advances and emergency help for health in the last year.
- 2
Get real HMO prices
See what a plan would cost for your headcount on Yousure.
- 3
Compare the two
Put the numbers side by side, including the risk of a large bill.
- 4
Talk to your accountant
Understand the tax treatment of each option.
- 5
Consider both
An HMO for the essentials, plus a small allowance for extras.
