Removing the VAT exemption on private healthcare would be “madness” adding to the tax burden on employers and causing individuals and UK plc alike to think long and hard about whether they can afford their policies, advisers have told Health & Protection.
Earlier this week former Labour leader Lord Kinnock’s issued a proposal for government to remove the exemption of VAT on private healthcare, while think tank the Good Growth Foundation called on it to institute a windfall tax on private healthcare providers which was supported by its public research.
The proposed taxes would apply to the private healthcare providers such as hospital groups and clinics.
A one-off windfall tax may not see too much affect on end customers, however if VAT of 20% were to be added to private healthcare services this could result in costs being permanently passed on to insurers and self-pay customers.
With insurance premium tax (IPT) of 12% already applying to private medical insurance (PMI) the passing on of a 20% VAT implementation on healthcare providers could in-effect see PMI premiums double-taxed.
IPT is high enough
Emma Wood, director of healthcare at Broadway Insurance, told Health & Protection with IPT at 12%, any increase with VAT would be a big hike on the premium for employers.
“IPT is high enough,” Wood explained. “VAT would have an impact.
“This insurance is not compulsory.”
While Wood maintained she did not think employers would be put off from taking out some cover, she added they may reduce these benefits.
“I’m not sure this will put employers off because of recruitment and retention concerns – more and more organisations want to look after their employees,” Wood continued.
“Private medical insurance is a popular benefit and a benefit employees want from their employers.
“What it will mean is that by increasing the initial cost, it’s going to be difficult for firms to maintain the policy long term.”
Wood added this all might mean that employers will not be able to introduce full blown comprehensive cover.
“It might just be a watered down version that helps to get a diagnosis quicker or look to cover inpatient only to help contain costs,” she continued.
“I don’t think it will discourage people, but it will cause people to think about the level of cover they put in place and who they offer it to in terms of people within the business.
“I’m not sure it encourages businesses to put in employee benefits for the whole of the workforce, which is what people want to try and do.”
Shift in lapse rates
For Penny Jackson, owner of the Insurance Boutique, any additional cost for clients will put them off taking out cover.
“Anything that makes the premiums higher, clients aren’t going to buy it,” Jackson said.
“I’m losing clients left, right and centre due to affordability,” she added.
“There’s a big shift in lapse rates over the last two months, generally down to costs, so any additional cost will not sit well with clients.”
Sticking plaster
Peter Lurie, founder and director at Proactive Medical and Life, suggested any additional cost could drive many patients to get unsafe treatment abroad if they can use their cover for that.
“Would that removal help the NHS? It may offer short term funding, but it doesn’t address the much deeper issues of the chronic underfunding the NHS suffers from,” he added.
“It’s like a sticking plaster. Doesn’t IPT already raise a lot of money?
“In the last couple of years a huge amount has been raised even though there hasn’t been a rise in VAT.”
Madness
Marcia Reid, non-executive director at Sherwood Healthcare, told Health & Protection employers were already wrestling with an increase in their national insurance contributions.
“It’s madness,” Reid said.
“It will put further pressure on the NHS as it will make private medical insurance more expensive.”
Reid added as 75% of policies were corporate paid, the proposal would hit the very working people in most need of support.
“Employers have already been hit with an increase in national insurance contributions and this will affect the cost of benefits for their employees,” she said.
False dichotomy
Kristian Breeze, director of healthcare at Ascend Broking, said Lord Kinnock’s argument was based on a false dichotomy.
“It’s the idea that the private sector is somehow detracting from the NHS, rather than operating alongside it as a pressure-release valve,” Breeze said.
“The growing role of private healthcare, whether funded personally or through insurance, is not a reflection of selfishness or luxury, but a response to escalating NHS wait times and systemic under-resourcing.
“Introducing VAT would only make access to private care more exclusive, pushing it out of reach for many of the middle-income families and small business owners we advise.”
Disgraceful
Audrey Spence, director at Incorporate Benefits, called Lord Kinnock’s proposal “disgraceful,” adding that PMI is not a luxury item any longer it is a necessity, particularly in businesses who do not have a large workforce.
“If their employees had to wait on the NHS to fix their medical issues there would be a lot more absenteeism in the workplace and this would affect how a small business could operate,” Spence said.
“In a smaller business they do not have the luxury of having people with a lot of free time to do another person’s job if they are off on sick leave.”
Spence further pointed out that PMI is already subject to IPT and P11D.
“How can they justify taxing this benefit any further?” Spence continued.
“The money raised would be a drop in the ocean to ‘fix’ the NHS and will in fact have a detrimental effect as a lot of people will be forced to cancel their PMI thus putting more pressure on the NHS.
“The government should be incentivising people to take out PMI and free up the NHS for those who cannot afford to go private, not forcing them to cancel.”
