By NEIL HARTNELL
Tribune Business Editor
"Cook-out" targets will have to increase due to the VAT rate hike, a well-known insurer yesterday warning that 85 per cent of healthcare costs will not benefit from planned tax exemptions.
Emmanuel Komolafe, the Bahamas Insurance Association's (BIA) chairman, told Tribune Business it was impossible "to reconcile" the 60 per cent VAT rate increase with the objective of making healthcare more accessible and affordable for all Bahamians.
Revealing that he was "personally" troubled by the tax hike's implications, Mr Komolafe said it was likely to impose an increased burden on the public healthcare system as Bahamians either dropped or reduced private health insurance coverage due to the increased costs.
While welcoming the Government' decision to 'zero rate' medicines, the BIA chair said these typically accounted for no more than 6-14 per cent of the Bahamian health insurance industry's typical claims costs.
As a result, Mr Komolafe suggested the Minnis administration's efforts to minimise the 12 per cent VAT's impact on healthcare "don't go far enough" - especially since the increase will raise costs ranging from a doctor's visit/check-up through to surgeries, imaging and diagnostics.
Dr Duane Sands, minister of health, yesterday told Tribune Business that the VAT hike would likely have minimal impact on healthcare costs for 50-70 per cent of Bahamians given that the tax was not levied on public system users (see other article on Page 1B).
Yet Mr Komolafe questioned whether the Government's fiscal and tax policies were aligned with its healthcare objectives, and expressed doubts over whether the public sector would be able to cope with any significant shift of patients from the private sector - especially since the National Health Authority's Budget has been slashed by 50 per cent to $20 million.
"This is something that is very concerning for me personally, increasing healthcare costs for the Bahamas," he told Tribune Business, emphasising that the VAT increase's implications went far beyond the health insurance sector.
"What is, in fact, the plan for healthcare? Is it still the case that we're trying to be the healthiest nation in the Caribbean by 2030? Are we trying to make sure more persons have access to healthcare in a timely manner that's affordable?" Mr Komolafe asked.
"I can't reconcile that philosophy, that strategy, with the decision to increase the VAT rate by 60 per cent. I can't reconcile that with the decision to make it more expensive for persons not insured, and those who are insured, to access quality healthcare.
"Health insurance provides financial protection, but it's about being able to access quality healthcare when you need it. You have people with health insurance that will be impacted negatively by this move to increase the VAT rate on healthcare."
With insurance shown to be price sensitive, and the 12 per cent VAT set to lower living standards across the board, Mr Komolafe said employers, households and individuals 'on the margin' may either reduce or drop coverage entirely.
While the Government has sought to mitigate the impact by 'zero rating' medicines, the BIA chair said this was not enough since they account for a minor proportion of overall healthcare costs.
"I personally think it's positive, it's welcome, but it doesn't go far enough," he told Tribune Business. "When you look at the numbers, medicine accounts for between 6-14 per cent of claims costs.
"Everything else, which is not receiving any relief from a tax perspective, makes up the rest of the claims costs. People use cook-outs to raise funds for medical procedures which they are now levying increased taxes on.
"It's positive to 'zero rate' medicines, but you're still putting an additional tax burden on persons who are seeking to access this very important, essential, good or service in the form of healthcare. That's the challenge I have. I can't shake it off."
Mr Komolafe added that the VAT 'exemption' for medicines would only benefit Bahamians at 'the back end', when they had already fallen sick, rather than contribute to wellness and preventative initiatives.
However, the Government may itself benefit through the National Prescription Drug Plan that is operated by the National Insurance Board (NIB). Some $13.589 million in Drug Plan arrears will be paid this upcoming fiscal year as part of the $172 million in unfunded bills that the Government plans to tackle - a major factor in the VAT rate hike.
"In the bigger scheme, this does not align with the objective of making healthcare more accessible and affordable to persons," Mr Komolafe argued of the VAT rise. "What are the consequences if we have attrition on the health insurance side and people can't afford it?
"You're putting them into the public healthcare system, which is already over-burdened and in need of an upgrade. It's not that we have the capacity in the public sector to accommodate any fall-off in persons protect their health risk with insurance. The Budget for NHI has been reduced year-on-year."
Mr Komolafe said the VAT increase appeared "to be at odds" with the position taken by Dr Sands in the 207-2018 Budget, who said then that he wanted to see the tax removed from healthcare.
The BIA chair added that the insurance industry was seeking further clarity on the transition to a 12 per cent VAT rate, given that its contracts with group and individual insureds were long-term with a 7.5 per cent rate already locked-in.
Thousands of clients paying by direct debit or salary deduction will now have to adjust this amount to account for VAT-increased premiums, and Mr Komolafe said: "It's not like flipping a switch on July 1 and all these things will be fixed.
"In some cases, we have to send out mail, and given the challenges with the mail some persons will not get it. It's extremely important adequate time is provided for implementation."