The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian insurers are seeking “an urgent meeting” with the Prime Minister before the week ends over VAT-related reforms that will potentially increase medical bills and treatment costs for thousands of Bahamians.

Rhonda Chipman-Johnson, the Bahamas Insurance Association’s (BIA) co-ordinator, in a letter sent to Philip Davis QC yesterday said health insurers were especially anxious for resolution of the Government’s plan to halt them obtaining VAT deductions on claims payouts prior to the new fiscal year’s start on July 1. 

“To date, the matter of VAT deductions on taxable health insurance claim settlements has not been resolved,” she wrote. “We are cognisant of the fact that the Budget for the fiscal year 2022-2023 is still under discussion and will be approved shortly.

“Given the impact that the new ruling on VAT input deductions will have not only on the health insurance sector but, more importantly, the wider public who depend on insurance coverage in order to access proper healthcare in The Bahamas and abroad, we are requesting an urgent meeting with you before the end of this week if possible.”

Tribune Business previously reported the health insurance industry’s fears that the Government’s stance may cause “additional hardship” for thousands of Bahamians who enjoy private medical insurance. Sandy Morley, the BIA vice-chairman, confirmed to that these consumers would “bear the brunt” of plans designed to stop healthcare insurers from reclaiming the VAT portion of medical claims payouts.

At present, the insurance industry can deduct, or offset, the VAT portion of patient care bills submitted to it by doctors, hospitals and other medical facilities against what it pays to the Government from the 10 percent levy imposed on client premiums.

However, Mr Morley said the Ministry of Finance and Department of Inland Revenue - with effect from July 1, 2022 - want to change this treatment such that health insurers are no longer able to deduct/offset the VAT charged on their clients’ medical bills against the taxes collected on the premium.

With the industry no longer able to treat medical bill VAT as an ‘input’ deduction, the BIA vice-chair warned that consumers will “ultimately” pay the price through having to absorb the levy on their patient care expenses - something that will effectively increase health treatment costs by 10 percent at a time when Bahamians are grappling with soaring inflation and the continuing fall-out from the ongoing COVID-pandemic.

Given that some medical costs can be substantial, reaching into the hundreds of thousands and even millions of dollars, the potential revenue boost for the Government could well be significant. Yet, if implemented, the increased cost could be just as impactful for both individuals and employees who presently enjoy private health insurance under their company’s group policy, potentially making quality healthcare less affordable and accessible when COVID-19 remains a threat.

Should the revised VAT treatment become law, Mr Morley said at the time that insurers would likely be forced to alter their pricing while providers of medical care would need to adjust their services.

Tribune Business understands that the Ministry of Finance and Department of Inland Revenue (DIR) have taken the position that medical bill payments are made on behalf of the end-user, or insured consumer, and as such should be treated as a VAT-able activity rather than deducted by insurers from the taxes they collect on the health insurance policy’s premium.

“The industry is concerned about this, we most definitely are in opposition to this, but in meetings with the Department of Inland Revenue’s director [Ms Strachan] and the financial secretary [Simon Wilson] said it’s not an industry issue. It’s an issue that is a lot broader than this. It impacts the broader population, and would only cause for additional hardship to Bahamians at a time when Bahamians need to be supported. That’s the real issue and message we reiterated to them,” Mr Morley said previously.

Meanwhile, Ms Chipman-Johnson said Bahamian insurers were seeking further clarity over the Government’s plans to end the 3 percent tax on premiums and switch to a Business Licence fee calculated as 2.25 percent of “turnover”.

“In addition, we would like to discuss the Budget communication regarding the changes in the tax structure for the insurance sector. We have met with the Insurance Commission with respect to this matter, but there is still a need for further clarification of taxes. Insurers are also concerned about the short time before the implementation of the new tax regime,” she said.

The letter was also copied to Senator Michael Halkitis, minister of economic affairs, and Simon Wilson, the Ministry of Finance’s financial secretary, as well as Michele Fields, the Insurance Commission head.

Timothy Ingraham, Summit Insurance Company’s managing director, told Tribune Business recently on the issue that the definition of “turnover” will be critical to how the tax is calculated, and its impact on the industry. He said: “We’re still in the process of evaluating that and trying to determine what exactly will happen. Right now we’re trying to speak to the tax authority to get a full understanding of what they are proposing before we come to any conclusions.

“Obviously one thing at the moment is that premium tax is based on premium, and what is your definition of turnover? That we have to get clarification on. The immediate thing is to try and get a deeper understanding of what is being proposed before we come to any significant conclusions on it.”