The Tribune

• Gov’t wants to end insurer ‘claw back’ July 1

• Thousands to ‘bear brunt’ via 10% cost rise

• Industry ‘definitely in opposition’; writes PM

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is threatening to cause “additional hardship” for thousands of Bahamians who enjoy private medical insurance through VAT-related reforms that will increase medical bills and treatment costs.

Sandy Morley, the Bahamas Insurance Association’s (BIA) vice-chairman, yesterday confirmed to Tribune Business that 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.

Confirming that the BIA and its members “most definitely oppose” the change, Mr Morley said the industry had written to Prime Minister Philip Davis QC voicing its concerns and was awaiting a response. Should the revised VAT treatment become law, he added that insurers would likely be forced to alter their pricing while providers of medical care would need to adjust their services.

Responding to Tribune Business inquiries, after this newspaper was tipped-off to the medical claims payout VAT change, Mr Morley said: “We would have preferred to have given him [Mr Davis] an opportunity to respond to us. The Government has taken the position that the industry will no longer be able to use the VAT paid to facilities or providers like Doctors Hospital on behalf of clients... we will no longer be able to claim this as an input tax deduction.

“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.”

Asserting that the Government should be consulting the Bahamian public, and not just the health insurance sector, Mr Morley said “ultimately that will be the impact” when asked if the planned change would result in increased medical bills and costs that have to be paid by the consumer.

“How that is assessed to them, we don’t know, but we’re hoping we don’t go down that road,” he added. “As an industry, we would have to adjust our prices, providers would have to adjust how they provide services. We’re unsure how this will be done, but ultimately the end consumer, who pays VAT on the insurance premium, will bear the brunt of this.”

Mr Morley added that the Bahamian insurance industry was equally concerned with the relatively short implementation timeframe, given the present July 1 target date. “This is a little bit more advanced than the proposal stage,” he said. “There was an effective date of July 1, and we’ve expressed concern with that, the timing issue, as to how we accomplish that. We’re waiting for a response.”

The July 1 implementation date, which coincides with the start of every fiscal year, suggests that the change may be unveiled in today’s 2022-2023 Budget, although Mr Morley said he was “not necessarily sure there’s a correlation between the Budget and the effective date given to us”. However, all tax-related changes are usually wrapped up with the annual Budget.

Mr Wilson could not be reached for comment before press time last night, while Senator Michael Halkitis, minister of economic affairs, did not respond to a What’s App message sent by this newspaper. 

However, 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.

One source, speaking on condition of anonymity, said of the Government’s plan: “Currently, if an insurance company pays out a medical claim it can claim the VAT back via a claw back. The Ministry of Finance is looking to clarify that payment is made on behalf of the insured, the consumer. It is a major bone of contention, and they want to clarify that the insurance company cannot claim it back. I heard a little while back that they’re looking to address it in legislation.”

As to the impact if the VAT-related reform goes ahead as is, they added: “That will raise the cost of insurance, because insurance companies won’t eat that. That’s a 10 percent hit on the claim or they will leave the customer to pay the VAT themselves. It’s a substantial hit for the insurance company and the customer. Your margins go down by 10 percent. That will be significant.”

An insurance industry contact, noting that the Prime Minister and Mr Halkitis have promised repeatedly that there will be no new and/or increased taxes in today’s Budget, accused the Government of seeking to introduce taxation “by stealth” through the health insurance VAT treatment change.

“It’s a consumer tax that falls back to the consumer,” they added. “Whatever your claim is, you will now only get 90 percent of it. It’s going to drive up the cost of private healthcare by 10 percent. There are more than 100,000 people with private health insurance. Some of them will be forced out and unable to afford it any more, or companies will look to reduce benefits to make it more affordable.”

Turning to the wider picture, they added: “You cannot solve this [fiscal] problem without increasing individual tax rates, and that’s what you are doing. You are increasing tax rates on the middle class. All it’s doing is taking the individual tax rate, which was last time said to be 34 percent, closer to 40 percent with these measures. People will no longer be able to afford it and will have to drop out. These are a bunch of subtle taxes that are adding up.”

Another source, also declining to be named, said they understood “the technical case” that the Ministry of Finance is making for ending the health insurance VAT ‘claw back’. However, they voiced surprise that the Davis administration would pursue this now given the fragile economic climate and the fact that health insurance is seen as socially desirable in improving people’s welfare - especially amid the ongoing COVID-19 threat.

Research conducted for the National Health Insurance (NHI) scheme showed that more than 100,000 persons, or over a quarter of the country’s population, are covered by private medical insurance either individually or via their employer’s group policy. The source agreed that the Ministry of Finance plan would “drive up” the cost of both health insurance and treatments, making them less affordable, which ironically could boost NHI enrollment.

“It throws off the equilibrium we have now, where the premiums are very expensive but the benefits are very contained,” they added. “You’re increasing the cost in a very risky situation for a key consumable, and it shouldn’t be the issue that they tackle.

“Insurance is already expensive. This would have the effect, I imagine, that the insurers will give the money to pay the VAT to their clients directly or they’ll only settle claims up to the actual bill and you will be responsible for the VAT directly. It will fall into the customer’s lap.

“This is not the vehicle to go after and raise prices now with what’s happening in the health industry and broader economy. It’s a critical element of social welfare and is not the hill you want to climb at this stage. I don’t think this one is going to play well at all. Adding 10 percent to medical bills is a tough sell.”