The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

THE PRIME Minister says the Government sought to achieve “a happy medium” in ensuring health insurance companies are no longer able to reclaim VAT on claims payment made on the patient’s behalf.

Philip Davis KC, in a House of Assembly exchange on Wednesday with Kwasi Thompson, the Opposition’s finance spokesman, argued his administration had attempted to take the “path of least resistance” over what he argued was the industry’s “misinterpretation” of the VAT Act.

He spoke out after Mr Thompson challenged the Government’s move, arguing that the change in VAT treatment from April 1, 2023, onwards will result in consumers assuming the financial burden for paying the 10 percent levy on the insurer’s claim payout.

“The question that I’m concerned about would be this, and it is not something that we are guessing or something that just came into our head, but it’s something that came from the insurance companies,” the east Grand Bahama MP said. “Their scenario, which they put in the form of a letter, was that if you have a procedure, and that procedure cost ‘X’ amount of dollars, you will [presently] only pay for the deductible, or you will only pay VAT on the deductible.

“This is what they say, the insurance companies. Then they go back, and they’re saying that if you have a procedure and that procedure, for example, costs $50,000, you will only pay the deductible, or you will only pay the deductible and VAT on the deductible. What they are saying is now because of this change, you will also pay in advance VAT on that entire service.

“So if that service is $50,000, you will pay the deductible and the insured person would also have to pay the 10 percent of the entire procedure, which would be - if it’s $50,000 - $5,000. That is what is concerning, because that is an expense that the consumer did not have before, and that’s the point that we are raising - that it is an expense that the consumer did not have before.”

Mr Davis responded: “First of all, the insured person is paying a premium to cover a risk. The insurance company ought to take into account, in determining what that payment should be, what the risk factors are. And so part of the costs associated with paying for medical service, the VAT Act says that you have to pay VAT.

“Now we hear the argument, because they’re now saying that that risk factor was not factored into the premium. All costs in business pass on to the consumer, and we appreciate that. So that is part of what is being taken into consideration in our discussion with insurance companies.

“It was discovered that insurers who have group insurance were not paying when doctors provided service to patients. They were not paying VAT for that service. Now, the way the it had “received over $20m illegally” through this mechanism.

The ministry, and the Department of Inland Revenue’s, position is that VAT is payable on medical insurance claims payouts because these are being made on behalf of the end-user - the consuming patient - and thus should attract the tax. Health insurers are currently claiming this as ‘input’ VAT, offsetting it against their ‘output’ tax on premiums and effectively allowing the likes of Colina, Family Guardian and CG Atlantic to claim it back from the Government.

However, insurers arguing that the Ministry of Finance is wrong to treat the payment of clients’ medical expenses and the care received from providers as two separate services. Its case is that since health insurance and medical services are both VAT-able, health insurance claims should continue to be tax-deductible for health underwriters, otherwise the Government would be knowingly applying two layers of VAT.

One insurance source, though, speaking on condition of anonymity, said: “The Department of Inland Revenue has changed its interpretation of what the law is. It hasn’t changed the law. What they’re saying is the insurance companies are not the beneficiaries of the service and, as such, the insurance companies are not to claim back the VAT related to any payout. If the insurers are not the ones receiving the service, then the one doing so has to pay the VAT.”