We shouldn’t tax health insurance


The boss of health cash plan provider Medicash, Sue Weir, argues the doubling of the premium tax on health insurance is counter-productive as subscribers are put off and revert to the NHS.

Sue Weir

Sue Weir

One thing that different types of health insurance have in common is that they incur insurance premium tax. So, in the same way that some goods and services costs are increased by VAT at 20%, most aspects of insurance suffer this tax – a relatively new one that did not exist until 1994.

Since then, it has been at 4%, 5%, then 6% – until last November when it jumped by 58% to 9.5% following the Chancellor’s Budget. We know that, following the latest Budget in March, it is increasing again later this year, up to 10%.

Insurance premium tax is currently a very low-profile tax, hardly ever talked about and rarely on the public and media’s radar.

How many people actually know of its existence, let alone what it is? Yet this tax affects most individuals, families and businesses in the UK.

It has been raising over £3bn for HM Treasury each year prior to last year’s hike, which the Government estimates will raise an additional £1.75bn of revenue a year.

However, its estimates will prove to be a lot less if businesses and families opt to stop paying for their private healthcare altogether. Economically, the tax on healthcare insurance makes no sense. The sums just do not add up.

Speaking to colleagues in other health cash plans and those in the private medical insurance sector, we know that health insurance is very price-sensitive.

At Medicash, we dealt with the passing on of the increase as sensitively as we could – choosing to pass it on to our business customers at the annual review date, rather than increasing it across the board last November.

With hindsight, this was absolutely the right thing to do, as it helped brokers. They did not have to have an additional conversation mid-term with customers. And it also helped our companies to align with their budgeting process rather than having an unbudgeted price increase.

Inflicted on the sector

We have seen the vast majority of customers accepting the extra cost as they understand that it has been inflicted on the sector.

The Chancellor assured us that we should be grateful that the UK rate of insurance premium tax will be only 10% rather than the 20% that exists within much of Europe. But this is misleading, as, while the headline tax rate varies within the European Union, health insurance in the major economies of Europe is exempt from insurance premium tax – putting Britain at a disadvantage.

At the very time when monetary pressure on the NHS is growing, the Chancellor has increased insurance premium tax on health insurance. At best, this action will deter companies and individuals from taking out health insurance. At its worst, it will cause health insurance to be cancelled.

Medicash is a small business; our turnover is £25m, but even our business is taking pressure off the NHS. Looking at the claims that we have paid over the last year, there would have been extra demand of around £10m on the NHS if we did not exist, as we cover private healthcare treatments such as physiotherapy.

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If we multiply this across the health insurance sector, the detrimental impact on our NHS is likely to be far greater than the income that the Government will generate from the extra 4% of taxation on health insurance.

The Government is looking to improve productivity rates within businesses, so this seems to be a complete anomaly. Businesses should be encouraged to offer healthcare insurance to their employees, not put off from doing so by adding a tax uplift.

Business productivity across the UK will be affected as absenteeism increases due to health issues,  resulting in a negative impact on the long-term economic well-being of the nation.

I fully appreciate that the Government needs to generate extra revenues to enable it to move from deficit to surplus. But I strongly believe that the health insurance sector being impacted by the increase in insurance premium tax is an unintended consequence of health insurance being classed under the general insurance umbrella.

It’s deeply disappointing, as the Government has brought in some really intelligent initiatives encouraging firms to look after the health and well-being of their staff.

Real business benefit

This theme also resonates with businesses. Recently, we worked with the CBI to produce its Getting Better: Workplace Health as a Business Issue report, highlighting how investing in the well-being of employees has real business benefits.

I am therefore calling on the Chancellor to exempt health insurance from insurance premium tax in the same way that life insurance, critical illness and income protection insurance remain exempt.

Making healthcare exempt will help all of us to provide health insurance for our staff and customers and make our businesses more productive. It will also support our NHS by reducing demand on it and offer preventive care as well as treatment. And, finally, it will help us to enjoy healthier lives.

I have written to the Chancellor setting out the logic for making health insurance exempt for insurance premium tax purposes. I have met with the Treasury. But the overriding requirement to deal with the deficit appears to sit above sense at the moment.

In the response from the Treasury, they stated that the increase is not an extra cost for the customer, but for the insurance company. This is like saying that we do not pay VAT on restaurant meals – the restaurant meets the cost.

It demonstrates a lack of appreciation of the insurance sector. With VAT, you can set it against any VAT that you pay, but with insurance premium tax, it is not possible to reclaim the tax paid. It is met in full by the customer.

I am encouraged that others in the health plan sector are aligning with our campaign. We will be circulating further news about our joint campaign shortly.

Adapted from a speech given to the Association of Medical Insurers and Intermediaries