How the rise in IPT will impact employee benefits and mean added costs for employers
For employers, this will impact premiums on private medical insurance. In the current climate, where many companies are looking to reduce costs/spend, this will be an unwelcome hike. For example, if a company is spending £100,000 on private medical insurance then it means there will be an additional £3,500 of cost incurred, and a total of £9,500 in tax to pay on the premium.
For employees this will also increase expenses on car, home, holiday, and life insurance. Some estimates state that this could add around £1.8 billion of costs to insurance products purchased by UK consumers. This equates to around £68 per household.
When will IPT be applied
While the tax hike cannot be avoided, employers, specifically HR, can focus on the value that they get from their private medical insurance (eg additional perks such as gym discounts, robust administration processes – which save time /cost). As part of the annual private medical insurance renewal process, employers need to look out at whether the increase in IPT will be applied to this year’s renewal or next.
Another option to consider is tailoring of benefits, whereby employers look more holistically at the total benefits package. This could include looking at the particular benefits which suit the organisation itself, with a move away from a traditional one size fits all approach to medical insurance and towards a mix and match of benefits. It's not necessarily about employee age; it's about lifestyle, and people should be given the choice and flexibility to have the benefits that suit them at the point of lifestyle.
Are healthcare trusts the answer?
As healthcare trusts do not attract insurance premium tax, they could also, in some cases, provide an attractive alternative for some companies of a particular size/profile. Trusts are typically set up as a subsidiary of an organisation and are managed by a third-party administrator. The claims fund is based on an employers’ estimated value of claims over a year. If they do not pay out this amount, trusts can prove more cost-efficient than a fully-insured medical scheme. However for smaller organisations this may not be a feasible option due to the hidden cost associated with setting up and managing a trust (eg on-going governance).
To help employees manage their additional personal insurance costs increase as a result of the change, employers could implement (or better communicate) their discounts scheme, which include many of the personal insurances that are effected by the change. For example, by utilising the grocery discounts employees could save up to 10% on their weekly shop. These savings could be used to offset the additional insurance costs.
Who bears the brunt?
Medium-sized businesses with several hundred employees are generally seen to bear the brunt of the rise as larger employers may have already manoeuvred into other medical insurance options as smaller organisations are less likely to fund healthcare benefits.
The IPT increase is here to stay – meaning healthcare benefits are likely to become an increasingly expensive commodity for businesses. Now’s the time for employers to review existing insurance related benefits they pay for on an on-going annual basis. Employees also need to get maximum value out of their overall benefits package and discounts they may already have access to via their employer.
This article was provided by Lane Clark & Peacock LLP.
