30 Sep 2015

How to trim the impact of the IPT tax hike

HR and benefit professionals have a range of options for reducing the impact of the hike in insurance premium tax (IPT), which goes up from 6% to 9.5% on 1 November 2015.

The latest rise in IPT will mean that from 1 November 2015 a medical insurance scheme with 500 members paying a net premium of £450, 000 a year would have to pay a £42,750 IPT charge, which represents an increase of £15,750 using the previous rate of IPT.

This increase will lead to further increases in payments via benefit-in-kind taxation on employers’ NationaI Insurance Contributions (NIC).

Soraya Chamberlain said: "The additional tax burden will doubtless make medical insurance and cash plans less attractive to many organisations and is likely to drive considerable change in the market, but there are measures that can be adopted that can mitigate some of the increase."

She suggested that companies considering significant increases in their membership should try to implement these prior to 1 November.

Chamberlain also suggested that companies that provide PMI to over 500 staff could consider a healthcare trust, which does not attract the full IPT charge, or a master trust, which is less expensive to set up than a healthcare trust and does not require the appointment of trustees.

Another option Chamberlain suggested was for organisations to opt for corporate deductible or corporate excess schemes, which may be suitable for companies with 200 employees or more. She said that these products do not have the set up costs of trusts, but provide lower IPT savings and are only offered by a limited choice of providers.

For SMEs and individuals, as well as corporates who want to remain insured, Chamberlain suggested a number of cost containment options to mitigate the effect of the IPT increase. These included:

Cost Containment Measure	Guide Discount/Loading	Comments	Member Impact
Introduce a claims excess	-5% to -10%	• Immediate discount to current rates • Potentially reduced future claims experience • Introducing an excess may discourage younger healthier risk to remain in the scheme	High
Removal of psychiatric cover	-2%	• Unlikely to be received negatively by existing membership • Relatively low discount	Low
Explore reduced cancer cover levels	-5% to -10%	• High profile benefit • Offers both short term and long term savings	Medium
Six Week NHS Wait Option	-10% to -15%	• May lead to an increase in staff absence • A limited number of providers offer the policy	High
Moving to Full Medical Underwriting for all members	-8% to -10%	• Immediate discount to current rates • Current claiming conditions will be excluded going forward	High
Moving to Full Medical Underwriting for all new members	None	• Would not impact current membership • Current risk does not change, but long term cost containment measure	Low
Introduction of an out-patient limit	-3% to -6%	• A relatively common benefit limitation • Immediate discount to current rates	Medium
Increasing NHS cash benefit	None	• No discount to current rates • May have a limited impact on future cost containment	Low
Introduction of Specific Stop Loss insurance	+1% to +5% of fund	• No immediate cost saving to current rates • Longer term cost containment tool • Not widely available within fully insured contracts	Low
Introduction of Annual Maximum Benefit	-2% to -10%	• Immediate cost saving to current rates • Limited number of providers offer benefit maximums • Would naturally affect members with most serious conditions	Medium
Guided/Open Referral	0% to -5%	• Offered by a limited number of providers • Not all providers offer immediate cost savings • Longer term cost containment tool • Additional claims analysis required to assess suitability	Medium
Removal/Co Funding of Company Paid Dependant Cover	Up to -20%	• Immediate cost saving to company sponsor • Dependants still benefit from competitive self pay rate, 30-50% lower than personal policies	Medium

Despite the imminent rise in IPT, the tax burden on corporate PMI looks set to increase still further in the future.

“George Osborne has made it clear that the UK's rate will still be low post 1 November compared to mainland Europe, so I can say with little fear of contradiction that further tax increases are a certainty,” she said. “Given that the government is committed to easing the pressure on the NHS, surely it should be introducing tax exemption for health insurance schemes, not taxing them more heavily?”

For a guide from the Punter Southall Health & Protection seminar on reducing IPT tax liabilities and getting better value from corporate PMI policies, email [email protected] with “request for medical insurance and IPT seminar presentation” in the subject line.

This article was provided by Punter Southall DC Consulting.