Rising numbers of mid-market corporates are opting for alternatives to fully-insured private medical schemes as Insurance Premium Tax (IPT) increases start to bite, a health insurer has said.
Following Chancellor Phillip Hammond’s announcement in November to increase IPT to 12 per cent from June, the third such rise in less than two years, WPA have identified a trend among companies who are looking to healthcare trusts to mitigate the effects of the increase.
The last IPT increase took place in October, an increase of ten per cent from just 6 per cent in 2015.
According to WPA, when the IPT increase comes into effect in June, companies will have to pay an additional 27p in tax for every £1 they spend on healthcare such as claims funds, administration and insurance charges.
Whilst with private medical insurance, IPT is applied to the whole premium, healthcare trusts are not affected by IPT increases to the same extent. Instead, healthcare trusts enable employers to ringfence claim funds to cover employee health needs. VAT at 20 per cent is then paid by the employer on any administration or trustee fee in addition to paying IPT on stop-loss insurance. The IPT charge is therefore significantly smaller than fully-insured private medical insurance.
Writing in Corporate Adviser in September, Sam Barrett explains: “On a £1m claims fund an employer would face an IPT bill of £120,000 once the insurer’s costs were included. In contrast, a healthcare trust would bring tax charges of £25,000 – almost 80 per cent less than the fully insured arrangement.”
But according to Tim Barnes, Business Development Director at Healthcare RM, there can be other advantages in using healthcare trusts: “Some healthcare trusts integrate health and wellbeing into the benefits structure, enabling the plan administrator to provide treatment outside of the traditional medical route, providing such treatment is beneficial to an individual,” he said. “For example, many musculoskeletal and mental health issues can be impacted by activity, corrective exercise, strength and nutrition. Traditional trusts do not generally support this approach, but more organisations are beginning to realise the benefits of using their healthcare trust fund in a more innovative way.”