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Beware the impact of IPT rises on medical insurance

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Employers must recognise and prepare for the significant impact November’s insurance premium tax (IPT) rise will have on the affordability of their healthcare schemes, health insurer Western Provident Association (WPA) has warned.

The raise from 6% to 9.5%, scheduled for 1 November, was one of the less anticipated announcements made in July’s budget. It will affect a wide range of polices including consumer contents and motor insurance, but also several employee benefits.

WPA has warned that while the potential impact on healthcare insurance is large, it has remained a little-discussed issue.

“If I was a betting man – what with IPT having gone up in 2011 and now going up again – I would say the trend is upwards, and it will go up until it is on a par with VAT,” said Charlie MacEwan, corporate communications director at WPA. “It’s a small increase on premiums now but it’s going to [become] a bigger pressure, which is why it needs discussing sooner or later.”

The organisation reported that lack of attention here so far was possibly down to the last IPT rise being largely absorbed by health insurers.

“The last increase was only 1%, and some insurers absorbed that for their customers in that one year period just for the transition. This is 3.5%, which I don’t think insurers are going to want to absorb, so it’s going to hit a lot of companies straight away in terms of how they’re paying for it,” said Rachel Riley, managing director of WPA's global brands division.

Regarding the potential impact of the rise, Riley added: “A fairly large corporate would maybe spend £5 million per year on claims. If we say they maybe half a million pounds on the admin fee, and the risk charge is another £250,000, they’re spending £5.75 million purely on healthcare. With IPT and national insurance they’ll be spending an additional £1.4 million on tax, which they wouldn’t necessarily think about.”

She added: “IPT is visible to a degree but the national insurance, which is 13.8%, is not necessarily a visible tax on healthcare. But clearly if you’re spending an additional 25p on every pound in tax it’s going to bite.”

MacEwan warned there is a danger, if organisations fail to prepare for the IPT rise, that it could prove “a kick in the teeth to all of Dame Carol Black’s hard work promoting healthcare in the workplace".

However, Riley was more hopeful that companies will be determined to maintain their healthcare offerings: “For the HR directors, risk managers, procurement managers and benefit managers I talk to this is absolutely a necessity,” she said, adding: “They don’t want to scale back benefits at all but they want to make sure they’re getting the best value for money.”

WPA stressed the need for businesses to start investigating how they might keep healthcare insurance costs under control despite the IPT rise, by exploring options such as corporate healthcare trusts and corporate deductible plans.