Insurers concerned about VAT burden on consumers
Refuting accusations made against the insurance industry by Prime Minister Philip Davis in the House of Assembly on Wednesday, Chairman of the Bahamas Insurance Association (BIA) Anton Sealy said while insurers are hopeful the government will reconsider placing on consumers the burden of value-added tax (VAT) on health insurance claims, he is doubtful it will.
On Wednesday, Davis said insurance companies have run “afoul” of the value-added tax (VAT) act by not remitting VAT on health insurance services to the government, but claiming it as an input and having the Department of Inland Revenue return it to them.
The government contends that the industry used its own interpretation of the law to forgo payments to the government, adding that at least one company benefitted by receiving over $20 million illegally, that should have been paid to the government.
“The industry, I see, has been accused of running afoul of the VAT act. We’ve even had a member accused of illegally claiming some $20 million in VAT deductions. These are both very unfortunate characterizations of the facts” Sealy said during a press conference at the BIA headquarters yesterday. “
“We note with interest that the prime minister indicates that talks are ongoing. I trust that to be the case, however, he is also quoted as saying the implementation of the VAT remittance is moving forward in April. To be clear, the BIA appreciates the government’s right and authority to do what it is doing. But accepting a position is not the same as agreeing to a position. The BIA has been unequivocal in its position that it does not agree with the government’s position on this matter, and to suggest that we do would not be accurate. Our purpose for our public pronouncements have not been to get the government to change it’s mind, although we believe that to be the in the best interest of the public, but our reasons are simply to educate and inform our clients as to the impending change and what that will mean for them going forward.”
During the press conference, the insurers used a pamphlet to explain: “Before April, Dr. Sweeting advises Shanelle that her medical procedure will cost $10,000 plus VAT and her share after insurance is $2,000 plus VAT. Shanelle pays $2,000 plus VAT for a total out of pocket of $2,200. Shanelle’s insurer pays Dr. Sweeting $8,000 plus VAT for a total of $8,800.
“After April 1, however, with the DIR’s rule change, Shanelle is now responsible for the total VAT on the $10,000 medical procedure. Shanelle now pays $2,000 plus VAT of $1,000 to Dr. Sweeting. Shanelle’s insurer pays Dr. Sweeting $8,000.”
Chairman of the BIA’s Health Insurance Committee Marcus Bosland said insurers are not concerned about how this impacts the industry, because it won’t have a significant impact. He said the concern is solely about the Bahamian consumer.
“Like any other company selling taxable products, insurance companies are currently able to recover VAT paid on health insurance claims, so that clients’ VAT burdens are only the VAT paid on their premiums. The DIR intends to stop insurance companies from being able to recover the VAT paid on health insurance claims. This will mean that in addition to paying VAT on their premiums, clients will now also be responsible for paying all of the VAT on their underlying medical services,” he said.
“The DIR has rationalized this change by arguing that medical services received is between the health service provider and the insured. The DIR’s new position takes not account of the fact that the purpose of health insurance is to pay insureds’ health expenses, and instead treats them as two independent services. The BIA has argued that health insurance is a means of financing healthcare and it is unreasonable and illogical to ignore the linkage between the two, as both health insurance and health services are taxable.”
The BIA warned that this applies across all medical services, including lower cost procedures like physical therapy as well as prescription medication.