The Tribune

• Pharmacy owner fears rising patient 'burden'

• Minister: Enforcing rules won't raise premiums

• Says 'won't get argument from BIA' on legality

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Democratic National Alliance (DNA) leader is blasting the Government's "misguided decision" to change the VAT treatment of health insurance claims payouts, arguing: "You can't get water out of a stone."

Branville McCartney, whose family owns and operates Wilmac's Pharmacy, told Tribune Business in a recent interview that the Ministry of Finance's decision to stop health insurers recovering the VAT levied on claims payouts will impact pharmacists and the entire Bahamian medical industry by raising medicication and care costs for patients.

He fears the move is set to impose "more of a burden on patients", who will become responsible for paying the full VAT bill associated with their healthcare costs - not just the small portion that they currently cover. And Mr McCartney branded the action as the latest step in "a consistent attack on the pockets of Bahamians" by both PLP and FNM administrations.

Michael Halkitis, minister of economic affairs, yesterday refuted suggestions that health insurance premiums will increase as a result of the Government's decision to "enforce the rules" and prevent insurers from recovering VAT levied on medical claims payouts. That is likely correct.

However, the changed VAT treatment also means Bahamian patients will face a greater cost burden when paying for pharmacy medications, doctor visits and treatment/procedures at all healthcare levels up to hospital care using private health insurance. This is because they will now be responsible for 100 percent of the VAT due on the care they receive from April 1, 2023, not just the tax levied on the co-pay as it stands now.

Co-pays account for around 20 percent of total medical costs. As a result of the changed tax treatment, patients will now also be responsible for paying VAT on the 80 percent of their bill financed by private health insurers rather than just what is levied on the co-pay. This will substantially increase consumers' share of the cost burden, and is a separate issue from whether health insurance premiums will go up.

"The Government is doing it again," Mr McCartney blasted. "They seem to have failed to consult with the medical community regarding the issue. For the life of me I don't understand why they go down this road. It's putting more of a burden on patients, the customers. I don't understand the reasoning behind it."

Besides forcing pharmacies and other medical practitioners to adjust their systems, as they will now have to collect VAT on medical claims payments and remit it to the Government once insurers can no longer recover it, he added: "It's a blow. Persons will be able to get insurance, but paying the full VAT is going to be a deterrent.

"Unfortunately, it's another misguided decision made by the Government without full discussion with the medical industry, which is to the detriment of the Bahamian public. They may be able to continue to purchase medical insurance, but when it comes down to having medications and procedures, they will now have to pay 100 percent VAT - 80 percent on the insurance, and 20 percent on the co-pay.

"Why? Why? Bahamians can only take so much. You're not going to be able to get water out of a stone at the end of the day, and this is what is happening. I don't know who is advising the Government. They keep on doing the same thing without consulting the professionals and related industries prior to coming up with such practices that work to the detriment of the Bahamian people," Mr McCartney continued.

"What are they trying to do? What is the method to their madness? Seriously, what is the method to their madness? It seems like they are just shooting in the air and hoping something sticks. The impact is based on the fact patients are going to have to pay 100 percent of the VAT - you pay it on the co-pay, and pay 80 percent on the insurance claim.

"What the hell? Can't they find some other way to try and raise money for the country? It's seems like it's a consistent, consistent attack on the pockets of the Bahamian people coming out of the pandemic, coming out of Dorian. It's a consistent attack on the pockets of the Bahamian people.... the PLP, FNM and everybody else. I don't understand it." He added that raising money by taxing persons is "the laziest way in the world".

More than $206m worth of health insurance claims were paid by Bahamian insurers in 2021, the last year for which data was available, which suggests the Government could earn somewhere in the region of $20m per annum from the new treatment. The Davis administration is arguing that the changed VAT treatment, set to take effect from April 1, 2023, is merely bringing the sector back into line with the law.

The Ministry of Finance is arguing that it is “clearly against the VAT Act” for insurers to claim back the 10 percent levy on medical claims payouts - a practice allegedly costing the Public Treasury millions of dollars. It added that one audit of an unnamed health insurance provider in 2021 showed it had “received over $20m illegally” through this mechanism.

Its, and the Department of Inland Revenue’s position, is that VAT is payable on medical insurance claims payouts because these are being made on behalf of the end-user - the consuming patient - and thus should attract the tax. Health insurers are currently claiming this as ‘input’ VAT, offsetting it against their ‘output’ tax on premium, which effectively allows the likes of Colina, Family Guardian and CG Atlantic to claim it back from the Government.

Mr Halkitis, yesterday addressing push back from individual insurers and their trade body, the Bahamas Insurance Association (BIA), said it was "not the case" that the changed VAT treatment by itself will increase health insurance premium costs.

Referring to the audit of that health insurer, he added that the company's interpretation of how VAT should be applied to health insurance claims payouts was "not in accordance" with the VAT Act. "That insurer was using VAT paid on medical bills as an input to reduce the amount of VAT paid to the Government," Mr Halkitis explained. "We found that, discovered that and what we decided was we would ensure was that companies apply the rules as intended in the legislation."

He added that the changed VAT treatment was supposed to take effect from July 2022 but, after a series of consultations with the BIA, this was pushed back through several other dates to the industry's suggested timeline of April 1, 2023.

"That this will lead to an increase in premiums, and tying that to the feet of the Government, we don't believe that's the case," Mr Halkitis said. "This is not a new tax. This is just that we are ensuring the deductions are treated in accordance with the law. We will be monitoring the impact and ensuring the rights of consumers are protected, and we will do what we have to do with that."

The minister added that the Government could have sought to recoup past VAT that was recovered by the insurance industry, which he valued at "millions", but said the Davis administration plans to be "forward looking" and only collect it moving forward.

Asked whether the sector's VAT approach was tantamount to fraud, Mr Halkitis said: "I wouldn't use that strong a term. I think it was just a misapplication of the rules. I wouldn't use that term. We want to ensure the rules are being applies as the law says. I don't think you'll get any argument from the BIA that that's what the law says."

He added that the Government is "not taking on", and not accepting, assertions that its drive "to apply the law as it stands" in relation to VAT on medical insurance claims payouts will cause a premium increase for consumers. Mr Halkitis said there are many factors that raise premium prices, including the claims history associated with particular policies.