The Tribune

• Too many ‘living on edge’ for medical bill hike

• Broker chief: Claims payout levy is ‘cash grab’

• Doctor: Patients face being ‘royally screwed’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-prime minister yesterday accused the Government of being “penny wise and pound foolish” over the imminent change in VAT treatment of health insurance claims payments.

Dr Hubert Minnis, asserting that he “would not have gone down that road”, told Tribune Business that medical bills for the thousands of Bahamians with private insurance will inevitably increase due to the Ministry of Finance’s decision to stop insurers recovering from the Government the 10 percent VAT levied on claims payouts.

Suggesting that the VAT will be passed on to patients, either partially or in full, he argued that many Bahamians already “living on the edge” due to soaring inflation will likely react by either dropping their private health insurance coverage or making other “sacrifices” such as foregoing more expensive, healthier meals. The end result, Dr Minnis argued, would be a sicker population that delayed treatment and medications, while further burdening a strained public health system.

The Ministry of Finance, in its response to criticism levied by the Bahamas Insurance Association (BIA), accused the industry body of seeking to “unnecessarily alarm consumers” about the resulting cost impact from the changed VAT treatment. It described the effects as “insignificant”, and said the change was necessary because allowing insurers to reclaim VAT on claims payouts breaches the law and is depriving the Public Treasury of millions in vital revenues.

However, the BIA’s position received support yesterday from others besides Dr Minnis. Bruce Ferguson, the Bahamas Insurance Brokers Association’s (BIBA) president, told Tribune Business he and his members view the changed VAT treatment as “a cash grab” by the Government that will either force health insurers to raise their premiums or pass the full VAT costs on to their clients - the end-user or the patient.

And Dr Conville Brown, principal of The Bahamas Heart Centre, Cancer Centre Bahamas and The Medical Pavilion Bahamas, told Tribune Business that the move will result in Bahamians “getting royally screwed” through a further increase in the cost of healthcare.

Agreeing that the changed VAT treatment, and its impact, will make healthcare less affordable and accessible to more Bahamians, he added: “We say the health of the nation is the wealth of the nation. Why are we taxing the health of the nation?” Dr Brown also voiced disquiet over the Government’s seeming failure to consult doctors and other medical practitioners on the change and its ramifications.

Dr Minnis, meanwhile, said the social and health-related costs associated with increasing the VAT burden on private medical bills would outweigh any revenue benefits for the Government. “The costs will go up and the Government, in Bahamian terminology, will be penny wise and pound foolish,” the ex-prime minister, himself a physician, said.

“Yes, the Government will increase their own revenue, but in the long-run they will be worse than accepting the money. As costs go up, many individuals are living on the edge, especially in these inflationary times. They will sacrifice, drop their insurance, or to maintain their insurance will cut back on healthy meals or buy cheaper foods. It will make them even sicker.

“They drop their insurance, the chronic non-communicable diseases which many Bahamians suffer from, they will advance and progress. Many of these are silent, and many individuals will feel they are well.” Dr Minnis suggested that those who are forced to drop private medical insurance and healthcare, due to the increasing cost of both, will likely seek to avoid using the public system as much as possible due to its well-publicised problems.

They will also cut back on medications, he added, with the end result that they “end up in the emergency room in a worse state and require hospitalisation”, Dr Minnis added. “The hospital is in a mess as it is. The Government is being penny wise and pound foolish... I would not go down a route as to increase taxes on the population. I would not have gone down that route. We must keep healthcare [costs] as minimal as possible”.

The Ministry of Finance, though, 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 premiums and effectively allowing the likes of Colina, Family Guardian and CG Atlantic to claim it back from the Government.

However, the BIA is arguing that the Ministry of Finance is wrong to treat the payment of clients’ medical expenses and the care received from providers as two separate services. Its case is that since health insurance and medical services are both VAT-able, health insurance claims should continue to be tax-deductible for health underwriters, otherwise the Government would be knowingly applying two layers of VAT.

Several sources, speaking on condition of anonymity, suggested that the BIA and its members should challenge the Government’s decision, which is set to take effect from April 1, 2023, before the Tax Appeals Commission. And Mr Ferguson, BIBA’s president, said his members were questioning if the Government is signalling its intent to take over private health insurance in The Bahamas through the National Health Insurance (NHI) scheme.

“Obviously it’s not good news as far as clients are concerned because many are perhaps ‘umming’ and ‘erring’ about whether to continue private health insurance with the Government blowing it’s horn about possibly taking it over,” he added. “With everything else going up, and inflation being so high, this is another 10 percent. If insurers add it on, and I can’t see insurers not adding it on, I hope they are aware of the potential consequences.

“It’s highly likely that insurers, if forced into a corner like that, will actually have to put their premiums up. The timing is very strange. The VAT Act was implemented in 2015, and we’re eight years on and it’s worked very well for the Government since that time. Why this sudden change? Are the Government not raking in enough money already? Quite honestly, we see it as a bit of a cash grab by the Government.”

Agreeing with the BIA that the changed VAT treatment will effectively represent “a tax on a tax”, given that the 10 percent levy is already applied to the premium paid by consumers, Mr Ferguson said the affordability and accessibility of healthcare for Bahamians is of “paramount concern”. Over 100,000 Bahamians and legal residents are thought to have private health insurance, either individually or through their employer.

“You have to wonder if this isn’t part of a softening up process to say to the insurance industry: ‘We can do what we want’,” he mused. “The brokers in our latest meeting were very concerned about what the Government is saying they are doing as that could almost signal the end of the private health insurance industry.”

Dr Brown voiced similar misgivings about the changed VAT treatment for health insurance claims payouts given that the move will likely add to a patient’s financial burden. “The consumer, at the end of the day, is going to get royally screwed,” he told Tribune Business, citing that a patient with a $10,000 bill for medical care will now be faced with finding a further $1,000 to cover the VAT.

“To me, healthcare should not have been VAT-able in the first place; healthcare and medications,” he added. “These things are to do with your very being, you existence. You say the health of the nation is the wealth of the nation. Why are you taxing the health of the nation? You’re now making it less accessible because you’re making it more expensive.

“Every time you do that there’s a segment of the population that is not able to afford it. End of the story. That sounds to me like it’s not been very well thought out. What’s worse is that there’s been no consultation. Every time the cost goes up you find there’s a couple of percentage points of people that cannot afford health insurance.

“I don’t think it should be VAT-able. Period. It should not be VAT applicable. The cost is too high and you’re disenfranchising more and more of your population every time you add a new tax to the healthcare expenses of citizens of the country.”

Dr Brown said those in that category will likely drop into the non-insured category and become reliant on the Government healthcare system. “When you do it on a system that is already struggling I don’t know what you expect the outcome to be other than diminished access and a diminished quality of healthcare services. I’m not sure they’re thinking that through,” he added.