The Tribune

• Gov’t aims to make it ‘work for everybody’

• No tax treatment change before Budget

• Doctors: ‘Disservice’ if patients go abroad

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official says “everything is on the table” with VAT-related reforms, which could have raised medical costs for thousands of insured Bahamians, now not proceeding prior to the Budget at end-May.

Simon Wilson, the financial secretary, told Tribune Business that the Davis administration was keen to ensure the proposal - which would effectively switched the liability for paying VAT on health insurance claims payouts from the insurance companies to patients - “works for everybody”.

As a result, it had deferred the planned April 1 implementation, which would have prevented insurers such as Colina, Family Guardian and CG Atlantic Medical from treating the VAT on claims payments as an ‘input’ expense and netting it off - or recovering this sum - against the 10 percent levy paid by patients on their healthcare

The delay will allow the Government to engage in further consultation with impacted industries, including the Medical Association of The Bahamas (MAB) as well as the Bahamas Insurance Association (BIA), and conduct further research on the issue in a bid to develop a revised position acceptable to all parties in time for when the 2023-2024 Budget is unveiled in Parliament on May 31.

Mr Wilson, speaking after he chaired a meeting with MAB representatives as well as insurers and their regulator, the Insurance Commission of The Bahamas (ICB), on the matter last Wednesday, confirmed that this newspaper’s understanding of the situation was “accurate”.

“We said we have to consult with all the parties,” he said of the current position. “What we said to them is everything is on the table. We have to take a good look at it and then move forward. We’ve got to deal with it. It’s something we’ve just got to deal with, and make the best of the situation. We have just got to make sure that it works for everybody.”

Mr Wilson added that the deferred implementation does not mean the Government is “abandoning” its plans to change the VAT treatment of health insurance claims payouts. However, the delay will give the MAB, which represents the private physicians and doctors, an opportunity to provide feedback on an initiative which - despite having potentially major consequences for their patients and business models - has not sought their views to-date.

Dr Cindy Dorsett, the MAB’s president, told Tribune Business that the Association was not taking a position on who was right - the Government, or the BIA and its life and health insurance members - over how VAT should be applied to health insurance claims payments and the potential consequences for patients.

She added, though, that it was critical that The Bahamas do nothing to increase treatment and medicine costs for thousands of middle class Bahamians with private health insurance. And she warned it would be “a gross disservice” to local medical professionals if such increased VAT and healthcare costs drove their patients to seek treatment abroad and bypass the local industry.

“Some of our main concerns were the clients themselves, the insureds themselves,” Dr Dorsett told this newspaper. “We don’t want more of a burden in terms of them having to pay a greater cost for any type of healthcare service, whether it’s with the medical doctors, dentists, physiotherapists or pharmacies - anyone who accepts insurance.

“We don’t want them to have to carry a greater burden, paying the full burden or more VAT. We want them to be able to come to the dentist, the physiotherapist with a lighter burden not a heavier burden.” Increased costs could prompt some persons to delay seeking critical treatment, or not access it all, and Dr Dorsett also voiced fears that any increase in the patient’s burden could drive Bahamians overseas - especially for more expensive surgeries and tertiary forms of care.

“We don’t want the insureds to look for a fair price that may mean they go to the US and other countries for service,” she added. “That would be a gross disservice to physicians. At the end of the day, you would be moving money out of the country and VAT would not be collected for the benefit of the country.

“We also have to look at administrative costs in all the scenarios. It’s going to change the way we collect VAT, and make it much more tedious at the point of service. These are things we need to sit down and look at and balance, so no major stakeholder, as much as we could, is negatively impacted. We’re not running from the fact that VAT needs to be collected. We’re saying: Let’s sit down at the table and look at everyone’s point of view.

“It’s normally the middle class that have private health insurance. They’ve gone out of their way to make sure they are covered by private insurance. It takes some of the burden off of the Government. We cannot go back, at the end of the day, and put a greater burden on this class. It’s been working this way. We want to keep our valued clients, and ease the burden of healthcare delivery straight across the board.”

Dr Dorsett confirmed that “everything remains status quo” on the VAT treatment of health claims payouts with the planned change on April 1 no longer proceeding - for now. She made clear that concerns raised by doctors and MAB representatives at a previous meeting with Michael Halkitis, minister of economic affairs, had influenced the Government’s approach.

“Mr Wilson openly stated that certain things were brought to light, and we pointed out certain thing that put us at a disadvantage,” she said. “He agreed that was not what they had hoped for, and that they would defer it and do further research.

“I thought that was an extremely good stance for him to take. It’s definitely a step in the right direction. They’re going to go back and look at it. When they finish, they will go and send the information to the Insurance Commission of The Bahamas, and the Insurance Commission of The Bahamas will further consult with the BIA and the MAB.” Dr Dorsett said it was vital that the Government understand any impact the proposed VAT reform will have at “the point of service”.

Insurers have previously warned that the VAT treatment change, by making patients liable for the full tax on their cost of treatment rather than just the 20 percent co-pay, would have to find thousands of dollars that they presently do not have to pay to cover hospital and tertiary care costs.

Tribune Business was previously shown two examples of how the changed VAT treatment will impact medical bills of varying sizes. The first involved a patient requiring $2,000 worth of treatment, with their ‘out-of-pocket’ costs pegged at $250. Under the present tax treatment, they only have to pay VAT worth $25 (10 percent) on that $250 share, leaving their share of the medical care expense at $275.

Yet, when insurers are unable to reclaim the VAT on their share, the patient will now also be liable for paying the 10 percent levy on the $1,750 claims payout. This will add a further $175 to their bill, taking the total amount they must fund to $450 - a 63.6 percent increase in their financial burden.

The sums and percentage increases become greater the higher the cost of care. The final example involved a patient who requires a five-night hospital stay that incurs $12,500 in medical bills. The ‘out-of-pocket’ expense is $500 and, under the current structure, the patient will only pay 10 percent VAT on that latter sum, incurring $50 in tax and taking the total payment to $550.

However, under present plans to change the VAT treatment, the patient will also have to pay the VAT levied on the insurer’s $12,000 claims payout. That will amount to $1,200, taking the patient’s own payment to $1,750 - a more than three-fold increase from what his/her financial exposure would be currently.

One insurance source, speaking on condition of anonymity, said of the Government’s revised approach: “The penny seems to gave dropped. If you were going to have open heart surgery, you’d have to come up with $50,000 [to cover the VAT] before anything happens. If people have insurance, they will go abroad rather than put up $50,000.”

Marcus Bosland, the BIA’s health insurance committee chair, told Tribune Business the Government had given no commitment that the issue will be dealt with or included as part of the upcoming May Budget. “It was stated in the meeting by Mr Wilson that the previously planned change to VAT that was planned for April 1, it will not happen on that date and has been deferred. He did not specifically say there will be a change around the Budget,” he added.

Besides promising to put it in writing to the BIA that there will be a deferral, Mr Bosland said: “The other thing he committed to do was have some discussion around VAT on insurance. We have no idea what the contours will be for that discussion. They did say they would look to make a decision as part of the Budget process, but exactly what that looks like at this point we don’t know. They do intend to consult with us prior to making whatever announcement will be made.”

Asserting that the VAT health claims deferral is “in the country’s best interests”, he added: “We definitely don’t know if they’ve changed their mind completely, so we’re still guardedly optimistic that the discussion will lead to something that makes sense for our clients. The VAT doesn’t affect us directly; it will be paid by our clients..... In that regard, we don’t think increasing taxes on our clients makes sense...

“That’s our concern. It increases costs for our clients that seek medical care here, and we don’t think that’s fair given that clients already pay VAT on the premium. We don’t believe they should pay VAT on all underlying claims as well. We think the 10 percent they’re paying on the premium is a fair VAT bill, and they shouldn’t have any additional burden on their insurance.

“Our view is that the Government feels it’s not getting enough VAT receipts. The reality is health insurance is a very low margin product. It’s very expensive because the underlying medical care is very expensive. The value add on health insurance is not that great because of the small margins,” Mr Bosland continued.

“Maybe from the Government’s perspective they believe the margins should be higher, and thus the VAT receipts they get directly from us will be higher as well. It’s always been low margins. The value add is not that much. A lot of that medical care is care people would not be able to afford if they didn’t have insurance. The amount the Government gets directly from us as opposed to medical providers is small because the margins are small. That’s simply a feature of the business.”

The Insurance Commission of The Bahamas’ annual report for 2021, containing the last set of available data, shows that almost $206m worth of health claims were paid by Bahamian insurers that year. That was split into $175.202m on behalf of group clients, usually businesses providing coverage for their employees, and $30.716m for individual policyholders. Most of that $206m would have been spent at home due to the COVID restrictions that were in place at the time.

The Ministry of Finance’s position is it is “clearly against the VAT Act” for insurers to claim back the 10 percent levy on medical claims payouts by netting it off against the VAT paid on the premium - a practice allegedly costing the Public Treasury millions of dollars. Its 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.