Claire Ginnelly: What to consider with the rise in insurance premium tax

Premier Choice Healthcare (PCH) Headshots - by James Rudd at Silverstone Golf Club, Towcester, Buckinghamshire, England, on 03 February 2015. Copyright 2015 owned by James Rudd

In the Summer Budget 2015, Chancellor George Osborne announced that the standard rate of insurance premium tax (IPT) will increase from 6% to 9.5% from 1 November 2015.

IPT is a tax on insurers and is added to general insurance products, such as car, home and travel cover, as well as private medical insurance and health cash plans. This means that, from November, premiums on these products will increase accordingly. So, what are the main considerations employers should be aware of?

Employers with a workplace healthcare scheme need to understand how the rise will affect their business specifically, because the extent of the impact will vary from organisation to organisation, depending on a number of key factors.

Different insurers have varying accounting systems, which means they may have to apply the IPT in different ways. In addition, some insurers are taking a commercial decision to absorb the increase until a policy has renewed.

What, then, are the key pieces of advice the Association of Medical Insurers and Intermediaries (AMII) would give to employers?

First, employers should talk to an independent intermediary for advice specific to their organisation. Every business will need to prepare for the changes in different ways and will have a variety of influencing factors, so it is essential employers talk to a specialist for tailored advice.

Organisations can also explore options for mitigating the impact of the rise in IPT. There are ways in which premiums can be reduced to ease the impact of the changes, for example, through an adjustment in cover, hospital list or excess options.

For larger schemes, it may be worth considering a trust. Certain healthcare schemes fall outside of IPT and this may be a more tax-efficient route.

Finally, do not forget that private medical insurance and health cash plans still represent excellent value for money. A big concern is that employers will automatically cancel their scheme in response to these changes without exploring the options available. However, with an ageing population and increasing levels of chronic illness, it has never been more important to be aware of the various health scheme options available for organisations.

Most importantly, employers should seek advice from an expert if they are unsure about the best option for them and want to keep healthcare within budget while still providing valuable cover to employees.

Claire Ginnelly is an executive committee member for the Association of Medical Insurers and Intermediaries (AMII)