Xerox HR Services' Simon Crewe says the increase to Insurance Premium Tax (IPT) can instead be viewed as an opportunity for clients to future proof their healthcare benefits.
When the increase in IPT from 6% to 9.5% with effect from 1 November 2015 was announced last year the benefit industry reacted with an array of negative predictions for the private medical insurance market - none of which have come to pass.
I am not suggesting that employers were happy about paying an increased premium, but we didn't see a long line of companies asking for their schemes to be cancelled as the 3.5% cost increase was too much to bear.
We did, however, see a number of clients investigate Healthcare Trusts as an option, but ultimately the fervour died down and very little has actually changed.
So, here we are again. The Chancellor is looking to increase tax revenue and has looked to a further increase in IPT as an easy option.
The new increase from 9.5% to 10% from 1 October 2016 is lower than feared, but still a big hike from the standard rate of 6%, which was the rate some eight months ago.
The increase, to help fund the UK's flood defences also means we have the joint highest tax on healthcare in the EU, matched only by Greece.
I think we should stop focusing on the areas of cost where we have no control and start focusing on the areas where we do.
We are not going to stop the Chancellor from using the IPT as a source for income, but we can have an impact on the overwhelming majority of scheme costs that are not within his grasp.
This small increase to basic rate IPT is unlikely to cause knee jerk reactions with employers looking for a quick fix by reducing benefits.
It might act as a catalyst for employers to start changing the benefit landscape and investing to meet the future needs of employers and employees.
Companies should take this opportunity to ‘future proof' their benefits:
• review existing arrangements - potential to offset IPT increase but reduction in cost of other benefits
• invest in new wellbeing strategies - every £1 invested in wellbeing can deliver up to £3 of savings in the future.
• challenge the insurers to deliver efficiencies and innovate products that target prevention as well as treatment - any reduction in the overall claims costs will reduce IPT burden
• introduce robust tools and processes to reduce absence costs
• feasibility studies to review private medical funding options
Companies should see this as an opportunity to take a fresh look at their overall benefit spend.
By using a combination of product innovation and expert consultancy, they should be able to provide a more effective and efficient benefit proposition, easily offsetting the increased costs of IPT.
Simon Crewe is a consultant at Xerox HR Services
