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Tax hike dampens demand for private medical cover

Tax hike dampens demand for private medical cover

A hike in the insurance premium tax (IPT) has been blamed for a slight slowdown in the UK market for private medical cover during 2016.

The £4.83bn market suffered a small decline of 3,300 subscribers (0.1 per cent) to reach 4m subscribers at the end of the year.

This followed solid growth in 2015, according to the latest Health Cover Report from healthcare consultant LangBuisson.

It comes after the government doubled the IPT from 6 per cent to 12 per cent between November 2015 and June 2017.

Alongside the tax rise, political and economic uncertainty created by the UK’s decision to leave the European Union also helped to quell demand, LangBuisson said.

Meanwhile, small (0.6 per cent) growth in corporate medical cover policies in 2016 took the number to 3.09m, covering 5.42m lives (8.3 per cent of the population).

A 2.2 per cent contraction in individual paid policies to 928,000 - a similar fall to those witnessed in the previous three years – means they now cover 1.47m people (2.2 per cent of the population).

Static demand for private medical cover in 2016 contrasted with buoyant demand for private healthcare from self-payers, with ‘pay as you go’ spending currently growing by 10 per cent per annum.

Health cash plans – a low cost medical cover option – dipped by 0.2 per cent to 2.52m, covering 3.43m people, or 5.2 per cent of the UK population.

Employer demand for such policies surged by 11.8 per cent to 1.01m at the end of 2016, while health cash plans funded by individuals (employee paid and personal paid) dropped 6.8 per cent to 1.51m.

Report author Philip Blackburn said: “The uncertain economic landscape triggered by Brexit snuffed out the whiff of optimism from corporate private medical cover growth in 2015, and future significant growth is likely to need a solid upturn in business confidence from corporate Britain."

He added that the decline in overall demand for private medical cover from individuals was largely due to “the high price of medical cover, and consistent premium increases well above inflation”.

Mr Blackburn continued: “The challenge insurers’ face to turn this around was dealt a heavy blow when HM Treasury doubled Insurance Premium Tax…leading to sharp upward pressure on premiums for insurance customers, and a significant tax burden going forward.”

Chief executive of Bupa Insurance Alex Perry added: “The lack of growth in the health insurance market last year highlighted in today's LaingBuisson research reflects the impact of several increases in IPT. 

“The sharp rise in IPT from 6 per cent to 12 per cent is making it harder for people to pay for independent healthcare for themselves, their families or their employees.
 
"We have warned about the impact of further tax increases – which will load more demand onto already overburdened public healthcare services. The government should be supporting those who are alleviating pressure on the NHS by using health insurance, not penalising them with further tax costs."

simon.allin@ft.com