A study into IPT surges on health insurance demand

Insurance Premium Tax (IPT) has been levied on health insurance since 1995. The rate of IPT has increased from an initial rate of 2.5% of premiums and is currently 12%. This is a significant addition to private medical insurance (PMI) premiums.

IPT has the potential to influence choices make by individuals and employers about their PMI. Most directly, IPT is applied in proportion to premiums so, other things equal, increases in IPT feed directly through to higher prices. This may impact overall demand for PMI. Analysis suggests that increases in IPT have impacted demand for PMI, leading some to switch away from health insurance. Our work also investigated the extent to which the differential application of taxes might impact decisions about PMI.

For example, many employers have moved to Healthcare Trust models, which are treated differently to PMI for tax purposes and it is possible that increases in IPT have precipitated this shift. As well as looking at the impact of alternative taxation scenarios on future demand for IPT, we also also examined the overall burden of taxation on employer-paid and individual-paid PMI in the UK compared to other markets in the EU and Australia.