Muted jubilation in the PMI industry, but disappointment for group risk.
That is the reaction from the benefits community to the findings of the Frost / Black review into long term sickness absence. The inclusion of £150m of tax relief to lift the P11d burden from basic rate taxpayers on products or services that offer vocational rehabilitation has been met with a guarded welcome, with some thinking this could lead to product developments that could stimulate new areas of growth for the industry.
But when it comes to group income protection, it appears the reviewers were not impressed enough by its latent benefits to propose tax breaks to help employers see the light.
At a headline level, the proposals in the report are groundbreaking. Offering tax breaks for private medical insurance of any kind offers critics of those introducing it an easy soundbite. But the breaks are introduced with strings attached – they appear to suggest the lifting of P11d charges would only apply to basic rate taxpayers. The NHS may be a political hot potato, but this may be enough to get round the issue,
Alex Perry, director of healthcare provisioning, Bupa says: “You can argue that the recommendations are designed to make available to lower paid workers the sort of rehabilitation services that are usually aimed at higher paid staff.
Concerns over the political risk of introducing such a policy will be at the forefront of ministers’ minds as they digest the findings of the report, as too will the battle between the Treasury and the relevant Department, in this case Work and Pensions, that goes hand in hand with any request for tax relief.
Offering tax breaks for private medical insurance of any kind offers critics of those introducing it an easy soundbite
Employment relations minister Edward Davey certainly gave the report a strong endorsement at its publication. He said: “This is an important review which will help tackle the problems faced by business and individuals. Managing sickness absence more effectively will be a win-win situation for all – businesses, individuals, the taxpayer and crucially, the economy. It could improve productivity, boost growth and mean that many more people no longer have to rely on taxpayer handouts.”
But if the industry wants to give policymakers every opportunity to back the report’s findings it needs to come up with a coherent vision of how vocational rehabilitation products can work. Central to that challenge is deciding what criteria there would need to be for vocational rehabilitation benefits to qualify for tax relief, or perhaps more accurately, the reduction of tax burden.
Axa PPP healthcare, which already offers its Back to Work solution that sits in that same territory Frost and Black are talking about, believes that several criteria should be met if tax advantages are to be earned – that the condition is preventing the employee from working or carrying out their normal duties; the condition is not treatable by self-medication; the condition is not treatable by a GP; the condition is not sufficiently serious to warrant emergency treatment through the NHS and the absence from work will continue without specialist treatment and/or the condition will worsen, resulting in further absence.
Axa PPP healthcare sales & marketing director James Freeston says: ”It may be possible to offer lower cost versions of vocational rehabilitation cover by excluding from benefit treatment of medical conditions, such as cancer, that the NHS already manages to treat in a relatively timely fashion. Applying the six week rule might also be helpful in this regard.”
Axa PPP points out that the two main causes of long term sickness absence – MSDs and psychological problems – are conditions that the NHS continues to struggle to treat in a timely fashion, yet are areas where the private sector could make a big difference.
“Indeed, it should be possible for underwriters to introduce lower-cost policies that concentrate specifically on paying for treatment of these types of conditions only,” says Freeston.
Katharine Moxham, spokeswoman for Group Risk Development believes the proposals, if brought forward into legislation, would potentially lead to PMI providers segmenting their products into tax-relieved and non-tax-relieved parts.
“We could see PMI written in two halves, with no P11d charge on the part that relates to getting them back to work. If you look at what PMI covers, it is a back to work tool that has evolved into a perk.”
Separating policies into two halves could be used as a way to get round the system, she believes. Moxham cautions: “I can see this being used as a way of encouraging people to take out private medical insurance through the backdoor.”
If the rehabilitation industry wants to give the ideas in the Frost / Black report the best chance of becoming legislation, it needs to develop robust models to allay these concerns pretty quickly.