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This tax measure brought in €57m more than expected, but was it fair?

A cap on tax relief on health insurance brought in €151 million.

FIANNA FÁIL HAS criticised the government after it was revealed the coalition made €57 million more than expected in the first year a tax relief cap on private medical insurance was introduced.

The measure brought in €151 million in 2014, after being introduced in that year’s budget. The figures for last year are not yet available.

Fianna Fáil has said the fact that €57 million more than planned was made from the measure proved it was unfair for tens of thousands of taxpayers.

In October 2013, the government announced it was capping tax relief at source to a gross premium of €1,000 per adult and €500 per child on all health insurance policies. Previously, the tax relief was 20% of the gross premium, with no cap. Tax relief continued to be granted at 20% on the amount eligible.

Fianna Fáil’s finance spokesperson Michael McGrath noted that, at the time, the government said the change would only impact “gold-plated” health insurance policies.

We can now see that this measure was in fact a massive financial hit for tens of thousands of ordinary taxpayers who provide for their families’ wellbeing by taking out medical insurance. Older people were especially hard hit by this change.

“In fact the financial loss to policyholders, as a result of this measure, was 60% higher in 2014 than originally indicated in the budget documentation. Even basic policies, which provide far less cover than those referred to by the minister, have seen their tax relief slashed.” McGrath said.

24/11/2015 Credit Union Bills Michael McGrath Source: Photocall Ireland

Last year Finance Minister Michael Noonan was asked by party colleague Eoghan Murphy if he would reverse the move.

At the time, Noonan noted that the commission on taxation’s 2009 report recommended the retention of medical insurance relief in a limited capacity – something achieved by the measure.

It is unfair and unsustainable to allow unrestricted tax relief on private medical insurance premiums, particularly at a time when the general population has contributed so much to repairing the public finances. However, the new ceilings ensure a level of continuing support via the tax system for those who purchase medical insurance policies, while reducing exchequer exposure to more expensive policies.

“The cost of income tax relief in respect of medical insurance increased significantly in the years leading up to Budget 2014, estimated at €404 million in 2011, €448 million in 2012 and €463 million in 2013. Despite the increasing cost of the relief, the numbers insured were estimated to have reduced by approximately 150,000 over the same period, while at the same time the level of medical cover decreased on some policies.

Against this background the increase in costs was unsustainable. If the relief had remained unchanged and the trend was to continue, it was estimated that the cost would have increased to approximately €1 billion per annum by 2020.

Universal Health Insurance 

McGrath added that the “exodus” of people driven out of the private health insurance market due to increasing costs was halted last year by the introduction of lifetime community rating.

However this may only prove to be a short-term reprieve given the announcement last year that the government has abandoned the idea of universal health insurance.

In November, Health Minister Leo Varadkar told the cabinet the original model for UHI had to be scrapped due to spiralling costs.

“The premiums that are proposed are far too great for any family to pay or the exchequer to fund if we were to go down the list of subsidies,” Varadkar said at the time.

The government has said it remains committed to the principle of universal healthcare that is funded “through a form of UHI”.

4/1/2016 The Minister for Health Leo, Varadkar TD, Leo Varadkar Source: Mark Stedman

In November a spokesperson stated: “Building on the reforms already put in place, we will continue to move away from the wasteful, inefficient and unfair approach to health service provision that we inherited from the previous government.

This must be done in a way that is affordable for both taxpayers and buyers of health insurance.

Varadkar said there are other models of UHI that are “deliverable” but not within the lifetime of even the next government.

“We need to build on the reforms we’ve made already in primary care and social care, extending free GP care to other children, continuing to expand care to the elderly and also crucial financial reforms like money follows the patient, activity-based funding and also dismantling the HSE … but all of those things are going to take five or more years to do.”

- with reporting from Hugh O’Connell

Read: If universal health insurance isn’t dead, then when on earth will it actually happen?

Read: Getting paid today? Michael Noonan has sorted it so you won’t pay extra USC

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