Time to stop taxing health Insurance in New Zealand

By in Opinion

The release of the 2015 Wellness in the Workplace Survey in New Zealand alertered Kiwi businesspeople to a costly fact – around 6.7 million working days were lost in 2014, due to workplace absence.

This is nothing new, back in 2011 a United Nations (UN) meeting on non-communicable diseases called for interventions to include: “the provision of incentives for work-site healthy lifestyle programmes” and for the private sector to: “promote and create an enabling environment for healthy behaviours among workers.”

Recommendations included the provision of workplace wellness programmes and health insurance plans for employees where appropriate.

This, along with the Wellness in the Workplace Survey, provided backing for one part of New Zealand First MP Barbara Stewart’s Affordable Healthcare Bill, which went to the New Zealand parliament on 2 December 2015 and was unfortunately voted down.

The Bill proposed to remove the Fringe Benefits Tax (FBT) on health insurance, in order to encourage employers to pay for health insurance as part of their employees’ compensation package.

Only about a third of New Zealanders currently have healthcare insurance, and the number of employer group schemes is very small. Currently, the cost of FBT on healthcare premiums is approximately 43% of the GST inclusive cost – a significant factor for employers.

But as the Wellness in the Workplace Survey points out 56% of employers would consider purchasing health insurance if FBT was removed.

While the UN’s political declaration was universally adopted by member states, New Zealand lags behind in taking action – the parliament’s unwillingness to pass this important Bill is testament to this.

So what is New Zealand doing to promote healthy lifestyles?

New Zealand’s new Health and Safety at Work Act comes into effect on 4 April 2016. But where is the “health” aspect of the Act?

The Act talks about safety rather than health, and does nothing to move New Zealand closer to meeting the 2011 UN declaration. In fact, the language in the Health and Safety at Work Act repeatedly states that action should be taken: “so far as is reasonably practicable”.

Surely removing the FBT on health insurance would have been an entirely simple and practicable solution?

If health isn’t important to the government, then surely productivity is?

A June 2015 New Zealand Productivity Commission Working Paper states that there is little evidence of New Zealand’s productivity catching up with other OECD countries.

The abolition of the FBT on health insurance would have offered an easy win, as improved healthcare access would make a real difference to productivity.

Employees with private health insurance have access to faster healthcare treatment, and are less likely to avoid proactive visits to the doctor.

Yet younger people, in particular, often don’t have medical insurance.

Anecdotal evidence suggests that costs, possible ignorance of the benefits of insurance, and a youthful feeling of invincibility, are the reasons.

Moreover, due to the high cost of health insurance, it’s often the more vulnerable and lower paid who are at the greatest risk.

The Productivity Working paper estimates the cost to companies for the average annual absence of 5.1 working days is $616. However William Buck Christmas Gouwland’s internal estimates suggest the cost to be over $250 per day for each sick day, without including the unrecoverable inefficiency cost of moving work to another team member.

So why is health insurance singled out for the FBT vs. other health initiatives? Particularly when the costs of complying with health and safety obligations, and the provision of flu vaccinations, are exempt.

The New Zealand government has encouraged other positive behaviours through tax incentives; the recently removed kick starter for KiwiSaver being a good example. So why is health insurance not encouraged?

In fact, we could even go a step further and consider removing the FBT on other proven employee wellbeing initiatives, such as gym memberships.

An Australian Medibank Private report in 2005 concluded that “Employers have a unique opportunity to improve the health and wellness of their staff, improve worker performance and reduce sickness leave,” while a 2010 University of Utah study suggests that teaching mindfulness improves employee resilience.

Multiple studies have demonstrated that exercise leads to reduced incidences of depression, improved stamina and reduced obesity and risk of cardiovascular diseases. Other studies point out the obvious – that employee exercise programmes increase the amount of exercise employees take.

The benefits are clear for employers, removing the FBT on health insurance and gym memberships will boost productivity.

And while a change would have reduced the government’s FBT revenue, its coffers would have gained through increased PAYE collected on the additional days worked, and considerable savings for the public health system.

Importantly, with a rapidly ageing population, the health system will be under increased pressure in the future –enrolling younger people without pre-existing conditions would ease this problem.

The cost of health care is rising around the world, and just like having a good savings plan, the sooner employers and the government take action, the sooner they – and everyone else – will benefit.

1 Comment

  1. Ben 5 years ago

    I cannot agree more… disincentives toward self-finding of health expenses are ludicrous. What the govt makes here in tax they loose may times over at the other end.

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