Dáil Éireann Debate, Thursday - 12 December 2013
44. Deputy Terence Flanagan asked the Minister for Finance his plans to reinstate tax relief at source on health insurance policies, in view of the fact that many customers will be forced to cancel their policies as a result of changes announced in budget 2014; and if he will make a statement on the matter. [53440/13]
View answerThe position is as I stated in my Budget day speech, that from 16 October 2013, tax relief for medical insurance premiums has been restricted to the first €1,000 per adult and the first €500 per child insured. Any portion of premium paid in excess of these ceilings will no longer qualify for tax relief. The current system of income tax relief for medical insurance premiums is provided at source at the standard rate of income tax. Therefore, the State was paying 20% of the cost of all medical insurance premiums.
The cost of Income Tax relief in respect of medical insurance has increased significantly in recent years, estimated at €404 million in 2011, €448 million in 2012 and €500 million in 2013. Despite the increasing cost of the relief, the numbers insured are estimated to have reduced by approximately 170,000 over the same period, while at the same time the level of medical cover has decreased on some policies. Against this background the increase in costs is unsustainable. If the relief were to remain unchanged and the trend was to continue, the cost would increase to approximately €1 billion by 2020.
Currently, the tax system is supporting those who can afford private medical insurance to the level of half a billion euros per annum. Effectively that means that those taxpayers who could never afford private health insurance, or who have had to give up their policies due to personal circumstances, are providing financial support via the tax system to those individuals who can afford such insurance.
It should be noted that the Commission on Taxation in its 2009 report recommended the retention of medical insurance relief but that it should be limited. The introduction of an upper ceiling on the amount of medical insurance premiums that will qualify for tax relief achieves this recommendation.
I am advised by the Revenue Commissioners that based on 2012 data, the most up to date data available, it is estimated that up to 577,000 policy holders, which provide cover for 1.1 million individuals, may be affected by this measure. The Revenue estimate is based on an analysis carried out on the annual returns and the gross premium prices (i.e. before tax relief at source is applied) submitted by the Health Insurers in respect of the 2012 tax year. However, it should be noted that many will only be affected marginally, depending on the cost of the policies that individuals purchase.
The new ceilings will ensure continuing support via the tax system for those who purchase medical insurance policies, while reducing Exchequer exposure to more expensive policies. In addition, individuals can of course opt for less expensive policies and therefore avoid the impact of this measure entirely.
I have no plans to reverse my decision to restrict tax relief in respect of medical insurance premiums.
