By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The VAT hike's impact on healthcare is "pennies" compared to the $350m that Bahamians spend in South Florida and other markets, a Cabinet Minister argued yesterday.

Dr Duane Sands, pictured, minister of health, told Tribune Business that this - not the 60 percent VAT rate hike - was the real "800-pound gorilla in the room" he is targeting in a bid to ensure more of this "disproportionate" sum is spent in the Bahamian healthcare sector.

Pointing out that this $350m was not subject to VAT on care costs, Dr Sands suggested between 50-70 percent of Bahamians would not feel any healthcare-related impact from the tax increase because it is not levied in the public sector.

He conceded, though, that this estimate did not result from any empirical study, and agreed that increasing the VAT rate to 12 percent was "not what I would have hoped for" solely from a healthcare perspective.

Dr Sands, though, argued that all Bahamians needed to "look at this thing in terms of the greater good and bigger picture", given the need to end 45 years of deficit spending and finally set the Government's finances on a sustainable footing.

"One issue that really has been the 800-pound gorilla-in-the-room, when we look at private healthcare services and spend on private care, is a disproportionate amount of private health spend takes place outside the Bahamas where VAT is not captured," he told Tribune Business.

"We estimate that as much as $350 million of Bahamian premium dollars are spent in south Florida. None of that spend is subject to VAT. It's a non-issue. The issue is that the premium dollars, or charge for the product [on consumers], is subject to VAT.

"Ultimately we've got to have an even more holistic view of our healthcare approach. Where I'm headed with this is, in the longer-term, how we can optimise our healthcare system to repatriate that spend," Dr Sands continued.

"That's the more important conversation. Whether there's a 4.5 percentage point increase in the VAT on healthcare services, yes, it's important, but it pales into comparison with the conversation about 50 per cent of healthcare spend going outside the country, which makes it impossible to develop the healthcare system.

"When we look at the challenge in the country, we need to take a look in the mirror and ask: Are we more concerned about developing the Bahamas, or are we more concerned about developing South Florida?"

Further illustrating his point, Dr Sands said the $70 million in annual taxpayer-funded medical insurance premiums, and significant NIB industrial claims payouts, exceeded Doctors Hospital's annual $54 million in patient revenues and the "less than $12 million" generated by the Public Hospitals Authority's (PHA) private services.

"We're now starting to drill down on a much bigger fish that needs to be fried. We're paying attention to pennies," he added of VAT-related fears, "although I don't mean to trivialise the concern for the average Bahamian.

"But the tens of dollars, hundreds of dollars being spent elsewhere; that has absolutely no benefit in this economy. It's a huge problem."

Emmanuel Komolafe, the Bahamas Insurance Association's (BIA) chairman, yesterday warned that increased healthcare costs stemming from the VAT rate increase could further stretch an already overburdened public health system as medical insurance's affordability was pushed beyond the reach of many Bahamians (see other article on Page 1B).

Dr Sands acknowledged this was "a real concern", but said the impact would likely be much less compared to when the health insurance industry feared for its very survival under the Christie administration's National Health Insurance (NHI) plan.

"That is certainly a real possibility. It's a real concern, particularly given the fact the public health sector is so significantly challenged," Dr Sands agreed of reduced private health insurance penetration.

"But, if you recall 2015-2016, there was some concern whether that industry would continue to exist. Is the glass half empty or half full? It's all a matter of perspective."

The Minister added that the VAT hike's impact on healthcare costs would be mitigated by the fact most Bahamians access such services through the public - rather than private - system where the tax is not levied.

"That is true for some," he said of rising healthcare costs, "but bear in mind a significant portion of healthcare is delivered in a VAT-free environment. If you look at access to healthcare services, the vast majority of Bahamians access it through the public sector.

"I suspect a significant group - in excess of 50-60 per cent, 70 per cent - will see no increase in VAT, and possibly a reduction. That is a 'back of the napkin' calculation, and I can't point to a specific study in relation to VAT and healthcare expenditure.

"But based on the number of people accessing the public healthcare system, the clinics and hospitals, compared to the number of people seen by the private sector, I suspect for the majority of individuals the increase in VAT is not going to be much of an issue."

Dr Sands acknowledged that he had previously urged the removal of VAT from all healthcare products and services, but said yesterday that the Government's dire financial circumstances meant such a desire was no longer possible.

"Certainly it is not what I would have hoped for looking at it through the prism of healthcare," he told Tribune Business. "I am sure none of us is celebrating an increase in taxes.

"However, we have to look at this thing in terms of the greater good and bigger picture..... We're all in this together. It's a pity we're here, but we're here. When you're served lemons, you have to make lemonade.

"It is the lot we have been served, the hand we have been dealt, and how we deal with it will determine if we're creative, forward looking and progressive in terms of what the end result is."

Dr Sands said the Bahamas had faced challenges before, such as the aftermath of the September 11 attacks and 2008-2009 recession, and had "made it through" both times. He suggested the country will do so again.

The Minister said "all medicines", including prescriptions and over-the-counter, were covered by the Budget's VAT 'zero rating' treatment. He added that he would provide more details on the Government's catastrophic care plan when he makes his Budget debate contribution today.