Health check for volunteer insurance plans

money-glitz | Tereza Cai 20 May 2019

While the deadline for filing income tax returns for 2018/19 on June 3 draws closer, Hong Kong's employees may not have fully grasped the implications of the Voluntary Health Insurance Scheme, the premiums of which are eligible for limited tax deductions.

The VHIS was launched by the government on April 1 this year. The tax deductions can be claimed in the assessment years starting from April 1, 2019, namely 2019/2020 financial year.

However, since Hong Kong adopts a provisional tax mechanism, taxpayers could choose to file their claims on VHIS plans in advance in this year to hold over the provisional tax.

The most advantageous feature of VHIS plans is that every taxpayer could claim up to HK$8,000 per insured person for the premiums paid. They could buy insurance for themselves, or any eligible relatives. Also, there is no limit on the number of eligible policies for which the tax deduction can be claimed.

For example, if a couple report the tax deduction individually, when the wife spends HK$8,000 for a VHIS plan with the final marginal tax rate of 10 percent, she can save HK$800 by claiming the tax deduction. If her husband buys a plan for HK$8,000 with final MTR of 17 percent, he can save HK$1,360.

But to make the most economical deal, it is advised that the one with higher MTR, the husband in this instance, should be the buyer to pay the total HK$16,000 for the two VHIS products. And he could claim the tax deduction to save HK$2,720, more than HK$2,160 when separately reporting for the tax deduction.

That sounds attractive, but insurance platform 10 Life's founder, Dennis Lun Pui-yin, reminds that not everyone could spend HK$8,000 on VHIS, and the final tax deduction also depends on the MTR. He says that if a buyer has only HK$132,000 annual income, which is lower than the basic allowance of the tax, then he won't be able to enjoy any tax deduction.

When a buyer is deciding whether or not he should switch his health insurance policy to VHIS, the tax deduction should not be the first consideration, but whether the coverage suits oneself is more important, Lun adds. Though the premiums won't be raised for an individual insured, there is the likelihood that premiums will rise in the future by age group.

According to 10 Life, many insurance products have a "supplemental major medical clause," SMM, but the VHIS doesn't require SMM. So once your expenses on a major disease exceed the basic plan's coverage amount, the VHIS plan holders may have to pay the excess themselves (see table).

Take coronary heart disease, which accounts for about 70 percent of the heart disease deaths in Hong Kong, as an example. Available treatment options are angioplasty and stent placement, which could cost HK$150,700. If the patient's insurance policy is without SMM, only about 30 to 40 percent of the cost could be covered, but if with SMM, about 85 percent of the cost could be claimed.

That's one of the reasons that prices of VHIS standard plan products vary so much among different insurers, Wing Ko, head of products at imSure says. As there are some emerging insurers operating online platforms, operating costs will be reduced significantly and they can set competitive premiums, he adds.

Ko suggests buyers should first understand medical care protection needs. For example, the insured may require clinical benefits or prefer to stay in private rooms when they are in hospital. Also, an insurer's ability is another consideration.

Besides the tax deduction, another feature of VHIS is that it guarantees annual renewal until the insured ages 100, with an annually refreshed benefit limit of HK$420,000, but with no lifetime benefit limit. In contrast, other medical policies in the market typically set the lifetime benefit limit, and won't refresh the item benefit limit every year.

Another feature of VHIS is that it offers broader protection than others in the market. The insured could reimburse the eligible expenses for unknown pre-existing conditions on a sliding scale, namely no coverage in the first policy year, 25 percent, 50 percent reimbursement for the second and third policy year respectively, and full coverage for the fourth policy year onwards. But it is not protected by common health insurance plans.

For VHIS plans, 70 percent of fees for prescribed diagnostic imaging testing, such as CT scan, are covered. VHIS plans also cover the expenses incurred for congenital diseases, which have manifested or been diagnosed after the insured person attained the age of eight.

However, most other insurance policies in the market don't cover congenital diseases that have manifested or been diagnosed before age 16 or age 18.

Technically, VHIS is open to Hong Kong residents aged between 15 days and 80 years, which seems more accommodating compared with insurance products available for people under 65-year-old.

But an expert says those aged above 70 years usually can't meet the insurers' requirement, so their application to buy a VHIS product may be rejected. Even if they are allowed to buy a VHIS plan, the premium could be high and the coverage might also shrink.

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