Speculation is mounting that Insurance Premium Tax (IPT) will be increased in next week's Emergency Budget, with expectations that it could double to 10%.
That move could see a typical 500 employee medical benefit scheme paying as much as £20,000 more in IPT per year, according to Mercer.
And if the same increases are applied to a company of 10,000 employees the additional bill could reach £375,000.
It is also predicted that VAT could rise at the same time to either 19% or 20%.
Chris Bailey, senior consultant in Mercer's health and benefits business, understands that increases in taxation are required, but warns that any increase in IPT will directly escalate the cost of providing benefits.
"Unlike VAT it is not possible to reclaim IPT," he says.
"With leading insurance providers generally quoting medical insurance inflation at an average of 7 - 8%, the additional cost of an increase in IPT is likely to leave employers with a significant hike in premium costs - above the levels they will have budgeted for."
However, the consultancy suggests steps such as providing benefits through tax-efficient vehicles such as medical benefit trusts can alleviate the tax burden, as a trust-based benefit is not classified as insurance, and so IPT is not applicable to the funds placed in trust.
Bailey continues: "Medical benefit trusts are fundamentally different from purchasing a contract of insurance, but they do not need to be onerous for the employer and, if set up correctly, can permit companies to contain the key cost drivers behind medical inflation.
"If IPT increases to 10% then that provides a very strong argument for organisations in the UK to review their arrangements," he adds.
The raising of IPT is likely to prove controversial at a time where the Government is facing huge cuts to state benefits and social support, therefore passing much of the burden of personal health and financial security to individuals.
