Sweden: Industry Opposes Tax on Employee Health Benefits

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By Marcus Hoy

Swedish industry representatives have strongly criticized a government proposal that would end existing tax breaks for private employee healthcare provided by employers. Due to become effective July 1, 2018, the plan would increase costs for both employers and employees. Currently, about 650,000 Swedes pay into private health insurance plans, of which 470,000 benefit from employer funding. According to government figures, this number is likely to decrease by about 25 percent should the proposal be adopted.

Originally presented in draft form on April 3, 2017, the bill was due to be passed by parliament on Aug. 1, but its enactment has been delayed until July 1, 2018, although on Nov. 7 a spokesperson for the financial services company Skandia told think and code that the proposal appeared likely to receive eventual parliamentary approval.

Under the proposed new rules, all healthcare provided by employers, including occupational health and rehabilitation, would be subject to Sweden's so-called “benefit tax,” which is applied to certain benefits provided to employees. Under the proposal, an employee earning approximately 30,000 kroner ($3,600) a month on the lowest tax threshold who benefits from health insurance worth 5,200 kroner annually would pay an additional 1,560 kroner per year. A higher-earning employee in the 50 percent tax bracket with similar insurance would pay an extra 2,600 kroner. In addition, employers' costs would rise by about 2.5 percent.

‘No Reason' for Tax Breaks

According to the left-leaning government, the new plan will boost public health budgets and make the existing system of taxation more equitable.

“The government sees no reason to have special tax rules for private healthcare,” Finance Ministry official Isabel Lundin told think and code Nov. 7. “There should be no tax reasons for employers to offer employees a benefit instead of the corresponding salary. The abolition of tax exemptions for private healthcare means that tax payments will become more uniform and neutral while tax revenues will rise. This will help create a simpler and more transparent tax system.”

“Only a small part of our healthcare services are financed by health insurance, which is estimated to represent just under 1 percent of total healthcare costs,” Lundin said. “The purpose of these insurance policies is primarily to provide employees with quick access to care. They work primarily as a complement to public healthcare.”

“The existing exemption has meant that employers see it as preferable to replace part of an employee's salary with the benefit,” Lundin said. “Due to the marginal effect, such a change is most beneficial for individuals whose income is above the lowest income tax threshold. This means, for example, that private operators receive large tax subsidies. The tax exemption also benefits employers because no employer fee is payable. These consequences were not intended when the rules were introduced.”

‘No Winners'

“The government is arguing that the proceeds of the new tax will help to shorten queues in the public health system and create more equality in the field of healthcare,” Skandia Healthcare Strategist Kristina Hagstrom told think and code Nov. 7. “However, we believe this to be incorrect. In its own assessment, the government estimates that one in four of those who are insured today—or 120,000 people—will lose their private health benefits. This suggests that more employers will opt out of providing health insurance, and any additional tax revenues are likely to be eaten up by more patients and higher costs in the public sector. In our opinion, this will lead to higher loads on the public health system. We see no winners under this proposal.”

“Employees who are offered health insurance by their employer will be hit hardest,” Hagstrom said. “Many employees are likely to opt out of insurance due to increased costs, while companies are likely to reconsider whether to offer it. The proposal will increase employers' costs as they will be required to pay employer fees on the value of the benefit.”

“Provided the company is subject to corporate tax, employers will be subject to increased employer contributions and reduced corporate income tax,” she said. “The net outcome would be an increase in costs of approximately 2.5 kroner per 100 kroner, approximately 2.5 percent. If this is allowed to pass unchanged, fewer people are likely to make use of private health insurance.”

“At the moment, it looks like the bill will be passed by parliament,” Hagstrom said. “The political opposition still has the opportunity to stop it if the will exists.”

On Nov. 1, the Confederation of Swedish Enterprise (SN) issued a statement naming companies that intended to drop employee insurance provisions should the bill become law.

According to SN, the proposal would lead to increased sickness absences and an increased burden on the public health system. The existing model, SN pointed out, allows sick employees to receive prompt private care without lengthy waits.

To contact the reporter on this story: Marcus Hoy in Copenhagen at [email protected]

To contact the editor responsible for this story: Rick Vollmar at [email protected]

For More Information

The draft bill is available , SN's statement , both in Swedish.

SN's statement is available in Swedish .

For more information on Swedish HR law and regulation, see the Sweden primer.

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