【Voluntary Health Insurance Scheme】VHIS Guide! Is the tax deduction attractive? Should you switch if you already have insurance? What are your rights during the transfer?

Voluntary Health Insurance Scheme (VHIS) has been one of the most popular medical insurance options in the Hong Kong market since its launch in 2019. If an individual already has medical insurance, should they switch to a VHIS "certified product"? How much tax deduction does VHIS offer, and is it worth switching just for the tax benefits? Insurance companies are required to provide a one-time transfer opportunity, but what rights do consumers have during this transfer?

Tax deduction is a key attraction of the Voluntary Health Insurance Scheme (VHIS). According to government leaflets, the annual premium cap for tax deduction under VHIS is HKD 8,000 per insured person. If you purchase insurance for dependents (children, parents, spouse, grandparents, siblings), the tax-exempt amount for each insured person can be accumulated without any upper limit.

(If you purchase insurance for yourself and family members, totaling N insured persons, the maximum tax-exempt amount = HKD 8,000 x N)

It is worth noting that purchasing VHIS provides a tax-exempt amount, and the actual reduction in tax expenditure is calculated as “premium (capped at HKD 8,000) x marginal tax rate”. This shows that the tax deduction benefit of VHIS is limited, as also clearly stated in a Legislative Council research report:

The actual amount of tax benefit depends on the policyholder’s income level and premium. For instance, for high-income individuals taxed at the highest rate of 17%, purchasing a VHIS policy worth HKD 8,000 can result in a tax benefit of up to HKD 1,360 per year. However, for low-income individuals taxed at a rate of 2%, purchasing a VHIS policy worth HKD 2,000 may result in a tax deduction of only HKD 40.

Take the example of a family of four with an annual income of HKD 700,000:

Family members: Husband and wife with two young children, only the husband is employed; they also support a father who does not live with them.

VHIS policies purchased: 2 policies with premiums of HKD 4,000 each and 2 policies with premiums of HKD 2,500 each, totaling HKD 13,000 in annual premiums. The chart below illustrates the taxable amount with and without VHIS coverage: 

When an insurance company registers to participate in the Voluntary Health Insurance Scheme (VHIS), it is required to provide a one-time straightforward opportunity within ten years for existing medical insurance policyholders to choose whether to transfer to a VHIS-certified product.  

According to documents from the Food and Health Bureau, during the transfer period, consumers who opt to transfer to a VHIS policy will be subject to the following special arrangements:  

If an existing product is converted to a “VHIS-Certified Product”

• Due to the inclusion of VHIS features in the plan, the policyholder’s premium may change, based on the standard premium rates under VHIS.  
• The insurance company is not allowed to re-underwrite. The insurer must not impose any new exclusions after the transfer, nor adjust premiums individually based on changes in the policyholder’s health condition.  
• Health issues that arise after the existing policy takes effect should not be considered pre-existing conditions, and full coverage should be provided immediately upon transfer to VHIS.  
• The insurance company must allow the policyholder to transfer to a “Certified Product” with the same terms, conditions, and benefit schedule.  
• If the policyholder refuses to transfer to the terms of a “Flexi Plan”, the insurance company must allow the policyholder to renew under the terms of a “Standard Plan”.  
• The waiting period for “unknown pre-existing conditions” should be calculated from the effective date of the existing policy, and coverage under the terms of the transferred product should be provided after the waiting period.  
• If the insured does not accept the transfer arrangement, the existing insurance policy may be terminated.  

If the insurance company offers a new “Certified Product” for policyholders to transfer to:  

• The insurance company may re-underwrite.  
• If the insurance company waives re-underwriting for certain policies, it must not make selections based on the policyholder’s past claims history.  
• If the insurance company rejects the transfer application after re-underwriting, or if the existing policyholder refuses to accept the application or underwriting results, the insurance company must allow the policyholder to renew the existing insurance policy under its original terms.  
• For “unknown pre-existing conditions”, the waiting period should be calculated from the effective date of the new policy; if the insurance company specifies an earlier start date, that earlier date should be used as the start of the waiting period.  

Although purchasing Voluntary Health Insurance Scheme (VHIS) products allows for tax deductions, consumers should not switch to VHIS solely for this benefit. The primary purpose of taking out medical insurance is to secure medical protection, so comparing the coverage and premiums of different products is crucial.

The coverage for severe illnesses under the VHIS "Standard Plan" is not particularly high, and consumers need to assess their individual needs. For readers who already have medical insurance, switching to the "Standard Plan" may not necessarily enhance their level of protection. However, with the emergence of more VHIS "Flexi Plans" in the market, the scope of coverage has significantly expanded.

Since its introduction in 2019, the product structure of VHIS has continuously evolved to meet market demands. In recent years, insurance companies have competitively launched various "Flexi Plans", with some products even promoting "full reimbursement", which has significantly increased their appeal, encouraging more people to switch from traditional medical insurance to VHIS.

The terms and conditions of VHIS are complex. If you are looking for a suitable VHIS plan, feel free to contact 10Life insurance advisors via WhatsApp for enquiries.

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.