On 7 November 2025, Mexico amended its Federal Revenue Law, changing the VAT (IVA) treatment of Major Medical insurance claims. Under the new rules, insurers can no longer recover 16% VAT on goods and services used in covered treatments. This includes hospital services, medical fees, and medical supplies, while physician fees remain excluded.
The change applies retroactively from 1 January 2025, impacting claims already incurred and creating an immediate and material financial impact for EB captives reinsuring Major Medical insurance in Mexico.
While VAT is 16%, it applies only to certain claim elements, resulting in an estimated 10%-12% increase in Major Medical costs in Mexico. The impact is more pronounced for EB captives, as 2025 pricing was finalized before the change was known, leaving the year structurally understated.
As a result, claims reported from 4Q 2025 onwards may include unrecoverable VAT, with retroactive adjustments for earlier quarters, leading to a spike in Mexico's claims experience. Loss ratios may increase by approximately 8-12% year over year due to VAT alone, depending on claim mix. For many programs, this additional cost will be reflected retroactively in 2025 year-end captive reporting, with future renewals quoted inclusive of VAT.
At the next renewal, pressure is compounded. Captives may need to absorb recovery of the underperforming 2025 year, ongoing medical trend (often 10-12%), experience-based adjustments, and correct alignment of retroactive VAT by incurral period to ensure accurate projections. Even without adverse experience, headline increases well in excess of 20% are possible once all factors are combined.
WTW recommends early, proactive engagement:
WTW is supporting clients through impact assessment, insurer engagement, and renewal planning.
