MJP Legal
A Hard-Won Resolution with a Steep Price

María José Pinillos is a legal advisor at MJP , bringing expertise in corporate and commercial law for the insurance ecosystem. She works closely with clients to navigate complex legal matters, deliver practical solutions and support informed business decisions while emphasizing professionalism, compliance and long-term strategic value.

In Mexico, medical expenses insurers (known as health insurance in other jurisdictions) have faced a fiscal controversy for the last several years. There are important lessons to be learned from the solution agreed between the insurers' association and federal authorities.

The Core Dispute: IVA and Direct Payment

Health insurers are authorized to reimburse insureds after an event or to make direct payments to hospitals and healthcare providers on behalf of insureds. As a practical necessity, this model is based on the Mexican Insurance Contract Law (Ley sobre el Contrato de Seguro): serious medical claims often involve amounts that policyholders cannot afford to advance out of pocket while awaiting reimbursement.

Direct payments incurred 16% Value Added Tax (IVA), which insurers credited. As an input tax, the IVA was a tax that was borne by the insurer in fulfilling its contractual obligations.

SAT - Mexico's federal tax authority, equivalent to the IRS in the U.S. or HMRC in the UK - disagrees. Insurance companies making direct payments to third-party providers were indemnifying losses - not acquiring goods or services. This IVA, the SAT argued, was not creditable. As a result, Mexico formalized this criterion, turning IVA into a non-recoverable cost.

There is a structural inconsistency in the SAT's position. An insurer reimburses a portion after deductibles and coinsurance if an insured pays a hospital directly. It includes the IVA component. Only the payer makes the payment to the hospital and in both cases the insured receives the service. It challenged the credibility of that IVA, which insurers had historically offset against premium VAT.

A Calculated Compromise — and a Telling Legislative Choice

A resolution finally arrived in late2025 after years of litigation. The federal government embedded the fix in the Federal Income Law (Ley de Ingresos de la Federación or LIF) for 2026 rather than leaving it to the courts. Revenue collection may be the real objective of the government.

Industry experts estimate that the IVA credits at stake were worth 200,000 million pesos (roughly $11.4 billion USD and £8,580 million pounds and the government projected increased tax collections. In lieu of a permanent structural reform, the government embedded the solution in the LIF and offered the insurance sector an exit.

SAT-authorized insurers that credited VAT on direct hospital payments through December 31, 2025 were allowed to regularize their positions under a fiscal stimulus. Under the transitional regime, penalties, surcharges and enforcement charges were significantly reduced. If insurers withdrew their legal challenges, they could receive the benefit.

SAT's retroactive application to prior years (up to 5 years) could have generated liabilities large enough to threaten 60% of the insurance sector's solvency. Mexican insurance regulation makes insolvency catastrophic.

Technical reserves (mutuality fund)are the largest liability on an insurer's balance sheet. Not creditors, but money to back policyholders clai,s. Upon insolvency, insurers would need to pay life insurance policyholders first, followed by other policyholders. SAT would have been close to the end. Putting multiple large insurers into insolvency would have resulted in Mexico having no private insurance sector.

Mexico resolved its IVA dispute with pragmatism. Government revenue was secured, the sector avoided insolvency and policyholders absorbed the costs.

What Remains Open: Legislative Initiatives on Health Insurance Costs

Federal deputies introduced bills of amendments in the Chamber of Deputies in March 2026 focused specifically on major medical expenses insurance costs. Two persistent distortions are targeted by these proposals: ineffective hospital tariff transparency - providers are legally required to publish their prices, but compliance is rare. In addition, the broader premium increases affect individual and family coverage and are threatening policy retention. The risk of discontinuation is real: this year's premium hikes of 20% to 40% in a market with low insurance penetration and where most policyholders hold coverage as an employer benefit rather than by choice create real disruption. Legislation awaits.

Third, private hospitals in Mexico charge differential prices depending on who pays. Individuals without insurance are routinely priced lower than insurers for the same procedure. Medical case managers (gestores médicos) — third parties with no formal legal standing under Mexican law — approach policyholders directly and offer to handle their entire claims process, including waiving deductibles and coinsurance, replacing licensed insurance agents. The mutuality fund absorbs excess costs borne by all policyholders and funds the inflated claims.

The Bottom Line

It is ultimately the insured who at the end pays - fiscal disputes, differential pricing, unregulated intermediaries. The structural problem that drives every premium increase is not resolved by any single legislative initiative: healthcare services are becoming increasingly unaffordable, trapped between an overcrowded public system and a private sector whose costs are rising faster than most policyholders can cope. Arithmetic won't add up until care costs are considered.