Mexico ends VAT creditability for insurers on insurance claim payments

Mexico has enacted a tax reform that materially affects insurance claim costs for insurers and, over time, insurance premiums, particularly for medical and auto insurance. Under the reform, insurers may no longer credit Value-Added Tax (VAT) on direct payments for goods and services used to settle insurance claims. As a result, VAT is now an additional non-recoverable cost for insurers. This change is expected to place upward pressure on insurance premiums. While the tax reform took effect on 1 January 2026, the reform also applies retroactively to claim-related VAT incurred during the 2025 fiscal year (1 January 2025 to 31 December 2025).

Background

The Federal Revenue Law 2026 was published in the Official Gazette on 7 November 2025 and took effect on 1 January 2026.

Key details

Previously, insurers could credit VAT on direct payments for goods and services used to settle insurance claims (e.g., medical care, hospitalization, fees, medications, agencies, repair shops, etc.) to reduce their net tax burden. This meant that any VAT paid by insurers directly to third-party goods and services providers did not count towards insurers’ claim expenses.

From 1 January 2026, insurers will no longer be able to do this. Additionally, although the new law took effect from 1 January 2026, it also applies retroactively to claim-related VAT incurred during the 2025 fiscal year (1 January 2025 to 31 December 2025). This means insurers must treat VAT paid on the relevant goods and services provided in 2025 as non-creditable.

As VAT is no longer creditable, it now represents an additional non-recoverable cost for insurers. Since VAT is included in the total amount of claim expenses, it also increases loss ratios and, in practice, may reduce the effective utilization of insured sums, as a portion of the total insured sum is now consumed by VAT payments.

Insurance lines like medical and auto insurance, where claims are usually settled through direct payments by insurers to third-party providers are most affected by the change. Medical claims settled by the employee and reimbursed by the insurer are not directly affected. Due to the reform, insurers are expected to pass the increased costs to policyholders by raising premium costs. Major medical insurance premiums are expected, in many cases, to increase significantly between 8% and 10%.

Employer action: ACT

Employers should work with their Lockton team to:

• Assess the impact of the reform on their affected plans, considering plan structure and claims settlement methods (reimbursement vs. direct payment).

• Identify strategies to minimize the effect of the change on costs, prioritizing actions that preserve employee benefits and coverage quality.

Lockton’s objective is to ensure that clients have clear and timely information to make data-driven decisions, as well as to provide clients with the necessary consulting services, including technical analysis and preventive measures to ensure the long-term sustainability of their benefit programs.

For further information, please contact your Lockton Mexico team and Lockton Consultant.

Further Information

Federal Revenue Law 2026 | Chamber of Deputies, Congress of the Union (opens a new window)