If the government proceeds with its plan to use current Medical Aid tax credits to finance its National Health Insurance (NHI), it could force nearly two million South Africans onto the already overstretched state healthcare system.
A comprehensive analysis by Econex, a Stellenbosch-based economic advisory group, highlighted that going ahead with that plan could make monthly Medical Aid payments unaffordable for a large percentage of the eight million Medical Aid members, especially lower-income members. According to Econex, this would mean that 1.9 million of the 8 million people on Medical Aid, including children, will leave the private healthcare system.
When he released the new NHI document in July, Health Minister Aaron Motsoaledi said he planned to eliminate tax credit to users, which adds up to about R20 billion. Motsoaledi said that the tax credit was unfair. Medical Aid members currently get a tax reduction of R3 636 per year – or R303 per month. An individual with a dependant on their Medical Aid would contribute R606 less tax a month.
According to Econex, the overall amount of money released to the principal members of medical schemes in the form of medical scheme tax credits was about R18.5 billion in 2014/2015. In the following year, principal members received R270 per month in tax credit for principal membership, R270 per month for the first beneficiary, and R181 per month for the other beneficiaries for whom they paid contributions.
This adds up to a R3 240 return for a Medical Aid member, amounting to R13 000 for a member with four dependants. Econex worked out the impact that Medical Aid scheme tax credits have on monthly medical scheme contributions using data from the South African Revenue Service (SARS). By removing the tax credit, the effective monthly cost of a Medical Aid escalates, making it less affordable.
Explaining this, author of the Econex analysis, Dr Paula Armstrong, said “the removal of the tax credit would push the poorest Medical Aid owners into spending 35% of their salary on the Medical Aid premium alone. This would be unaffordable as premiums would then ‘become excessively expensive’,” Business Live reported.
Armstrong added that the elimination of the tax credit “affects the poorest [Medical Aid user] and that is the opposite of what NHI intends to achieve” and “this perpetuates inequality”.
Frans Cronje, CEO of the South African Institute of Race Relations, said the proposal to have Medical Aid tax credits taken away was secondary taxation, with the government discovering a way to obtain another R20 billion in taxes. He warned that this was a short-term solution to a weakening economy. “Instead of structural reform in order to position South Africa’s economy as competitive and improve growth and tax revenues‚ government is delaying the inevitable by finding extra taxes‚” he said.
Cronje pointed out that the middle class “had seen sharp drops in living standards” and that the tax credit would be too much for this group. He said the first 75% of a salary goes to debt before all income earned after tax.
In June, Motsoaledi said Medical Aids would cease to exist when the NHI was up and running. Armstrong warned that removing the private sector would not advance the healthcare system. He said the government needs to leverage what the private sector offers to achieve the NHI.
Disclaimer: The information in this article is for informational purposes only and should not be construed as financial advice.