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HFA will oppose removal of medical scheme tax credits

Consider the chilling effects of removing tax credit

Thursday, 16 November 2023, There is no immediate threat to medical scheme tax credits, recently put forward as a potential solution to funding National Health Insurance (NHI), says the Health Funders Association (HFA), while cautioning that the broader economic consequences for all South Africans could be dire and should be carefully considered.

“Changes to taxation can only be introduced by the Minister of Finance in a Money Bill and medical schemes, and their members should be aware that the NHI Bill has no power to implement tax changes,” says Craig Comrie, Chairperson of the HFA, a professional body representing medical schemes accounting for more than 50% of lives covered on medical aid in South Africa.

“Should it become necessary, the HFA will strongly oppose any proposed legislation to this effect through all available avenues, not only to safeguard the rights of medical scheme members but also because it does not make economic sense for the country and its people.

“Removal of the tax credits would effectively increase medical scheme members’ tax and stifle what little disposable income remains to stimulate our economy,” he says.

“Medical scheme members are already contributing substantially to the public health system but not using it, and so the tax credits provide partial compensation by reducing the tax they are paying, depending on how many dependants they have.

“The public health budget is more than the tax credit amount at around R5 000 per person per year, therefore, medical scheme members are receiving a benefit that is much lower than the benefit currently received by non-medical scheme members. Furthermore, it is essential to highlight that more than half of those belonging to medical schemes have a monthly household income below R30 000, and the tax credit is a key factor in their ability to afford cover.

Comrie points out that for a family of four, removing medical scheme tax credits would effectively result in a monthly loss of R1 220 in household income, or R14 640 per year. “For some families, this would make private healthcare cover unaffordable – thereby transferring at least 400 000 to 700 000 more people onto an already overburdened public health system,” he says.

Neither employers nor medical schemes benefit from the tax credits, he points out. During a parliamentary meeting on 9 November, Dr Nicholas Crisp conceded that the NHI Bill is technically incorrect in stating that tax credits are paid to medical schemes indicating that the Department may propose amendments to the Bill. Although tax policy is not set by the Department of Health, Dr Crisp said that the error in the Bill does not change the Department’s intent to remove tax credits.

The rebates were restructured in 2012 by the National Treasury to be more beneficial to lower income earners since the tax credit represents a higher proportion of their tax payable and has thus helped to make medical scheme membership accessible to more people.

“The approximately R27 billion rebate in the form of tax credits to medical scheme members pales in comparison to the colossal projected costs of the National Health Insurance (NHI), amounting to a mere 5% to 8% of the estimated total. The resulting additional financial burden that would be placed on the public healthcare system should members of medical schemes leave private healthcare far outweighs this amount. Unfortunately, there is currently no established mechanism in place to ringfence or allocate these funds exclusively for the funding of the NHI, creating a critical gap in financing for what is an ambitious, albeit much-needed, healthcare initiative,” Comrie says.

The HFA has also expressed concern about suggestions that public service medical scheme subsidies could be an early source of revenue for the NHI. “These funds are private money that government employees have earned. The medical aid contributions paid by the government as an employer on behalf of employees to the Government Employees Medical Scheme [GEMS], Polmed and other schemes, therefore, cannot be regarded as government expenditure that is available for redistribution,” he says.

“What’s more, it does not follow that increasing the tax rate for a substantial portion of our narrow base of South African taxpayers would increase government revenue. Tax revenue tends to diminish when the tax rate becomes too high, ultimately exacerbating wider service delivery issues, placing further pressure on families’ already constrained budgets, and having significant lasting repercussions for the economy and South Africans.

“The Health Funders Association is supportive of the goals of universal health coverage, however the financial mechanisms proposed by the Health Department to fund NHI simply do not hold water. As highly experienced voices within private health funding, we again appeal to the decision makers to ensure a workable and practical future for South African healthcare by allowing collaboration on these crucial details before the NHI Bill is enacted,” Comrie says.

“For now, the medical scheme tax credits will remain in place until the National Treasury determines otherwise through the appropriate channels. It is reckless to create the impression that removing the tax credits is a foregone conclusion – especially under the guise of allaying stakeholders’ valid concerns about how the NHI will be funded.”