NHI ‘triple tax’ and the end of medical aids – what you need to know

 ·15 May 2024

Vague timelines and uncertainty over funding and the future of medical aids means South Africans will likely end up in a position where they will be paying tax, paying for medical aid and funding the NHI at the same time.

It is D-Day for healthcare in South Africa, with President Cyril Ramaphosa ready to sign the highly contested National Health Insurance (NHI) Bill into law on Wednesday (15 May).

The bill has faced massive backlash and opposition from the healthcare sector as well as various business groups, worker unions, legal experts and those the bill will impact most.

These groups have all accused the national government of pushing the bill through legislative processes at the behest of the ANC government, ignoring inputs from the healthcare sector and legal advice that the new laws will not pass constitutional muster.

This has also led to panic among South Africans, particularly the middle class and higher-income taxpayers—who make up the bulk of taxpayers in the country—around what this means for their access to healthcare, their medical aids, and how much more they will be paying in taxes to fund the government’s lofty political ambitions.

The end of medical aids

A key question being asked by many panicked South Africans is what will happen to their medical aid – and whether or not they should cancel them.

The message from medical aids is that members should definitely not cancel their memberships, as the signing of the NHI into law does not mean the system is in effect.

According to the Bill, only once the NHI is “fully implemented” will medical aids not be able to provide cover for services that are paid for by the NHI.

As it stands, there is no indication in the bill what “fully implemented” means, nor is there any indication in the bill what services will be covered by the NHI. Until these are cleared up, it should be business as usual.

Further to this, the system is envisioned to be implemented in phases over time; again, though, there is no indication of timelines and or timescales, and the system will be challenged in the courts for a long time.

Discovery chief executive Adriaan Gore said the NHI is likely to be delayed for decades.

If the government gets its way, the role of medical aids will diminish over time, scaling down in proportion to the NHI scaling up. The Department of Health has argued that it is not “destroying” medical aids because they can still exist.

However, in the government’s ideal scenario, all the money that taxpayers spend—after tax—on medical aid and private healthcare should instead be directed into the state’s coffers to add to the pool of money it has at its disposal.

Triple tax

One thing that will be guaranteed with the NHI, however, is the end of medical aid tax credits and the raising of new taxes to fund the scheme.

How much will the NHI cost? No one knows for sure, not even the government.

Costing on the system done over a decade ago put estimates at upwards of R200 billion a year. Analysts have deemed this a conservative estimate, with some projections going as high as R1 trillion.

One message that has been repeated across all stakeholders—even National Treasury itself—is that the system is currently unaffordable, but this has not deterred politicians from pushing ahead.

How will the NHI be paid for? Again, there is not much certainty—but additional taxes are guaranteed.

The NHI Bill lays out the government’s relatively vague plans to fund the NHI by redirecting money through budget adjustments and raising additional funds through payroll taxes and surcharges.

The removal of medical aid tax credits will also be part of this.

However, given the high degree of uncertainty around implementation timelines, this will very likely lead to a triple tax situation for healthcare in South Africa.

Healthcare in South Africa is already considered a “double tax” service. South Africans pay income tax and VAT to the government, which then portions and budgets a large part of that to public healthcare.

However, given the poor state of public healthcare, households have to pay an additional “grudge tax” on medical aid to access proper healthcare in the private sector. They get a very small portion of this back through the medical aid tax credit.

A key provision of the NHI Bill is the establishment of the NHI Fund, which is likely to start pooling funds long before the system is “fully implemented” and medical aids are nixed. Timelines in the bill refer to the “mobilisation of resources” from 2026.

With the coming removal of the tax credit and the addition of a 2% surcharge on income tax and 2% payroll tax, South Africans are very likely to be in a position where they will be paying tax, paying additional taxes for the NHI and paying for their medical aids at the same time.

Even once fully implemented, South Africans may still have to turn to medical aid to cover specialist healthcare that won’t be covered by the NHI.

The exact amount of additional taxes is still in question.

Researchers have stated that to raise the conservative estimate of R200 billion—and assuming that the number of taxpayers, their spending, etc., remains constant—will require that:

  • VAT increase from 15% to 21.5%;
  • OR personal income tax rates increase by 31% across the board;
  • OR a payroll tax on those employed in the formal, non-agricultural sector of an estimated R1,565 p/m.

Using the Department of Health’s 2% surcharge and 2% payroll tax, a South African earning an average salary of R26,000 a month would have to pay an additional R1,040 a month to fund the NHI.

The removal of the R364 per month medical aid tax credit easily pushes this up to an effective R1,440 tax per month.

Read: Discovery and other insurers tank over NHI jitters in South Africa

Show comments
Subscribe to our daily newsletter