Goodbye medical aid tax credits in South Africa

 ·31 Oct 2023

The National Department of Health (NDOH) says that medical aid tax credits will end in South Africa – and the money used to reimburse members every year will instead be fed into the National Health Insurance (NHI) Fund.

Presenting to the National Council of Province’s Standing Committee on Health and Social Services on Tuesday (31 October), the department responded to many concerns raised by stakeholders around the NHI Bill, which the National Assembly adopted in June.

Many of the concerns raised by the provinces echoed stakeholder feedback on a national level, with commenters raising red flags over the bill’s constitutionality, the source of funding for the scheme, the government’s lack of capacity to manage it, and the threat of corruption and maladministration.

By and large, the department shrugged off the concerns and doubled down on the same narrative it has been using to drive the bill forward: healthcare is a public good that supersedes certain individual rights and freedoms, and the imbalance of the private and public healthcare systems has to be dismantled.

One of the biggest worries for the NHI – funding – continues to be unaddressed, with the department not providing any estimate for how much its lofty ideals of universal healthcare will cost the country.

However, the department has been clear that taxpayers will absolutely be footing the bill – and that medical aid tax credits will be over.

Speaking to the funding concerns specifically, stakeholders raised concerns that the NHI Bill lacks clarity on its income sources, adding that there is no space to increase taxes and that doing so would over-burden taxpayers who are already under severe strain.

In response, the department echoed the same stat it has been using to justify the bill from the start:

“South Africa currently spends 8.5% of GDP on Health with 4.2% in the public sector serving more than 85% of the population and 4.3% in the private sector that serves less than 15% of the population.

“The 8.5% of GDP spending is way above what other countries of similar economic development spend on healthcare,” it said.

While the department has explicitly stated in the past that it has no intention of appropriating the money already part of medical scheme funds, it is clear that it believes that by diminishing medical aids in the country – or making it impossible for them to exist in their current state – that the money that goes into these funds every year will eventually get fed into the NHI instead.

This will be through more taxes, including general tax revenue from payrolls, a surcharge on taxable income, and complemented by employment-based levies and other taxes as determined by the National Treasury, the department said.

“The determination of the actual extent of the taxation will be articulated in a Money Bill that is developed and published by the National Treasury,” it said.

“The revenue collected will be pooled to achieve financial and risk protection for the entire population.”

Regarding medical aid tax credits, however, the department was more explicit in the intent.

“Medical tax credits only benefit those that are in a position to pay either through medical scheme coverage or out-of-pocket but do not befit the poor. The money that goes into tax credits will be consolidated to benefit all as the role of medical schemes and out-of-pocket payment reduces under NHI.”

Role of medical aids

Speaking to the role of medical aids, the department again reiterated that third-party funds will still be able to exist under the NHI but will not be able to cover services that are funded by the scheme.

Again, there is no clarity on what services will be provided by the NHI, with the department saying only that “not all services” will be covered.

There is also zero clarity on when medical schemes will be forced to stop their coverage – the bill only says once “fully implemented”, but there is no specific timeframe or definition of what “fully implemented” means.

The department said this will only be known once it is known.

However, the department made it clear that the NHI and NHI Fund will operate as a monopsony (a market with only one buyer) for healthcare and that having medical aids continue in their current form would defeat the point of the new system.

“If we consider including choice for all benefits, the schemes and elite will continue to use that provision to maintain the current parallel systems. The rich will always source health services in luxurious hotel environments even though they declare solidarity with universal healthcare,” it said.

“By the same token, it will not be advisable, nor feasible for the NHI to cover every medical intervention possible, and denying access to care outside of the scope of NHI benefits could be counter-productive.”

The department said that the NHI will roll out in phases, with the first purchasing of care (initiation of the scheme) coming into effect sometime before 2026.

From 2026 to 2028, the main “mobilisation of resources” (shifting sources of public funds) will take place, with further developments and contracting taking place beyond 2028.

“Transition to the NHI will be a journey, not an event,” the department said.

Read: The NHI could work in South Africa – but not like this

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