R4,400 pain for South Africans with medical aid

The government has indicated that removing medical aid tax credits will help fund the NHI, but experts believe this will provide little financial benefit to the scheme and only hurt lower-income taxpayers.

Following the National Assembly’s adoption of the National Health Insurance (NHI) Bill in June 2023, questions remain about how the ambitious universal healthcare system would be funded. 

Funding estimates range widely, with some suggesting the NHI costs could reach R1.3 trillion annually, while others, like Discovery Health, estimate R800 billion for covering prescribed minimum benefits (PMB) alone. 

Despite these estimates, the government has yet to provide a comprehensive plan to meet these financial demands. 

One potential funding source the National Department of Health identified is the removal of medical aid tax credits. 

The department said that medical tax credits only benefit those who can afford private medical schemes or pay out-of-pocket for healthcare services. 

“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,” the department said.

However, critics of the plan argue that the financial impact of cutting these credits will do little to offset the vast costs required for the NHI. 

Profmed CEO Craig Comrie said that the NHI’s lack of direct mention in the most recent National Budget address reflects significant financial and practical obstacles to implementing the scheme. 

“The absence of any direct mention of NHI in the speech is more telling than many South Africans realise,” Comrie said. “It speaks volumes about the financial and practical roadblocks ahead.”

“As the private sector, we have long cautioned that any attempt at universal healthcare must be rooted in feasibility, not just intent and empty political rhetoric.”

Comrie further warned that without a pragmatic approach to healthcare reform, the government risks undermining the existing healthcare system. 

“With no NHI in sight, now more than ever, we need a pragmatic approach to healthcare reform that builds on the already-established healthcare assets rather than chasing an unrealistic, unbound, and unfunded ideal.”

R4,368 pain for medical aid members

The Health Funders Association (HFA) CEO Thoneshan Naidoo agreed with Comrie’s concerns and added that medical aid tax credits do not represent a ready-made pool of funds that can be redirected to the NHI. 

“There is a misconception that medical scheme tax credits are a revenue stream that can be repurposed for NHI funding,” Naidoo said. 

“In reality, this is a tax liability for SARS, not a budgeted expenditure. Even if these credits were removed and the additional tax revenue redirected to NHI, the financial benefit would be minimal.”

Naidoo highlighted the disproportionate burden the removal of these tax credits would place on medical aid members. 

“Removing the tax credits would increase personal tax for medical scheme members and have unintended consequences,” he said.

This includes potentially leading to an exodus of members from private healthcare and an increased burden on public hospitals and clinics.”

The medical scheme tax credit currently provides a monthly reduction of R364 for the primary member and the first dependent, with an additional R246 per month for each subsequent dependent. 

This amounts to an annual saving of R4,368 for individual taxpayers. According to Naidoo, removing this benefit will hurt individual households and place additional strain on public healthcare facilities. 

“Aside from easing pressure on public healthcare facilities, the tax credit is financially beneficial to the government,” he said. 

“The cost of this tax credit is significantly lower than what the government would spend if the same individual required treatment in the public healthcare system. Keeping this incentive in place makes financial sense.”

A prevalent misconception is that medical aid tax credits only benefit high-income earners. However, data from the National Treasury paints a different picture. 

Of the R30 billion allocated annually for medical tax credits, 21% (R6.3 billion) benefits individuals earning less than R250,000 annually.

Meanwhile, 64% (R19 billion) goes to those earning below R500,000 per annum—a category encompassing a diverse group of working professionals, including teachers, nurses, civil servants, and skilled tradespeople. 

With 80% of South Africans earning below R500,000 annually, these credits are critical in providing financial relief for most medical scheme members.

“These figures underscore that medical scheme tax credits are not just a benefit for the wealthy,” Naidoo said. 

“They are a progressive intervention that provides targeted assistance to middle- and lower-income earners.”

The decision to phase out medical aid tax credits also raises broader questions about the government’s strategy to fund the NHI. 

With the costs of the NHI potentially exceeding R1 trillion annually, the money saved by eliminating these tax breaks would be a mere drop in the ocean. 

For many experts, the move reflects a policy driven by political aspirations rather than grounded in financial reality.

“Any healthcare reform must be rooted in practical feasibility, not just political rhetoric. Without a clear and sustainable funding mechanism, the NHI remains more of an aspiration than a reality,” said Comrie. 

Naidoo reinforced this sentiment, arguing that cutting medical aid tax credits would harm ordinary South Africans while offering little meaningful financial support for the NHI.