Tax change could kick 2 million South Africans off their medical aid
New research shows that almost two million South Africans could lose their access to private healthcare if the government moves ahead with a plan to use current medical aid tax credits to finance its National Health Insurance (NHI).
Stellenbosch-based economic advisory group, Econex crunched the numbers in a research note, saying that moving ahead with that plan could make monthly medical aid payments unaffordable for a significant portion of the eight million medical aid members – particularly lower-income members.
The NHI White Paper published in June 2017 proposes that tax revenue currently directed towards medical scheme beneficiaries in the form of medical scheme tax credits be redirected towards funding the NHI.
According to Econex, in 2014/15 the total amount paid to the principal members of medical schemes in the form of medical scheme tax credits was approximately R18.5 billion.
In 2015/2016, principal members received R270 per month in tax credit for principal membership, R270 per month for the first beneficiary, and R181 per month for each of the remaining beneficiaries for whom they paid contributions.
This translates to a R3,240 tax return for a single medical aid member, up to R13,000 for a member with four beneficiaries.
Using information from the South African Revenue Service (SARS), Econex calculated the impact that medical aid scheme tax credits have on monthly medical scheme contributions. The group assumed that that the credit paid by SARS would reduce the value of the contributions – not taking into account the possible new structures of medical aids under the NHI or employer contributions to current schemes.
By taking the tax credit away, the effective monthly cost of a medical aid increases, making it less affordable.
Because these tax credits are a static payment (ie, they remain the same no matter what medical aid scheme members are on), taking them away will impact low-cost medical aid members more than expensive schemes.
For example, a medical aid member paying R820 a month for insurance, after taking into account the credit the effective rate is R584. With the tax credit removed, the member is effectively paying the full price, which is over 40% more each month, Econex said. This is reflected across all payment levels.
Econex said that at an affordability threshold of 12.85% – the percentage of monthly expenditure toward medical health that is still “reasonable” – almost two million medical aid members will be pushed into levels where they simply cannot absorb the costs.
“The removal of medical scheme tax credits will therefore affect poorer medical scheme beneficiaries disproportionately. In total, 21.86% of medical scheme beneficiaries will move above
the affordability threshold with the removal of tax credits, i.e. 1.9 million beneficiaries in 2016,” the group said.
“Removing the rebate will likely have the effect of rendering medical scheme membership unaffordable to 22% of current beneficiaries, with the impact falling largely on poorer medical scheme beneficiaries.”
Read: Over 200,000 South Africans could lose their medical aids due to NHI regulations: report
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