If the government goes ahead with dumping medical aid tax credits, the consequences could be dire, writes Luyanda Njilo in Business Day, warning that public facilities will have to absorb a drop in medical scheme membership, combined with a decline in private healthcare spending.
He writes:
South Africa’s healthcare sector is approaching a point that could redefine affordability, access and private sector stability for decades. The proposed withdrawal of medical aid tax credits, beginning with high-income earners in 2026 and extended to all taxpayers by 2027, is more than a revenue measure to support the planned National Health Insurance (NHI).
It shows a structural turning point in how healthcare is financed and introduces pressures that may prove more severe even than those experienced during Covid-19.
Analysis suggests that removing medical tax credits could lead to a 6% decline in medical scheme membership and a reduction of about R20bn in private healthcare spending. These declines would be greater than the 1% membership loss and 4% contraction in private spending recorded during the pandemic years.
For hospitals, the impact could amount to a reduction in revenue of R5bn, concentrated among mid-tier consumers, who already face rising affordability constraints.
This is not simply a healthcare story. It is an affordability story that reveals how exposed the middle of the income distribution has become. More than half of medical tax credit claimants earn between R200 000 and R500 000 a year. This segment has grown rapidly, yet its ability to sustain private healthcare has weakened.
Over the past decade formal employment expanded by 18% but medical scheme membership grew by only 5%, while the number of formally employed people without medical aid rose from 2.2m to 3.5m.
That divergence is an unmistakeable sign of strain in household budgets.
Pricier entry-level medical aid plans
Removing medical tax credits risks accelerating these pressures. Entry-level medical aid plans could become 33% more expensive, with the cost of mid-tier plans rising 13% and premium plans 8%.
Even with the expected downgrading behaviour, where members shift from mid-tier to lower-cost options, the affordability ceiling is already high enough that many households will fall out of medical aid entirely.
As this happens, pressure will intensify on the public sector, which is absorbing growing patient volumes without equivalent increases in funding, infrastructure or workforce capacity.
However, focusing only on the immediate disruption obscures the wider structural trajectory South Africa is on. Universal health systems around the world were not implemented within a decade. They were built through long periods of institutional evolution.
Germany’s model was developed over a century. The UK’s National Health Service took more than 60 years to consolidate. Even faster-moving systems, such as those in South Korea and Thailand, required 20-30 years to reach maturity.
South Africa is still in the foundational phase of its journey, building governance frameworks, piloting contracting models, investing in digital patient systems and planning the healthcare workforce of the future.
Universal health systems around the world were not implemented within a decade. They were built through long periods of institutional evolution. Seen this way, the NHI is not a single policy event. It is the beginning of a multi-decade transition.
The withdrawal of medical tax credits marks the first central inflection point in this process.
It will create short-term volatility and accelerate the debate about what a hybrid public-private system should look like.
The question is not whether private healthcare will change but how it will adapt, and which capabilities will anchor the next phase of system reform.
Importantly, this transition is unfolding within a fiscally constrained environment that differs materially from many international precedents.
South Africa is attempting to restructure healthcare financing while simultaneously consolidating public finances, servicing elevated debt costs and managing competing pressures across education, energy and social protection.
This materially limits the state’s ability to absorb sudden increases in patient volumes without risking service degradation. It also heightens the importance of policy sequencing. A sharp affordability shock to the private healthcare system risks weakening precisely the capacity on which the state will rely during the NHI’s early phases.
If displaced medical aid members migrate into the public system faster than delivery capacity expands, per-patient costs could rise without corresponding improvements in outcomes.
From a fiscal perspective, this would represent a cost shift that would compound pressure on an already stretched public health budget.
The country has an opportunity to learn from global systems that successfully blended public financing with private capacity. Doing so requires clarity and sequencing.
Certain segments are well positioned to support this transition. Digital health platforms, diagnostic networks, high-efficiency day hospitals and value-based care models offer pathways to expand access while lowering costs.
Public and private partnerships will become significantly more critical as the state seeks to scale delivery capacity without over-extending its balance sheet.
These opportunities underscore the reality that universal health coverage is not a threat to private capital. It relies on it for scale, efficiency and innovation.
The country has an opportunity to learn from global systems that successfully blended public financing with private capacity. Doing so requires clarity and sequencing.
Policymakers will need to balance fiscal consolidation with affordability thresholds that protect the middle-income population. Investors must distinguish short-term volatility from the longer-term structural opportunity created by a more integrated health system.
Healthcare operators will have to accelerate efficiency, digitalisation and specialist capacity planning to meet evolving demand.
Ultimately, South Africa must recognise that universal health coverage is achieved not through abrupt shifts but through phased institutional strengthening that builds stability over decades rather than years.
The cancellation of medical tax credits is a consequential step. It exposes the vulnerabilities in the current system while illuminating the choices that will shape the next era of our healthcare evolution.
The country is not short of capability or ambition. What it needs is a financing pathway that protects households today while enabling a more equitable and sustainable system tomorrow.
• Njilo is senior research analyst at Nedbank Corporate & Investment Banking.
See more from MedicalBrief archives:
Oversimplified NHI medical tax credits hides complexities
Changes to medical tax credits aimed at big earners – Crisp