The National Health Insurance (NHI) suffered two setbacks this week, with the scheme being temporarily suspended pending a Constitutional Court challenge, further delaying its implementation (see story below), and the Finance Minister yesterday declining to cut back on medical tax credits.
In his Budget Speech yesterday, Finance Minister Enoch Godongwana ignored the Health Department’s call last year for medical tax credits to be phased out to help fund the NHI – potentially starting with high-income earners as soon as April – and has, instead, increased them in line with inflation for the first time since 2023. Godongwanga also proposed the eligibility net be expanded, reports TimesLIVE.
The Treasury’s deputy DG for tax and financial sector policy, Chris Axelson, had said its latest analysis on the impact of withdrawing medical tax credits reached similar conclusions to previous work highlighted in the 2017 medium-term budget policy statement, which showed most of the individuals who benefited were low and middle-income earners.
“Because it’s a credit with the same value to every individual, even if you took it away from very high-income earners it wouldn’t generate that much additional revenue,” he said. “We are a little concerned about potential impact on low and middle-income earners if it is reduced or withdrawn.”
Treasury provided R29.53bn in tax credits to medical scheme members in 2023/24, and R8bn more in tax credits for qualifying out-of-pocket healthcare expenditure, according to the Budget Review.
The tax credits for medical scheme contributions are presently set at R364 a month for the first two members and R246 a month for each additional dependant, and a medical expenses tax credit for qualifying out-of-pocket healthcare expenditure.
The tax credits have remained at these values since the government’s 2022/23 financial year, which means they have shrunk in real terms.
Last week the Board of Healthcare Funders (BHF) and the Health Funders Association (HFA) had urged Godongwana to keep the credits in play and increase their value, saying they were a vital mechanism for ensuring scheme membership remains affordable for working families.
The two organisations each represent about half the medical scheme market, reports Business Day.
“Medical tax credits are not a subsidy for the wealthy, they are a lifeline for ordinary South Africans to keep quality healthcare within reach,” said BHF MD Katlego Mothudi.
“When their value quietly declines year after year, it is working households which feel the squeeze. If the government is serious about attaining universal health coverage, it cannot allow the stealth reduction in these credits to continue.”
He had added that it would be “fiscally and socially counterproductive to dismantle existing funding mechanisms long before a fully operational alternative is in place”.
“At a minimum, the credits should be adjusted annually in line with inflation to preserve their real value and protect affordability,” he had suggested.
In addition to increasing the tax credits in line with inflation, the Treasury is proposing tax amendments that would extend the eligibility to include members of certain statutory medical schemes that did not fall under the Council for Medical Schemes.
Members of these medical schemes are consequently not eligible for the medical scheme fees tax credit under section 6A of the Income Tax Act, the Treasury said. It proposes that eligibility be extended to these members, provided their medical schemes adhere to the governance and solvency requirements of the Medical Schemes Act.
It was not immediately clear to which medical schemes this would apply. Axelson told TimesLIVE the change will benefit several thousand medical scheme beneficiaries but declined to name the schemes.
This comes as organisations litigating against the Act have agreed to suspend all court challenges pending a Constitutional Court judgment on Parliament’s public participation process on the contested legislation, reports Business Day.
In return, President Cyril Ramaphosa and Health Minister Aaron Motsoaledi have agreed not to proclaim or implement any sections of the NHI Act before the top court issues judgment on two cases challenging the process followed by MPs before the President signed the NHI Bill into law.
Judge Brenda Neukircher made the agreement by the parties to stay litigation an order of the court on Tuesday – which also means the the government’s vision for universal health coverage, through NHI, will be put on ice.
The legal challenges by Solidarity, the Hospital Association of SA, Hospital Association of South Africa, South African Medical Association, Health Funders Association, SA Private Practitioners Forum and business lobby group Sakeliga will be stayed pending an order of the top court.
The parties have also agreed not to legally challenge the Act, without leave of the court on grounds of exceptional and necessary circumstances, until the apex court rules.
The effect of the court order also means the Health Department’s legal challenge to consolidate all NHI challenges has been postponed.
The Constitutional Court is due to hear the NHI litigation from 5 to 7 May.
Health deputy DG Dr Nicholas Crisp told Business Day that the department’s decision on how to proceed with the consolidation litigation would depend on the court outcomes.
“We have all agreed to not proceed … until we hear from the Constitutional Court,” he said.
Although this would delay implementation of the NHI, “aspects of the preparation which are important to the health system will continue.”
Despite several litigations against the NHI Act, Crisp said the government wants a health system that can work for the public.
“We have a complicated system that is spending on inordinate amounts of money on a very inefficient way of paying for healthcare. … We have more than 100 different funding streams for healthcare, consuming lots of money that could be spent on patient care.”
Temporary win
Theuns du Buisson, economic researcher at the Solidarity Research Institute (SRI), said the development shows that sustained pressure by litigants is “having the intended effect”.
“It is time to maintain this pressure, and it provides the Department of Health with an opportunity to reconsider,” he told Business Tech.
Things should never have gone this far in the first place, he added, with multiple parties having long indicated that the NHI is unworkable, irrational, and unaffordable, and wide open to legal challenges.
The legal cases target almost everything related to the NHI, from public consultation processes during law-drafting to the rationality of signing the laws, and multiple constitutional grounds, such as removing freedom of choice in healthcare provision and funding.
While some litigants want to have the laws reworked into something viable, Solidarity wants the Act scrapped altogether and alternative systems to be considered.
“There is a viable alternative, rather than destroying the lives of millions of South Africans through the NHI,” it said.
“Now is the time for the country’s leaders to exercise sober judgement and to consider proposals – to abandon the NHI now, as it is not workable.”
Meanwhile, Godongwana also announced that the consolidated Health budget will grow from a revised estimate of R295bn in 2025/26 to R310bn in 2026/27. It then rises to R323.9bn in 2027/28 and R334bn in the outer year.
An additional R21.3bn is allocated to the provinces over the medium term to pay for doctors and other healthcare personnel, as well as goods and services.
The Medical Research Council is allocated an additional R410m to offset research funding that was withdrawn by the US last year, in line with a co-funding agreement with global donors that seeks to sustain critical HIV/Aids research programmes. The funds are not new money but come from reprioritising the national Health department’s budget.
A further R24m is redirected from the department to the Office of Health Standards Compliance to enable it to fill posts and increase inspections of hospitals and clinics.
Consolidated government spending on health will marginally outpace inflation, growing at 4.2% over the next three years. The Treasury estimates inflation will average 3.3% over the medium term.
BusinessTech article – Ramaphosa puts the NHI on hold (Open access)
Business Day article – Medical schemes urge finance minister to increase medical tax credits (Restricted access)
See more from MedicalBrief archives:
ConCourt shifts focus in NHI assent challenge
Ramaphosa seeks Constitutional Court intervention on NHI ruling