The National Health Insurance (NHI) scheme, if implemented as envisioned, could more than double personal income tax rates for millions of South Africans, an economic consultancy firm has said.
BusinessTech reports that the data from the Health Funders Association (HFA), in partnership with Genesis Analytics, showed the scheme could lead to a massive loss of disposable income for medical aid members, without guaranteeing improvements in healthcare outcomes.
The HFA, representing medical schemes covering more than half of all people on medical aid, has launched a legal challenge against key parts of the NHI Act, arguing that in its current form, and without private sector collaboration, “the Act is fiscally impossible and operationally unworkable, and threatens the stability of the economy and health system”.
To test the viability of the NHI, the HFA commissioned Genesis Analytics to model different scenarios and funding assumptions.
The report showed that implementing the NHI as envisioned would require a 115% increase in personal income tax (from an average of 21% to 46%) just to maintain the care currently enjoyed by medical scheme members.
Lower-income earners could see their tax rates jump from 18% to 41%, while the highest earners would face marginal rates of up to 68%.
Genesis also considered a scenario where public and private health expenditures are pooled. Even then, income tax would still have to rise by 47%, from an average of 21% to 31%.
The report also highlighted the diversity of medical scheme members, countering the perception that only high-income, white South Africans benefit from private healthcare.
More than 68% of medical scheme members are black, Indian or coloured, and up to 83% earn less than R37 500 per month, meaning the proposed changes would disproportionately impact working-class families.
“The proposed model offers no guarantee of improved outcomes, while restricting the mechanisms that currently drive quality and innovation in healthcare,” said Thoneshan Naidoo, CEO of the HFA.
Tax credits
In addition to the massive tax implications, the NHI would also result in the loss of medical scheme tax credits, a key mechanism helping lower- and middle-income households afford private healthcare.
According to HFA chairperson Craig Comrie, these tax credits are essential for many South Africans and are a key factor in their ability to afford cover.
The loss of these credits, he said, which are worth R1 220 per month or R14 640 per year for a family of four, would not only hurt household budgets but also drive more people on to the already overstretched public health system.
“For some families, this would make private healthcare cover unaffordable, transferring at least 400 000 to 700 000 more people on to an already overburdened public health system.”
Medical scheme members already contribute significantly to the public healthcare budget, despite not using it.
“The public health budget is more than the tax credit amount, at around R5 000 per person per year. Therefore, members are receiving a benefit that is much lower than the benefit currently received by non-medical scheme members,” he said.
While there has been speculation that medical tax credits could be scrapped to help fund the NHI, Comrie said only the Minister of Finance can introduce such changes through a Money Bill.
“The NHI Bill has no power to implement tax changes. Should it become necessary, the HFA will strongly oppose any proposed legislation to this effect through all available avenues,” he said.
The Genesis model also explored whether value could be extracted through greater efficiency.
Even under optimistic assumptions, such as a 45% reduction in private sector costs, the model found it would still be impossible to fund the NHI without extreme tax increases.
For example, raising VAT from 15% to 36% would be necessary if the government sought an alternative source of funding, a scenario HFA said is entirely unrealistic.
See more from MedicalBrief archives:
NHI tax ‘ask’ unaffordable, says organised business
NHI — a funding model masquerading as a delivery system
Tax alone not enough to pay for NHI
Income tax hike and payroll tax proposed for NHI funding