The richest top third of medical scheme members will see their medical aid tax credits disappear in the next five years, according to the latest information from the Department of Health (DOH) and the Treasury on their plans to fund National Health Insurance (NHI) in a phased transition over 15 years.
News24 reports that this was revealed on Tuesday in a briefing to Parliament’s Standing Committee on Appropriations by Nicholas Crisp, deputy DG for Health responsible for the NHI. Until now, funding plans have been vague and lacking in detail.
The transition does not yet have a start date, but Crisp said 2026/27 could be year one if everything was aligned.
The NHI Fund, which would be the first step, has not been established yet.
‘Subsidy for the rich’
The phased removal of tax credits would begin in year four of the transition, beginning with the wealthiest third of medical aid members. According to the Department of Health, the fiscus foregoes R34bn a year in revenue because of these credits.
Minister of Health Aaron Motsoaledi has repeatedly described them as “a subsidy for the rich”.
In the plan presented on Tuesday, the DOH estimated that R11.3bn (around one-third of the total, in 2023 prices) would be raised in the first phase. Several years later, a second tranche, incorporating the middle-income third, would be added.
The assumed income threshold that would be affected, according to the illustrative plan, would be people earning R700 000 or more.
The sequencing of the various sources of funding and their incorporation into the NHI fund is as follows:
• In year one, two, and three, existing NHI funding, already allocated in the budget, would be incorporated, leading to an estimated value in the fund of R1.629bn.
• In year four, one-third of medical aid tax credits would be added to the fund, taking it to R12.962bn.
• In year five, budget allocations to the DOH, provincial Health Departments, and funding to the Department of Correctional Services for private healthcare for inmates would be added. The second third of medical tax credits would be scrapped and channelled into the fund, taking it to R158.676bn.
• In year seven, government’s employer contributions to the medical aid of public servants (around R70bn) will be added, raising it to R258.676bn.
• In year eight, the medical costs covered by the Road Accident Fund and the Workmen’s Compensation Act will be included, raising the total to R307.676bn.
• In year 11, R136bn in additional taxes will be added.
• The tax contribution rises to R150bn in years 14 and 15, taking the total to R457.876bn.
No abolition, no duplication
Crisp says the changes, including the scrapping of medical aid tax credits and the imposition of new taxes, will be introduced through money Bills introduced by the Finance Minister.
As the NHI develops and increases its services, medical aid schemes will no longer be permitted to reimburse members for services available on the NHI, effectively rendering them increasingly redundant.
Crisp told Business Day that SA’s current healthcare expenditure – about R600bn a year – was “more than enough to run a proper healthcare system”.
“The private sector currently spends R21bn on administration and (loses) R30bn to fraud annually. If we just remove that R50bn and stop subsidising the sector, we could already make a huge dent (in the provision of healthcare),” he said.
Legal obstacles
Motsoaledi faces eight court cases against the NHI from various organisations, and has applied to the courts for them all to be heard together. A hearing to decide whether to consolidate the cases has been set for February.
Asked by the chair of the committee, Mmusi Maimane, whether Motsoaledi saw any scope for mediation “as it was likely he would spend the next 10 years in court”, Motsoaledi said that the only alternative solutions provided had been “offensive” to him.
He was referring to proposals by Business Unity SA to design and make low-cost medical aid schemes compulsory for all employed people. This would lighten the load on the public sector and allow more people to access the private sector.
News24 article – NHI: Govt plans to cut tax perks of richest medical aid members (Restricted access)
Business Day article – Taxes for National Health Insurance ‘are years away’ (Restricted access)
See more from MedicalBrief archives:
VAT hikes for NHI funding ‘socially unjust’ – SAMA
No plans yet for NHI funding through taxes – Treasury
Income tax hike and payroll tax proposed for NHI funding
NHI ‘will lead to emigration, corruption’