Government targets private medical aids for NHI 

The Department of Health is working with the National Treasury to begin a process to eliminate medical tax credits in a phased approach over the coming years. 

This will bring medical aid tax credits to an end, which costs the fiscus around R34 billion a year in lost revenue. The additional revenue collected is set to be used to fund the implementation of the National Health Insurance (NHI) scheme. 

Ultimately, the scheme aims to do away with private medical aids almost entirely, with Section 33 of the NHI Act prohibiting medical aid schemes from covering any service that the NHI covers, limiting private coverage.

In effect, this is an effort by the government to make private medical aids more expensive for individuals and eliminate its need entirely. 

It hopes that this will free up additional revenue and funding for the NHI, which will require close to a R1 trillion a year to implement if it offers the same level of care as the private sector does. 

The Centre for Risk Analysis (CRA) said the NHI remains a core part of ANC policy, and despite the party only gathering 40% of the vote in the last election, it is pushing ahead with it. 

Last week, the Department of Health confirmed it was working with the National Treasury to impose medical tax credit thresholds as part of the implementation of NHI. 

Imposing these thresholds is the first step in a process aimed at eliminating the medical tax credit entirely. 

The CRA warned that once this is implemented, it will increase the tax burden on medical aid members substantially and render private medical cover unaffordable for many. 

The Health Department’s deputy director-general for the NHI, Dr Nicholas Crisp, views these medical tax credits as a loss to the fiscus of about R34 billion that should instead be used for the NHI. 

The Board of Healthcare Funders’ managing director, Dr Katlego Mothudi, explained that this view is simplistic and one-sided. 

Mothudi explained that phasing out credits would punish people for trying to fund their own healthcare and push many out of the system entirely. 

This will put further pressure on a collapsing public healthcare system, resulting in lower-quality care for everyone. 

Medical aid members make very little use of the public healthcare system, reducing the financial burden on the state to deliver healthcare. 

Mothudi also pointed out that Crisp has submitted an affidavit to the High Court stating that the government was not considering the removal of medical tax credits in the short to medium term. 

This contradicted his admission in parliament that discussions with the National Treasury were underway to phase them out. 

NHI can break South Africa’s economy 

Crisp’s ambition to shift the R34 billion in revenue currently lost to medical tax credits towards NHI funding is part of the government’s broader plan to fund the scheme. 

The R34 billion from medical tax credits is a drop in the ocean compared to the estimated range of between R750 billion and R1.3 trillion, depending on the level of care. 

This will have to come from increased taxes on an already strained tax base in a stagnant economy, which is likely to prove extremely difficult. 

An analysis from Genesis Analytics shows that funding the NHI will require personal income tax (PIT) rates to more than double, if no other tax increases are implemented. 

The government has said the NHI will provide comprehensive, high-quality healthcare for all South Africans for free at the point of service. 

While this is a laudable goal, it will come at an immense cost to South African taxpayers, who will be expected to foot the bill for the NHI. 

In Genesis Analytics’ scenario, the firm assumed the spending on the NHI would be highly efficient, with minimal wastage. This will still result in close to R1 trillion being spent on the scheme a year. 

As a result, if the state were to use PIT to fund the NHI, it would more than double the R443 billion it receives from the tax each year. 

In this scenario, healthcare spending would consume 33% of the national Budget. In less efficient scenarios, taxes could triple, and health expenditure may take up to 44% of the Budget. 

This is based on the assumption that tax increases would be entirely directed to healthcare and that there would be no additional allocations to other needs.

Even pooling together all existing healthcare spending, both public and private, would require PIT to rise by 1.5 times its current rate – a 47% increase in tax rates.

Funding the NHI will also crowd out spending in other areas of the economy, slowing economic growth and impacting service delivery. 

“The steep tax increases required to fund the NHI will reduce disposable income, curb consumer spending across all sectors of the economy, and may trigger an exodus of high-income taxpayers,” the Health Funders Association said.

An alternative to steep tax increases for personal income taxpayers is potentially an increase in VAT, which is broad-based and does not risk squeezing an already small PIT tax base. 

While value-added tax (VAT) is not mentioned in the NHI Act as a means to raise funding, the estimated increase in the tax to fund the scheme would be around 20%, taking VAT from 15% to 36%.