Medical aid subsidies and tax rebates under threat

Health Minister Aaron Motsoaledi said the government subsidises billions for the private healthcare system every year, and this money can be used to fund National Health Insurance (NHI).

President Cyril Ramaphosa signed the NHI Act into law on 15 May this year. The legislation promises a complete overhaul of the country’s healthcare system.

This plan aims to establish a universal healthcare coverage system, ensuring all South Africans have access to essential medical services.

Under the NHI, a single public fund will act as the sole purchaser and payer for healthcare services, drawing from both the public and private sectors.

The government has promised that signing the NHI into law will result in universal healthcare free at the point of delivery. 

However, many experts warned that this ambition is far from reality, and the legislation faces several hurdles, including a lack of funding.

At this stage, the legislation does not include a funding model, leaving many wondering how it will be funded.

The Bureau for Economic Research (BER) has previously said NHI affordability is complicated and largely depends on how the basic benefit package is structured. 

Several estimates of the annual cost of an NHI scheme are in the public domain, but the Health Department has not yet shared its basic benefit package publicly. Therefore, it is not clear what will be included.

However, the BER said it is likely that, at least initially, the basic benefit package will be focused on child health, preventative primary healthcare services and maternal and reproductive healthcare services.

“The initial package will probably be closely aligned with the primary healthcare services offered at public primary facilities and emergency services provided in the public health system,” it said.

The potential cost of NHI becomes clearer if we examine the Health Department’s cost estimates, the latest of which are available in the 2011 NHI Green Paper. 

The White Papers of 2015 and 2017 shared the same cost estimates. At the time, NHI was estimated to cost R256 billion (2010 prices) by 2024/25.

Adjusting for CPI inflation, this comes out to a full roll-out cost of about R470 billion by 2024/25 (2022 prices). The allocated government health budget for 2024/25 equates to R254 billion (in 2022 prices).

“This implies that the original projected NHI cost is about twice the current health budget,” the BER said. 

“The Green and White papers rely on reallocating private health spending to the NHI Fund and further fund-raising through other means,” it said. 

“However, even this simple calculation illustrates that South Africa is unlikely to afford this cost, given current fiscal and economic conditions and competing areas of social expenditure such as grants and education.” 

“The idea that South Africa can double its health expenditure relies on the assumption that private health expenditure is fully reallocated to the NHI Fund, which is highly unlikely.” 

The government has previously hinted that tax increases will be used to fund the NHI, but many warned that this would place too much pressure on South Africa’s already overburdened tax base.

Last year, the Health Department said medical aid tax credits would end in South Africa. The money will instead be fed into the NHI Fund.

“South Africa currently spends 8.5% of GDP on health, with 4.2% in the public sector serving more than 85% of the population and 4.3% in the private sector, which serves less than 15% of the population,” it said.

“The 8.5% of GDP spending is way above what other countries of similar economic development spend on healthcare.”

The department has explicitly stated that it has no intention of appropriating the money that is already part of medical scheme funds.

However, it believes that diminishing medical aid in the country—or making it impossible for it to exist in its current state—will eventually result in the money that goes into these funds every year being fed into the NHI.

This will be done through more taxes, including general tax revenue from payrolls and a surcharge on taxable income, complemented by employment-based levies and other taxes.

Following the 2024 elections, which saw the ANC lose its majority and form a coalition with opposition parties, many wondered how the new government would approach NHI.

The ANC has been a staunch supporter of NHI, while the DA has vehemently opposed it.

The newly appointed Motsoaledi settled the debate. In a recent parliamentary speech, he said the government is subsidising R70 billion for private healthcare every year.

He said about 1.3 million public representatives and public servants are on medical aid. “Our government, the state, subsidises private healthcare for the rich in a way that’s unimaginable,” he said. 

“1.3 million public servants plus all Members of Parliament, honourable members standing in front of whom I’m standing and honourable members and legislatures, and all the judges of our country are subsidised by the fiscus of this country to the tune of R70 billion per annum.” 

He said this comes in the form of medical aid subsidies in their salaries. “Any person in our country who is on medical aid, regardless of who their employer is, gets tax rebates from SARS,” he said. 

“And I am made to believe that these tax rebates amount to R30 billion. Hence, it’s R100 billion that goes out to subsidise us, the rich, and leave the poor out.”

Motsoaledi also defended the need for NHI in a society that is as unequal as South Africa.

“There is no debate at all that South Africa is the most unequal society in the world, and if you want to see what inequality looks like, you come to the health sector,” he said.

“Within the borders of the same country, some are getting world-class healthcare while others get such poor health care we may believe we live in different countries. We can no longer, with our eyes open, sustain such gross inequality.”