Medical Aid tax credits and the NHI

Gerhard Van Emmenis, Principal Officer of Bonitas Medical Fund.

‘Medical expense tax credits are effectively used as an ‘expense’ when calculating tax and reduces the amount of tax payable by a household which belongs to medical aid,’ explains Gerhard Van Emmenis, Principal Officer of Bonitas Medical Fund.

There are eight million people who rely on medical tax credits to make the premiums they pay more affordable. Rumour was rife that the former Minister of Finance, Malusi Gigaba, was going to this take this away but it is a relief that private medical aid members have some reprieve.

There is however an amendment to the medical expenses tax subsidy, Gigaba announced that the tax credits that consumers will receive will be less than CPI.

Why the change?

The rationale is that the removal of medical tax credits would contribute towards the cost of National Health Insurance (NHI). In addition, Health Minister, Dr Aaron Motsoaeledi, said in June 2017 that medical tax credits were unjust to the poor and should be abolished.

The reaction

However, a report by Econex was released saying that 1.9 million medical aid members would not be able to afford medical aid if this happened, the idea was shelved. But not completely.

Instead over the next three years, below CPI tax credit increases will apply in order to fund the roll out of NHI. According to the Budget speech, ‘an additional R4.2 billion was allocated to this initiative‚ funded by an amendment to the medical expense tax subsidy.’

An example:

By example, Van Emmenis says the tax credits received by an average family (two adults and two children) for the 2018 tax year is R12 168. This has been increased by only 2.3% to R12 456. This may seem like an insignificant increase as healthcare inflation and the average increases in medical aid tax credit in previous years has been around 6%.

He says, ‘However‚ considering the overall size of the budget shortfall, we are pleased that the tax credit was not removed completely.’

Will medical tax credits be phased out completely?

According to the Davis Tax Committee in November 2017 stated that only when the NHI is fully operational will tax credits be phased out. They also stated that more vulnerable members of the public such as people with disabilities and the aged will have to be considered separately because of the financial implications for them.

What are the implications for medical aid schemes?

The NHI white paper stipulates that until it is fully implemented and matured, the role of medical schemes will not change. Van Emmenis says, ‘This doesn’t preclude any changes to the business of medical schemes or transformation required in medical aid schemes. It is imperative that measures are put in place to allow medical schemes to work in tandem with the NHI, so that value for money is achieved and duplication of costs prevented.

‘Bonitas is premised on making quality healthcare more affordable and accessible. We, therefore, welcome the efforts of the NHI to improve access to healthcare. However, our key concerns are around quality and preventing duplication of services.’

He says for NHI to be a success, collaboration between medical schemes and Government is essential. ‘There needs to be agreement on the roles of both players as well as which benefits will be covered by the NHI and which can be offered by the medical schemes.’

What exactly is the money that's been allocated to the NHI in this budget going to be used for?

Provision of quality, affordable healthcare is dependent on several factors, says Van Emmenis. ‘The public healthcare sector is crippled by a lack of infrastructure, so our hope is that is some of this will be allocated to putting the correct measures in place to ensure quality healthcare facilities, adequate administration and strong partnerships with providers.’