Category Tax

Show me the money - medical schemes contributions

16 February 2006 Angelo Coppola

The National Budget speech had more than a passing interest for medical scheme members, as the tax breaks that most members have taken advantage of in the past were revised, and the threshold for individual tax-deductible medical expenses rose from 5% to

In some cases this will affect their take-home pay and may force members to buy-down taking cheaper options that aren't appropriate to their healthcare requirements, says Jeremy Yatt, CEO of one of the last remaining independent medical schemes Fedhealth.

It also appears, from the recommendations being considered, that people contributing lesser amounts will be spared, at least initially.

While the finance ministers drive to close any perceived loopholes in the tax regime, one wonders how this tax level will be monitored, adjusted, measured and subsidised, as it now becomes a rand-based number.

Consider for a moment what measure of inflation the government will use to determine what kind of increased subsidy to give to it's own employees. It is unlikely to be the medical inflation number, which is well ahead of the current CPI number, says Yatt.

And while most medical schemes will look at annual or perhaps bi-annual inflation-adjusted increases in the following years, one wonders what the government line will be. Or will they try to control the premium increase percentage that the private sector schemes will announce? asks Yatt.

One would assume that they could control the GEMS annual premium increase, but then that could be tantamount to anti-competitive behaviour?

For medical schemes there is another unknown factor - member reaction to the closure of the contribution tax deductibility loophole. It is anticipated that members that are adversely affected will opt for cheaper scheme options.

Yatt says that for those that opt for a cheaper option, the challenge to the scheme will be that their claims behaviour won't change. So the scheme will take financial strain.

Eventually in theory at least, options and premiums will have to be developed that fall within the subsidy limit that government has determined, regardless of the cost of the entire healthcare cycle and the needs of the member. The other option is that members will then have to contribute more of their disposable income to cover their healthcare costs?

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