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Tax at a cost to others

FAnews Journalist Myra Knoesen speaks about the 2018/19 amendment to the medical tax subsidy.

Read more about this topic and how the amended subsidy may affect the affordability for medical scheme cover in the below article that was published in FAnews on 8 March 2018.

Tax at a cost to others

In the 2018 Budget Speech Minister of Finance, Malusi Gigaba, stated “Over the medium term, the National Health Insurance (NHI) is allocated an additional R4.2 billion, funded through an amendment to the medical expenses tax subsidy. Over the next three years, below-inflation increases in medical tax credits will help government to fund the rollout of NHI,” the budget review stated. Overall, government will be spending R205 billion on health in 2018/19 growing to R240 billion by 2020/21.

As one news source put it, “it will come at a cost to those with private medical schemes”. FAnews spoke to a few medical schemes to get their take on the tax subsidy and what lies ahead.

The proposed subsidy

“The changes announced by the Minister in the budget speech are incremental and represent a pragmatic approach to balancing the need for additional funds for the NHI while not undermining the important role of the tax credits,” says Dr Jonathan Broomberg, CEO of Discovery Health.

“The medical scheme tax credits are a progressive tax instrument which plays an important role in assisting low income families to afford medical scheme cover. It is not clear that the net effect of reducing the tax credits will actually save the government money, as the financial impact of the increased burden on the public sector may outweigh the savings on the tax credit. We therefore do not believe that these credits should be materially reduced,” continued Broomberg.

“An NHI system in all countries is almost always funded by taxes that those respective governments collect. Of course, as taxes increase consumers have less disposable income and as a result, some consumers will always feel the pinch. If there is a better system to offer healthcare for South Africans, we would all welcome it. I do believe a balance between a private system and the NHI system could improve the overall health system for all South Africans. A challenge in South Africa is how we fund NHI. In many of the other countries the unemployment rate is low and while our unemployment rate is higher it means our tax base is smaller. Therefore, if consumers cannot afford the increases they could elect to opt out and that is why it is so critical that we support a growing economy which creates more jobs and enhances the financial wellness of our citizens,” says Damian McHugh, Head of Health Marketing at Momentum.

“We need to be able to offer low income earners cost effective healthcare cover in South Africa. Our South African medical schemes cannot always provide the most cost-effective solutions because of some of the limitations in respect of Prescribed Minimum Benefits in the current Act. The regulators have been reviewing these aspects and we support initiatives that will offer more affordable solutions to a greater majority of South African citizens. We believe that private public partnerships are required in order to achieve the health outcomes we would all like. Currently, in the absence of an NHI system, some healthcare product providers have offered health insurance solutions to cater for a low-cost solution. We have found that employers offering these solutions experience an increase in productivity over the longer terms because employees are healthier and have access to quality healthcare. If we can achieve that on a larger scale in South Africa, it will be to the benefit of our country,” continued McHugh.

Feeling the pinch

“The proposed medical expenses tax subsidy does not present any challenges to medical schemes. People just have to have private medical cover until such time as the public hospitals are back to the standards pre-2000. The Government refuses to acknowledge the elephant in the room – there are not enough doctors and other healthcare professionals and they will not work for free or wait to be paid in six months’ time. Without doctors and other healthcare professionals, there is no healthcare system; so, money will not cure the problem. Tax credits make no difference to the upper end of income earners. The lower end, on the other hand, is just so over borrowed that the low increase in medical tax credits makes little difference,” says Dennis van der Merwe, Principal Officer of Genesis.

“It is unlikely that people will resign from a medical scheme because they do not receive a tax break on their contributions. However, as costs increase, and members’ disposable income is under threat, they will potentially change their minds,” says McHugh.

“Arguably, the biggest challenge facing medical schemes is the rising cost of healthcare and the accompanying affordability. The revise medical tax credit for the 2018/19 tax year is slightly up from last year. Whilst this is not in line with inflation, the lower tax credits are perceived negatively by members. A reduced subsidy to fund medical scheme contributions and its associated healthcare expenses increases the risk of members opting for lower benefit options or complete resignation from schemes. This then results in members accepting the risk of day-to-day and in hospital costs in their personal capacity,” says Jessogan Chetty, Chief Financial Officer at Bestmed.

The reality of the matter

“The implementation of the NHI will inevitably pose a risk to medical schemes with regard to declining members. The reality however, is that private healthcare will remain a personal choice, provided that it is affordable,” says Chetty.

“The ongoing squeeze on individual taxpayers is nothing new. Year after year, predictions are made that the tax burden on individuals is close to reaching a tipping point; yet, medical scheme membership has remained constant over the last few years. People who want to have access to private healthcare, somehow seem to make a plan by cutting down on other expenses or by moving to more affordable benefit options. The entire system is, to a large degree, dysfunctional. The taxpayers carrying the whole load pay high tax and then still have to pay for schools, health and security. High taxes are meant to come with services, yet, in South Africa, we are accustomed to limited services. Think of it… what we have now, is in fact NHI, but with sub-standard management at the majority of public hospitals. What we need is strong and visionary management; not money,” concluded van der Merwe.

“Medical schemes are constantly challenged to maintain the monthly contributions members pay for the benefits they receive within acceptable limits. The resultant effect is medical schemes will have to, in conjunction with the Council for Medical Schemes, consider strategic and affordable benefit designs aimed at bridging the gaps between public and private healthcare,” concluded Chetty.

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