Removing medical tax credits is another blow for taxpayers

The 25 October Medium Term Budget Policy Statement (MTBPS) is likely to deliver yet another blow to over taxed and struggling lower to middle income earners by announcing the removal of medical scheme tax credits (MTC). This follows the introduction of the Demarcation Regulations on 1 April this year, which ban primary health insurance products, restrict hospital cash back plans and more.

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These moves effectively destroy access to quality healthcare especially for the poorest medical scheme members and those who rely on lower cost insurance products to fund their healthcare needs. Recent research by Econex (Research Note 46 August 2017) estimates that around 1.9 million people (21.8% of medical scheme beneficiaries) will lose their private medical scheme membership if medical scheme tax credits are removed.

Proposing to scrap medical scheme tax credits is government’s ploy to get more money out of taxpayers at the expense of the private medical care sector to fund the NHI. South Africans need to understand the implications for their household budgets and how their access to quality healthcare is being systematically destroyed.

Tax credits for medical aid contributions were introduced to encourage individuals to pay more towards their own medical expenses and not rely on publicly provided medical care. A policy that is now being reversed. This will disproportionally affect the poorest medical scheme members in all sectors, including government employees and union members.

Read more: Being certain of the uncertainties – NHI cost and funding

Eliminating tax credits connected to medical care will drive up the cost of medical scheme contributions, meaning fewer new members will join and those at the margin will drop out. Fewer people on private medical schemes and limited access to low cost insurance products will swell the already unmanageable burden faced by the public sector.

Removing MTC denies people the right to take care of themselves and is a strategy designed to force all but the wealthiest citizens into a dysfunctional public healthcare system. Is it part of the Department of Health’s Machiavellian plot to destroy the lower end of the private sector health insurance market and transfer individuals’ private money into the NHI?

Removing MTC will adversely affect all medical scheme members and effectively cap the number of citizens covered by private medical schemes if no new members join at the lower end of the market. Inevitably, the average age of members and risk profiles will rise and result in increased premiums for those who manage to remain in the market.

South African Revenue Service (SARS) documentation shows phasing out MTC could equate to medical aid members losing between R300 and over R1 000 per month. While a single medical aid holder would lose R303 a month, or R3 636 a year, the more significant impact for a family of four would be R1 014 a month or R12 168 per annum.

There is no evidence to prove that voluntary expenditure by private individuals on medical scheme membership or on health insurance products disadvantages the poor. The opposite is true. When more people take responsibility for their own healthcare requirements, it relieves the burden on the state, leaving government more to spend on the poor.

Why does government want to take on the burden of providing healthcare for all including those who are willing to make and pay for their own arrangements? The only solution to get more people covered by private insurance arrangements is to deregulate the market, allow insurers to compete freely, and enable people to make free choices.

The proposed mandatory payments into the central NHI Fund will crowd out what is left of private insurance. Cash-strapped individuals will no longer be able to afford to pay both voluntary private insurance premiums and a mandatory NHI payment – they will no longer have a choice. Those unable to pay both will be forced to use the already overstretched, dysfunctional public health service.

Government should not prevent mutually consenting adults from entering into private arrangements for healthcare. It is wrong for government to force citizens into using NHI. The impact will be disastrous for the nation’s health and the economy.