Medical Aid And Tax Credits: Pick Your Poison

By unshackling the market, we can create a more equal space for all.

Photo by Hush Naidoo Jade Photography on Unsplash

Written By: Vivienne Vermaak

I was unhappy when Finance Minister Enoch Godongwana announced that the medical aid tax credits might not be adjusted for inflation. Going forward, he suggested that I can expect the tax credit to decrease in value or for the rebate to be pulled entirely.

For us who have contributed to our schemes for many years, the tax rebate was an incentive to take care of our own health outside of the public system. For us, the medical aid and tax credit were signs of financial responsibility, freedom, and the government saying, ‘Thank you for decreasing our health budget burden and making our job easier.”

A friend of mine, who cannot afford medical aid, thought this was a good move by the Department of Health’s side in principle, because: “Why should someone who is a member of health insurance have his medical costs subsidized by me? While I bear the full costs of my medical treatment?”

It is the old familiar case of the ‘have-nots’ being upset about what the ‘haves’ have, so if they can’t have it, no one can – the principle of NHI in the first place. The South African government appears to be moving forward with the plan. Dr Nicholas Crisp, the deputy director-general for the NHI at the health department, says that medical tax credits amount to a loss of about R34 billion to the fiscus, which should be instead allocated to the NHI. “Once those services are paid for by the (NHI) fund, it would serve no purpose,” he said.

To the middle class, already wondering if medical aid costs are worth it, this might discourage membership, pushing up prices for those who remain. Some younger people might never join, which would shift the national healthcare even more towards the state, in a society where people expect the NHI to provide. I am not the only one with this concern.

The Centre for Risk Analysis has published it in one of their recent client Risk Alerts. Dr Katlego Mothudi, the managing director of the Board of Healthcare Funders, is also muttering darkly. He said that phasing out credits would punish people for trying to fund their own healthcare and push them out of the system completely.

Mike Settas, the chair of the health policy unit at the Free Market Foundation, agreed with Mothudi’s view. He further added that Crisp’s statement that the credits were a R34 billion loss was simplistic, as it failed to consider that most people on medical aid did not use the public health system, thus saving the government money. These people should be rewarded, not penalised.

It is a perennial problem with tax, as with poison – the right amount can do good, but too much can kill you. People on medical aid are quick to point out to those who are not that their tax rebate in no way takes anything away from others and does not count as a subsidy to an industry already making too much money. As one person put it: “The credit in Joe Public’s pocket has more chance of ending up in a health coach’s bank account, in exchange for a consult, than more money handed over to the criminal government.”

These matters are complicated, but any form of deregulation, in this sector as in others, might already distribute the burden and opportunity. Think of daily medical or health needs like one does cell phones, food, and clothes. How come most people have it? Because the government is not distributing them. Some of my other friends suggested opening cash-based competition.

There is a proliferation of cash plans, offering entry-level health and medical support for a few hundred rand a month. Allowing all doctors qualified in other countries to open up practices here without laborious licenses might also help. “Why do we have to get prescriptions for contact lenses or glasses. Scrap these regulations and habits. Similarly, get rid of the requirement that you must see the doctor every six months to renew prescriptions. Allow vets to treat people; they are allowed to treat every other animal, for god’s sake!” One might make a different consideration for surgery and speicialised services, perhaps.

What the government’s plan with the NHI is, remains to be seen - there is no clear direction or budget. Crisp’s confirmation that his department was working with the Treasury on imposing medical tax credit thresholds as part of its NHI implementation is problematic and seen as the first step in a process aimed at eliminating it entirely.

Crisp’s statement to parliament also contradicts a recent affidavit to the high court, where he said the government was not considering reducing tax credits in the medium or short term, so it is anyone’s guess how yet another stealth tax might be implemented and when. Medical schemes are still prevented from offering low-cost benefit options (LCBOs). Even though the Council for Medical Schemes formed stakeholder forums in 2019 to design and implement LCBOs, none of the suggestions have been permitted or implemented.

While regulation and taxes undoubtedly cause problems, they were also responses to real problems to start with, so it is a complex matter. That said, this tax break is one of the only ones I have left as a freelancer, and it keeps the system going. I would be sad to see it go, as will others. It might cause some to go off medical aid and then rely solely on government funded options, which will become another tax see-saw. So, we must pick our pill and poison carefully.

The time and space are ready for more liberated choices for all when it comes to health and wellness. By unshackling the market, one can create a new environment comprising the haves, the have-nots, and the have-somethings, creating a more equal space for all.

Vivienne Vermaak is an award-winning investigative journalist, writer and public speaker. Vivienne is a Senior Associate of The Free Market Foundation.