Medical tax credit increase offers limited relief to households

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JEREMY MAGGS: One of the quieter but I think significant announcements in this year’s budget was the decision to increase medical tax credits for the first time in several years, offering some relief to around nine million South Africans on medical aid.

Now, before the budget, the Board of Healthcare Funders (BHF) warned that failing to adjust those credits or worse, phasing them out to fund National Health Insurance (NHI), could push hundreds of thousands out of private cover and place even more strain on the public system.

Read/listen:

So let’s discuss this in a little more detail. Joining me now is Dr Katlego Mothudi, managing director of the board. It’s the representative industry body for South Africa’s medical schemes and healthcare funders.

Dr Mothudi, you asked for inflation-linked increases, if I recall, do you think the budget has meaningfully restored the real value, then, of medical tax credits? Or maybe just slowed the erosion? What’s your view?

KATLEGO MOTHUDI: Hi, Jeremy, and thanks for having us. We think that it is a positive step after having frozen this for about, I think, three or four cycles.

While it may, from a quantum perspective, might not look massive, we think that aligning this with the inflationary increases is a positive step.

There is, I think, a significant meaning that we also place on this, in that it is a recognition that the medical aid sector is an important player in terms of advancing access.

I think when you’ve previously spoken on this matter, we spoke about the erosion of this and also on the potential losses of membership profiles to the schemes, and in that it would push a lot of families into the public sector, which cannot actually afford the burden that it has now.

JEREMY MAGGS: I want to test you on the word quantum in just a moment, but let me ask you this, Treasury has made it clear that NHI still remains the long-term objective, in spite of new court challenges. Are tax credits, ultimately, though, living on borrowed time, do you think?

KATLEGO MOTHUDI: It may be if the process towards NHI eventually turns against the private sector litigation, and I think Treasury has the responsibility to make a pronouncement that is in line with government policy, and NHI is government policy.

But realistically, we think that there should be reforms that are parallel to the thinking of installing either NHI or something akin to it that the country deems to be a viable vehicle to usher us towards universal health coverage.

Listen/read: Health funders renew fight against NHI law

In terms of the actual relief now, I think it is okay, I could say. I’m saying that because while an inflationary increase is in line with many such changes, we do know that medical aid increases or healthcare increases are often way above inflation, touted to be, in some instance, about 4% above.

So it does provide some relief. It’s not adequate. There are other things that we that should happen alongside this and we’ve spoken about some of these.

Over and above these changes, there’s still a need for pricing transparency and pricing control that needs to be implemented along the lines of the recommendations from the Health Market Inquiry.

JEREMY MAGGS: But as of today, though, I guess we’ve got to ask the question, given that medical scheme contributions have risen well above inflation, even with this adjustment, the reality is that households are not really better off in real terms, are they?

KATLEGO MOTHUDI: They are not. Prior to the increase, for a family of four, the rebate would have amounted to about R14 000. This may increase it to maybe just under R16 000, and you can see that it is not a lot, but it does go some way towards that.

It enables many families to at least purchase what is called a PMB (Prescribed Minimum Benefits) level package, which allows for access to a lot of medical conditions that can be treated in hospital, and at least look after the chronic disease profile of those who are afflicted as such.

JEREMY MAGGS: What would happen if credits were phased out gradually rather than abruptly? Would the system still destabilise?

KATLEGO MOTHUDI: I don’t know whether we could have a gradual impact, because what was mooted by the department was that they would look at the higher income earners, but that would only retrieve, and based on previous calculations, I think about R33 billion was paid back in terms of these rebates.

People earning above R750 000 per annum on medical schemes only contribute about R3 billion to that pot of money. So even shaving off that top will not have a massive injection into the NHI project.

But what it would do is that those people who would have lost those credits would immediately downgrade, and that would make the medical aid industry escalate even higher, making it more unaffordable.

Read: NHI’s R1trn price tag would paralyse the economy – Sakeliga

If you look at the band below R750 000, and we have postulated that between 450 000 to 700 000 families would not be able to afford medical cover, and which would make medical aids even more unaffordable. This throws almost nine million people back into the state’s hand for medical care.

We do know already that there are cutbacks. For the last quarter or so, many hospitals have been reduced to providing emergency surgeries only.

JEREMY MAGGS: And none of this, of course, is helped with debt at nearly 79% of GDP, which raises the question about whether the fiscus can realistically afford stronger support for private healthcare.

KATLEGO MOTHUDI: No, definitely. The economists tell us that there’s only so much that you can get from tax. Even if you raise taxes, you actually reach a point of decline.

Listen: BHF to appeal medical aid negotiation bid

So there should be other ways and people are touting, making sure that you inject enough jobs into the economy and expand the tax base and so on, instead of just increasing the tax for those who are already paying now.

JEREMY MAGGS: Just a final question, I just want to get you on the record on this one. You’ll be aware of the agreement from President Ramaphosa to put the promulgation of the NHI Act on hold. That was an order granted by the Pretoria High Court.

How much breathing space does it give an organisation such as yours and others within the sector to perhaps rethink the model? Or do you think that it’s a fait accompli anyway, and that the court decision means nothing?

KATLEGO MOTHUDI: We had several irons in the fire on this in terms of our legal strategy. We were disappointed that we couldn’t have the first of the cases continue but we do have however, the other case that’s coming up in May that’s looking at the parliamentary processes.

We are hopeful still that the courts will lean our way.

Our plight is just to make sure that we review the law, make sure that it’s fit for purpose so that whatever is implemented will have meaningful impact in terms of access and reduction of financial exposure to South African citizens.

JEREMY MAGGS: Thank you very much indeed. Dr Katlego Mothudi, managing director of the Board of Healthcare Funders.

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