• Gupta fallout

    KPMG is still losing staff and clients due to Gupta fallout, according to insiders.

  • Stimulus reaction

    Ratings agency Fitch says SA's stimulus plan is unlikely to boost growth significantly.

  • The Ramaphosa Plan

    The president said on Friday that the work "starts now". He wasn't wrong, writes Pieter du Toit.


Plan to cut tax credits could see poorest medical aid holders lose out

Aug 29 2017 07:35

Johannesburg - Removing tax credits for medical schemes will make them unaffordable to 22% of current scheme holders, affecting poorer members most.

This is according to research by economics consultancy Econex, which looked at the impact of removing tax credits to medical schemes and then reallocating them to funding National Health Insurance (NHI), suggested by the 2017 White Paper.

The tax credits are paid to principal members of medical schemes to “reimburse” them for making use of private healthcare. During 2014/15 the amount of tax credits paid to these principal members was about R18.5bn.

During 2015/16 the total annual tax rebate paid to a principal member without dependents came to R3 240. A rebate of R12 966 was paid to a principal member with as many as four dependants.

Econex focused specifically on how the removal of the medical scheme tax credits would make medical scheme membership unaffordable, if the affordability threshold is 12.85% of income.

“We find that the removal of medical scheme tax credits will therefore affect poorer medical scheme beneficiaries disproportionately,” said Dr Paula Armstrong. These tax credits contribute to the affordability of medical scheme membership, particularly among the poorer beneficiary income groups. Tax credits effectively lower medical scheme contributions.

“In total, 21.86% of medical scheme beneficiaries will move above the affordability threshold with the removal of tax credits.” This means 1.9 million beneficiaries won't be able to afford medical scheme contributions.

The research was based on the Income and Expenditure Survey of 2010/2011, by Statistics South Africa. Econex observed private expenditure on medical scheme contributions, among other things, to calculate the overall spending on medical scheme contributions and the portions paid by individuals.

Econex calculated the tax rebate payable at a household level using information from the South African Revenue Service, dividing medical scheme beneficiaries into different quintiles on the basis of household income. It then measured the proportion of household income allocated to medical schemes against an affordability threshold.


For the poorest 20% of medical scheme members, tax credit reduces monthly contributions from R820.97 to R583.66. This reduces the proportion of household income allocated to medical aids from 35% to 22.04%.

For the wealthiest 20% of medical scheme members, the tax credit reduces the monthly contributions from R1 953.35 to R1 720.39. This reduces the proportion of household income from 6.29% to 5.50%.

For the poorest 20% of beneficiaries, the tax credit reduces the cost of medical scheme expenditure on average by more than 40%. The cost reduction is an average of 13.54% for the wealthiest beneficiaries.

Almost half (49.07%) of the poorest beneficiaries will move above the affordability threshold, indicating that the poorer medical scheme beneficiaries are impacted the most by the removal of tax credits.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

nhi  |  tax  |  medical aid  |  money


Company Snapshot

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

What do you think of President Cyril Ramaphosa's economic stimulus plan?

Previous results · Suggest a vote