Taxation

National Health Insurance in the 2017 Budget Speech and the 2017 NHI White Paper.

Ahead of the 2017 October Budget speech, with much to discuss, including the fate of South African Airways, it is unclear if finance minister Malusi Gigaba will prioritise the National Health Insurance (NHI) and address the proposed NHI funding mechanisms.

Government has assured South Africans that health remains a key priority and is committed to increasing investment towards health promotion.

The National Health Insurance (NHI) is moving into its second phase of implementation. Key learnings achieved during the 11 NHI pilot projects will be incorporated into the future design of the NHI programme. This includes:

  • The design of contracts with general practitioners
  • More effective chronic medicine dispensing
  • Strengthening of district health services
  • Supportive information systems

The 2017 White Paper released in June 2017 was revised to incorporate the 160 submissions received. Clarity concerning the longer-term financing arrangements, the medical schemes environment and the consolidation of public sector funds was expected.

The 2015 NHI White Paper included financing scenarios based on economic growth of 5%, 3.5% and 2%. However, GDP growth in 2016 was only 0.3%. This significantly affects the resources available to finance the NHI.

In the 2017 budget speech, previous Minister of Finance Pravin Gordhan introduced numerous tax reforms in an effort to raise an additional R28bn. The most notable intervention included an additional 4% increase on individual income above R1.5mil per annum to 45%.

However, the budget speech did not include the additional taxes suggested in the 2015 and 2017 NHI White Paper as a means to generate funds for NHI, including payroll taxes, increases to VAT and surcharges to personal income tax.

The NHI White Paper released in June 2017 used economic forecasts and cost projects which are now considered outdated, and predicted that by 2025 the NHI would cost R256 billion with an anticipated shortfall of R108 billion in 2010 terms – likely an under estimate. Although the NHI Fund was to become operational in 2017, the fund remains inactive to date. Health Minister Aaron Motsoaledi has suggested medical aid tax credits should be redirected to finance this fund, raising approximately R22 billion annually.

Removing this tax credit would affect consumers in various ways, with lower income earners facing more financial pressure than higher income earners, and would increase personal income tax payable. This, coupled with rising medical scheme premiums, would reduce medical aid affordability and give rise to declining medical aid membership. If this credit was redirected to finance the NHI Fund before the implementation of the envisioned health reforms this may ultimately leave numerous South Africans without access to private health care, and no suitable public health alternative.

In addition to the removal of medical aid tax credits, the 2017 White Paper supports the removal of subsidies paid to government employees. Given that the subsidies form part of government employment packages, the removal of these subsidies may be viewed as an effective pay cut and may leave consumers without medical insurance and access to private healthcare, and no suitable public health alternative.

In addition to the removal of medical aid tax credits, the 2017 White Paper supports the removal of subsidies paid to government employees. Given that the subsidies form part of government employment packages, the removal of these subsidies may be viewed as an effective pay cut. This would affect members of the Government Employees Medical Scheme (GEMS), the Police Medical Scheme (PolMed), Parliamentary Medical Scheme (PMS), Municipal Workers Union Medical Scheme, State entity medical schemes e.g. Transmed and various private medical schemes. While COSATU supports the NHI, it is unclear how its members will react to the removal of subsidies and MTC before the full implementation of the NHI is complete.

The risk is that by redirecting medical aid tax credits and government employee subsidies to fund the NHI, those who rely on these subsidies to afford medical scheme membership could be left without medical insurance and access to private healthcare and no suitable public health alternative.

Key contact:
Ashleigh Theophanides

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