1.9m could be denied medical aid

The government's plan to ditch medical aid tax credits will have a disastrous effect on already cash-strapped South Africans and force nearly 2 million people onto the over-stretched state health system.

If the tax credit is removed, 22% of medical aid users will not be able to afford cover, Stellenbosch economics consultancy Econex warned in a report published on Friday - 1.9 million of the 8 million medical aid members, including children, will have to drop out of the private healthcare system.

In a national health insurance policy document released in July, Health Minister Aaron Motsoaledi said he wanted to remove the tax credit to users, which amounts to R20-billion a year.

Medical aid schemes' members get a tax reduction of R3,636 a year - or R303 a month. Motsoaledi said then that "the tax credit ... we believe, is unfair".

Economist Paula Armstrong, author of the Econex analysis, said the rebate was intended to "alleviate some pressure on the state [system]".

Taking it away would make medical aid unaffordable for many middle-class people.

She calculated that the richest 20% of South Africans spend a maximum of 12.85% on medical aid premiums and on the fees of physiotherapists and dentists not paid for by medical aid.

The poorest 20% of medical aid users pay 22% of their income in premiums. The removal of the tax credit would push the poorest medical aid users into spending 35% of their salary on the premiums alone.

Premiums would "become excessively expensive", said Armstrong.

"The removal of the tax credit affects the poorest [medical aid user] and that is the opposite of what national health insurance intends to achieve . this perpetuates inequality."

Frans Cronje, CEO of the SA Institute of Race Relations, said removing medical tax credits was a form of taxation.

He said the government was adopting a short-term solution to countering the effects of a weakening economy.

"Instead of structural reform in order to position South Africa's economy as competitive, and improve growth and tax revenues, the government is delaying the inevitable by finding extra taxes. This is unsustainable and it is going to end badly.

"The fiscal crunch means the government is desperate to raise new revenues from secondary taxation through the cutting of subsidies."

The middle class has experienced sharp drops in living standards and cannot afford to lose the tax credit, he said.

Motsoaledi said in June: "Once national health insurance is up and running, what reason will you have to keep medical schemes?

"Once the law is passed it affects all citizens in the country; they have to belong to it, they don't have a choice."