South Africans are hurting under the tough economic circumstances that the country is facing with many having to seek guidance from debt advice agencies to keep afloat, but there may be more bad news on the way for ordinary citizens as the ruling party is proposing to remove tax credits from medical schemes. With the cost of living steadily on the rise and many South Africans being forced into reckless lending schemes and having to pay off their debts by consolidation loans, the thought of having to fork out more money to cover the deficit left by the proposed tax credit cut may be a hard pill to swallow.
Medical aid contributions are vital in a country where healthcare is largely privatized and government-run hospitals are overcrowded and understaffed with many having to wait an entire day before being seen. For most South Africans contributing to a Medical Aid already constitutes a big chunk of their expenses, and this new proposal will only impact the poorest members most, making it almost impossible for them to remain on a medical scheme. In fact, 22% of existing scheme holders (which is about 1.9 million South Africans) will no longer be able to afford their medical scheme contributions as per research carried out by the economics consultancy Econex who examined the impact of axing tax credits to medical schemes and funding the National Health Insurance (NHI). Econex based its research on the Income and Expenditure survey conducted by Statistics South Africa of the years 2010/2011 and looked at the private expenditure of scheme contributors, as well as calculated the tax rebate payable to households by examining information provided by SARS and looking at beneficiary income, proportion assigned to a medical aid scheme, and affordability.
Tax credits are usually paid back to the principal member to in effect ‘reimburse’ them for taking out private healthcare, and during 2014/2015 the total tax credits came to R18.5bn. Throughout 2015/2016 the total annual tax rebate remunerated to a principal member with no dependents was R3240, whilst a rebate of R12966 was paid to a principal member with four dependents. Taking medical scheme tax credits away will affect the poorest medical scheme holders disproportionately (who may already be under debt review) as these in effect make medical scheme contributions lower and more affordable.
In real terms, this means that 20% of the medical scheme members who are the most in need currently reduce their monthly contributions from R820.97 to R583.66 (reducing the portion of household income assigned to medical aids from 35% to 22.04%) by making use of tax credits, whilst the wealthiest 20% of medical scheme members have their monthly contribution reduced from R1953.35 to R1720.39 (with a reduction of household income from 6.29% to 5.50%). This puts the tax credit savings of medical schemes on average at more than 40% for the poorest beneficiaries, and 13.54%.for the richest. Nearly half (49.07%) of the poorest members who are often already struggling with debt problems and under debt consolidation will no longer be able to afford a medical aid and thus be hit the hardest by the proposed removal of tax credits.
With medical and hospital expenses predicted to increase in the future, it is vital to plan ahead for your medical expenses by looking at savvy saving tips and medical saving schemes, especially in retirement, when most chronic conditions tend to arise. Having no medical scheme in place when you need expensive surgery or rehabilitative care can have serious financial implications for your family and can leave your household crippled with debt and in dire need of debt counselling.