It is highly unlikely that the tax initiatives aimed at encouraging people who earn low incomes to join medical schemes will see the light of day.
This is according to Alex van den Heever, a member of the Risk Equalisation Fund Task Group (REFTG) and an adviser to the Registrar of Medical Schemes. The REFTG drew up the Department of Health's policy for a social health insurance (SHI) system for South Africa.
Van den Heever says the proposal from the National Treasury has not been adopted as official government policy and the Department of Health was not consulted about it.
In his Budget speech this week, Finance Minister Trevor Manuel announced that the tax-free portion of employer subsidies of medical scheme contribution will be limited to a fixed rand amount from March 1, 2006.
Currently, you, as an employee, do not pay tax on employer subsidies of up to two-thirds of your contributions - with no limit on the rand amount of this tax perk. This perk favours people who belong to more expensive medical scheme options, and especially those paying the highest tax rates.
Some medical scheme members - those who earn too little to pay tax - do not benefit from the subsidy, while for others the benefit effectively results in a 26.7 percent reduction in their medical scheme contributions.
The treasury says a discussion document on the proposed rand limit on the tax-free portion of medical scheme subsidies will be released soon, and thereafter the limit will be determined.
However, it appears the National Treasury intends the rand limit to be high enough to cover contributions on the cheaper medical scheme options and to link the limit to a members' number of beneficiaries. Research done by the REFTG shows that the current tax measures favour single members over those with larger families.
Van den Heever says if the treasury's proposal was implemented, it would "represent a major social security intervention, falling within the policy responsibility of the Minister of Health and well outside the realm of a mere technical adjustment to a fringe benefit".
The Department of Health has adopted a SHI policy that involves removing the tax perks in favour of a direct government subsidy to medical scheme members through a Risk Equalisation Fund (REF).
The fund will equalise the costs of providing basic benefits to members across all medical schemes. In addition, the department plans to introduce income cross-subsidies - with higher-income earners subsidising the contributions of lower earners.
The health department be-lieves the SHI system, which will redistribute what the government currently spends on medical scheme members, will result in another three million people being covered by schemes.
Van den Heever says it would cost the government R16.5 billion a year to implement the treasury's proposal in a way that it would result in three million lower-income earners joining medical schemes. The tax perks for scheme members currently cost about R9 billion a year.
He says the treasury's proposal is a "weak policy move" that would not benefit those earning below the tax threshold at all, and would leave benefits at the discretion of employers.
He says attempts to subsidise medical scheme membership through the tax system lack transparency and have a tendency to favour privileged groups. Such attempts are generally regarded as poor public finance.
However, Van den Heever says, the move would not interfere with the Department of Health's SHI policy.
He says the cabinet has approved a dry run of the REF that will test its effects. The fund was expected to start operating in 2006, but is now only likely to start operating in 2007, he says.
When the dry run provides more information about the REF, the Department of Health will pursue other SHI plans, which could still take some years to implement.