The proposed tax reforms of medical scheme subsidies and medical expenses will benefit lower-income earners and people with large families who belong to medical schemes, Emile Stipp, the convener of the healthcare committee of the Actuarial Society of South Africa, told a recent Board of Healthcare Funders seminar.
But the tax reforms are unlikely to succeed in attracting low-income earners who currently do not belong to schemes to join schemes, unless their employers are willing to offer them subsidies, Stipp says.
The reforms are also unlikely to affect employers' willingness to spend more on benefits for employees, he says.
This year's Old Mutual Healthcare Survey found that 82 percent of the employers questioned said they would not alter the subsidy they pay for employees' medical scheme contributions if the tax benefits that employees receive are changed or if a social health insurance system is adopted.
Stipp says the proposed tax reforms are also good news for lower-income earners who receive treatment from employer-sponsored programmes that are operated outside the workplace.
Members who are likely to be adversely affected by the proposed reforms are those who receive subsidies from their employers that are higher than the proposed capped amounts, Stipp says. These members are likely to be:
- Single members;
- Those who belong to higher-cost options because they can afford to or because they need extensive benefits; and
- Lower-income earners who previously were able to deduct from their taxable income expenses and contributions that exceeded five percent of their income. They will no longer be able to deduct their contributions.
The current proposals also lend themselves to "family splitting", particularly in cases where contributions for the principal member and an adult dependant are the same, Stipp says.
In a family of four, for example, each spouse would join a medical scheme as a principal member, with one child as a dependant of each spouse. This way the family could enjoy tax benefits of R2 000 instead of R1 600.
Stipp says the proposals will also affect medical savings accounts, because one of the major reasons for contributing to such an account is the tax benefits. If the tax benefit for subsidies from employers is capped at R500 for the first two beneficiaries and R300 for any other beneficiaries, the incentive to contribute to a medical savings account may be removed, he says.
Stipp says many comments have been made about achieving equity in the amount that the government spends on private and public health care. However, he says, it should be remembered that:
- Members of medical schemes pay for that cover;
- Public sector health expenditure is funded by taxpayers who are mostly members of schemes;
- Medical scheme members tend not to use public health care; and
- Private sector medical goods are subject to VAT, which provides the government with more revenue.