As the National Health Insurance (NHI) Act moves closer to implementation, one critical policy detail remains underexamined: the removal of the medical tax credit. Framed by the government as a simple efficiency measure, this change could have far-reaching and harmful consequences for millions of South Africans.
An independent economist expert report by Genesis Analytics, commissioned by the Health Funders Association to assess the feasibility and impact of the NHI Act, shows that removing the medical tax credit will reduce healthcare affordability, shrink medical scheme membership and place an unsustainable burden on the public sector. Far from advancing universal access, the change risks destabilising the health system working families depend on.
What is the medical tax credit?
Medical tax credits are a well-established feature of healthcare financing in many countries, including Australia, where tax rebates encourage individuals to maintain private health cover. By enabling a large portion of the population to self-fund healthcare, the state can focus its resources on supporting the poor and vulnerable.
In SA the medical tax credit provides a tax reduction of R364 for the principal member and first dependant and R246 for each additional dependant each month — that is R1,220 per month less tax payable by a family of four. While modest for higher income earners, these amounts help working families offset the cost of medical scheme contributions. For many households this relief determines whether they can maintain healthcare cover or are forced to drop out entirely.
What happens if it is removed?
Modelling by Genesis Analytics estimates that the removal of the medical tax credit would make medical scheme membership unaffordable for up to 884,000 individuals. An average family of four would experience a monthly reduction in their take-home pay of R1,220 (R14,640 per year). Affected members would not be high-income earners but largely lower and middle-income South Africans, most of whom are black, unionised and employed in essential public service roles. They are among the 4.1-million employed taxpayers who already contribute 74% of personal income tax and account for a substantial share of the VAT collected, which is allocated towards the country’s health system and broader fiscal base.
Though the state may initially recover up to R27bn in forgone tax credits (less than 3% of the cost of NHI under a high efficiency scenario), the long-term costs are far higher. Providing basic public sector primary healthcare to these 884,000 individuals would require an additional R4.2bn annually. If the state were to offer care equivalent to that provided by medical schemes, the cost would rise to about R13.6bn per year. These figures make it clear that any perceived saving is quickly offset by the higher cost of publicly funded care. This is why the health market inquiry initiated by the Competition Commission recommended a restructure rather than removal of the tax credit.
The public health system is already overstretched. According to the Office of Health Standards Compliance, one in three public facilities did not meet the required standards when inspected. Absorbing nearly 1-million additional patients would further erode quality and access for everyone. Moreover, VAT is levied on private healthcare services. When members shift to public services this VAT is no longer collected, resulting in additional revenue loss that has implications for the broader fiscal system. No analysis of these far-reaching effects (a necessary part of the legislative process) has been published to date.
Destabilising medical schemes and public finances
The removal of the tax credit also undermines the risk pool that supports medical schemes. The removal of the tax credit is especially regressive, disproportionately affecting lower-income earners who rely on the credit to keep medical scheme contributions affordable.
About 80% of members who are younger and healthier cross-subsidise the 20% who are older and sicker. If younger, lower-risk members exit due to affordability pressures the remaining members face rising contributions. This triggers a cycle of further exits and contribution increases, ultimately threatening the viability of medical schemes.
The financial impact does not stop at the health sector. The state will bear higher direct healthcare costs, experience reduced tax revenue and contend with lower economic productivity from a destabilised middle class. What appears to be a R27bn saving is in fact a policy decision that could cost the country far more in financial, social and economic terms.
Undermining the path to universal health coverage
The removal of the medical tax credit is not an isolated adjustment. It is part of a broader NHI model that centralises healthcare funding in a single public fund and prohibits medical schemes from covering services included in the NHI. While the intention is ostensibly to create a more equitable system, equity cannot be achieved by removing the only effective safety net many South Africans currently have.
Modelling by Genesis Analytics shows that under the NHI’s shared resources scenario personal income taxes would increase to 1.5 times the current average rate. Yet medical scheme members, particularly those in the working class, would see a 43% decline in access to care, even under optimistic efficiency assumptions. Removing the medical tax credit will accelerate this decline and weaken the system’s financial resilience.
The removal of the tax credit is only the first step in a series of tax increases required to fund the NHI, and the cumulative effect will be even more severe, potentially pushing 1.4-million to 3.3-million people out of medical schemes as further taxes are imposed.
A better way forward
SA must reform its healthcare system, but that reform should build on what already works. Rather than scrapping the medical tax credit the government should consider how it can be progressively restructured or expanded to better support vulnerable populations while preserving financial sustainability.
The Health Funders Association has proposed a hybrid multifund model that retains private contributions, supports public sector expansion and fosters collaboration across sectors. This approach is more flexible, fiscally responsible and better aligned with the goal of achieving universal access without sacrificing choice or quality.
Working families already contribute more than their fair share. Removing the medical tax credit may appear on paper as a budgetary gain but it remains to be seen whether the removal of the tax credit would lead to a real increase in government revenue. For nearly 1-million people it could mean the loss of secure healthcare access.
SA deserves a smarter and more balanced path to universal coverage — one that protects the progress already made.
• Naidoo is CEO of the Health Funders Association.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.