Taxpayers spooked by the prospect of a hefty income tax hike to fund the expansion of the private health system can relax. The proposal, already in the works for two years, faces major obstacles.
The Department of Health wants to expand the number of South Africans using the private system by raising income taxes. It is punting the creation of a massive social health insurance fund to subsidise medical aid cover for the low-paid.
The scheme has powerful opponents. The National Treasury, custodian of tax policy, has argued from the outset that the proposal is deeply flawed. It has been joined by crucial stakeholders, including the labour movement, which speaks for its intended beneficiaries.
Health department officials said the debate on the scheme was premature, as an interdepartmental task team was examining various models of social health insurance. It would make a presentation to the Cabinet on June 5.
However, the department appears to be lobbying for a mandatory 4,5% tax, in a bid to build support for a slightly altered version of its original proposal. Experts say the proposal is an attempt to address the ‘two-tiered health system†where those who can afford health care get it at premium quality while most poor people are inadequately served.
Olive Shisana, former health director general and a director at the Human Sciences Research Council, argued in a recent research paper, that the department’s proposal was likely to prove inadequate and exacerbate existing shortcomings.
‘Segmenting the population into those who have money to buy medical aid and can be part of social health insurance, and those who have little and hence rely on public system, will only add to existing inequities,†she said. ‘Only when South Africa has one national health insurance will the rich subsidise the poor, the healthy subsidise the sick, and the young subsidise the old.â€
She said a national health insurance would mean a universal cover for South Africans, giving everyone access to private and public healthcare. ‘Such a system should still allow those who want to have medical aid cover to have it only after contributing to national health insurance.â€
Shisana also argues that while Africans are far less likely to get medical aid than other racial groups, costs are increasingly unaffordable for a wide spectrum of South Africans. ‘Even for whites there is a large decrease in the proportion of the population with access to medical aid, from nearly 70% in 1996 to 47% in 2003. For Africans, the percentage has shrunk from 10% to 5% in the same period.â€
Treasury worries centre on affordability — South Africa already spends 8,5% of its gross domestic product on health care, compared with a World Health Organisation recommendation of 5% — and effects could ripple through the tax system into the broader economy.
A more modest proposal, outlined in this year’s Budget Review, is a cap on the tax deductibility of health benefits. Employers can currently contribute up to two-thirds of an employee’s medical insurance costs tax-free. This creates a favourable fringe benefit and an effective discount on the most expensive medical schemes, subsidised by the receiver. The discount makes it easier for medical schemes to impose price increases that outstrip inflation.
As Minister of Health Manto Tshabalala-Msimang points out, the system is regressive — the tax benefit is zero for those who earn too little to pay tax, while it slashes 26,7% from the price of medical aid for top income earners. The Budget Review proposes replacing the two-thirds limit with an absolute cap ‘which in effect provides complete tax relief for more affordable medical aid packages — while restricting benefits for the more expensive packagesâ€.
‘We want to extend cover in a way that is more equitable, while putting pressure on the more inefficient, unaffordable schemes,†one official involved in developing the proposals told the Mail & Guardian.
Even incremental changes to the tax code require extremely careful coordination, another official said. ‘The Department of Health is proposing a big-bang approach — a major fund, mandatory taxes and so on. We’d prefer to start small and expand gradually. We’re still looking at sequencing — what’s doable, and not doable, but this idea does represent Treasury saying, for the first time, that we need to think about a contributory social insurance system.â€
A major concern relates to the affordability of a fund that would turn over R40-billion a year, nearly four times that of the current social insurance system, which covers road accidents, work-related injuries and unemployment.
Critics of the health department scheme in government, business and the unions also argue that formal employment remains too low to introduce it now.
The health department declined to comment.