Reassessing the debate on medical tax credits and NHI — accuracy matters for sound health policy

The debate about medical scheme tax credits and National Health Insurance (NHI) frequently oversimplifies complex fiscal and institutional issues. This risks undermining legitimate policy goals, including equity, financial protection and the stabilisation of a mixed health system. Several claims made in an article by Olive Shisana about the role of medical tax credits (MTC), the interpretation of the NHI Act and the constitutional responsibilities of ministers are the result of such oversimplification and lead her, in our opinion, to erroneous conclusions.

Let us start with Shisana’s allegations that the minister of finance, in not removing the tax credits for taxpayers who have contributed to medical schemes, contravenes legislation and “contradicts the constitutional process”.

She makes this claim on three grounds. First, the NHI Act was passed by the legislature in 2023 and signed into law by the President in 2024, and the law says that the NHI will be funded, in part, from the increased taxes the fiscus will receive when medical scheme tax credits are removed. This, she says, is the will of the people and individual Cabinet ministers may not override it.

However, the will of the people is primarily expressed through parliamentary elections every four years. The individual laws passed by the elected Parliament are not necessarily supported by the majority who elected the winning party and the electorate only gets its opportunity to indicate approval or otherwise when the next election comes around. There was a noticeable loss of electoral support for the ANC, despite the very public signing of the legislation during the 2024 general elections. Far from being an endorsement of the legislation, it could reasonably be interpreted as a rejection by the “collective will”. Indeed, the electorate supported other parties, many of which oppose aspects of the NHI Act, particularly as it affects medical schemes. A major source of disagreement within the Government of National Unity since it was formed, is precisely this NHI Act and how the NHI might be funded. When governments change, especially when the parties constituting a government change, and the Cabinet changes, policies made by a previous Parliament may change too. That is constitutional democracy.

Shisana anticipated this response to her first argument in her second argument, which asserted that there had been extensive grassroots consultation across the country and that this consultation endorsed the NHI Bill, including its position on medical aid tax credits. This is disingenuous. In the first instance, the procedural validity of the parliamentary process leading up to the passage of the NHI Bill is a matter before the Constitutional Court – the argument being that the legislation was hastened through without proper consideration of the inputs made to both the national and provincial legislatures. Second, public participation is essential, but it does not equate to universal agreement nor does it substitute for implementability assessments, costings, actuarial analysis and system-readiness evaluations – none of which have been provided by government to date.

Shisana’s third criticism of the minister of finance as undermining democratic decision-making is that “(t)he minister of finance’s role is to allocate funds to implement laws passed by Parliament and signed by the president”. His failure to reallocate the MTC to the NHI Fund, she says, “creates the perception that one individual can override the collective will of the nation”.

But this misstates how South Africa’s constitutional and fiscal architecture functions. While the NHI Act contains an enabling clause regarding potential sources of funding, it does not and cannot constitute an automatic appropriation. It does not override the annual budget process. The NHI Act, quite simply, is not a money bill. The Constitution explicitly assigns the minister of finance (who has the sole authority to introduce a money bill) in conjunction with Parliament the responsibility for safeguarding the public finances, setting fiscal policy and ensuring budget sustainability. But budget appropriation requires legislation approved by Parliament – which is why it is called a budget “vote”. This is a constitutional safeguard designed to prevent arbitrary fiscal decisions. It is therefore incorrect to imply that the minister can or must reallocate credits absent an appropriation act that specifies the amount, the year and the conditions. It is the majority coalition of parties that will sign off on the budget and take responsibility for what happens to the MTC.

Intertwined with Shisana’s charges that the minister was undermining democracy and the Constitution was a second set of arguments about the equity impact of the MTC. She also argues that the MTC is itself a regressive tax, i.e. it leads to greater inequality; and furthermore, that the failure to remove it was undermining South Africa’s commitment to universal health cover (UHC).

Let us start by saying that a tapered tax credit for high-earning medical aid members is an option. But not now, while the NHI is not implemented (with a low probability of implementation), the public sector is resource-constrained and poorly managed, and absent a coherent vision for the medical schemes system.

But to respond to Shisana’s misrepresentation of the equity implications: is the tax credit regressive or progressive?

The medical tax credit system was deliberately redesigned in the mid-2000s to replace the previous, regressive deduction regime. Under the old system, higher-income taxpayers received the greatest benefit because deductions increased in value with marginal tax rates. The shift to a flat, standard-rate medical tax credit created a far more equitable structure in which all taxpayers receive the same rand-value benefit regardless of income. For example, a family of four, at any income level, is entitled to a tax credit of R14,640 – or R3,660 per person per annum (compared with R5,587 that the government spends on current public sector users). If you have a relatively low income – say, R140,000 pa, the value of this tax credit is 10.5% of your income. If you earn R800,000, the value of the tax credit is 1.9%. This is a highly progressive, pro-poor tax regime – noting that high-income groups actually finance the bulk of the tax credit. Conversely, removing the tax credit impacts the “middle classes” – say those above the tax threshold up to about R1-million income a year, a whole lot more than it does the upper-income groups.

Second, removing the tax credit will effectively increase the cost of medical aid for the average household by R14,640 a year. Many will find this increase such that they will give up their medical aids and will fall back on the public sector for expensive hospital and chronic disease care. This would have strong anti-equity consequences in both the public and private sectors. In the public sector, the budgets allocated to provinces to provide public health services is based on their population size excluding the number of people covered by medical aid. If the provincial budgets were not increased to cover these additional patients shifting from the private sector, all patients in the public sector would in effect be compromised by the lower per capita budget. It should be pointed out that the health budget has not even kept up with current needs, let alone the additional costs of medical aid patients moving over. Alternatively, if, as is supposed to happen, these middle-income patients were charged for the services in the public sector but no longer had medical aid cover, the impact on their households would likely be ruinous.

In the private medical scheme sector, the shrinking risk pools, and adverse selection (i.e. members who are struggling to afford medical aid are more likely to leave if they are healthy, leaving the medical schemes with a progressively sicker and more costly pool of beneficiaries) will drive up premiums for remaining members, and worsen affordability – especially for the sick – hardly consistent with equity objectives.

South Africa’s health system is segmented and unequal, but the causes of inequality are not reducible to a single financing mechanism, let alone to the medical tax credits. It is therefore inaccurate to imply that maintaining medical scheme tax credits “continues to maintain inequality” or that the removal of credits would automatically advance equity.

Shisana also presents an overly narrow understanding of universal health coverage (UHC). As a concept, UHC does not prescribe a single financing model and explicitly accommodates mixed systems comprising tax-funded public provision and regulated health insurance – precisely the framework South Africa already has and will have for the foreseeable future. But a tax-funded system with poor governance will produce inequity (such as Lamborghinis for the politically connected). Internationally, the determinant of equity is not whether private insurance exists, but whether both public and private systems are effectively regulated, risk-equalised and functionally integrated. They emphasise resilient systems, sound governance, transparent purchasing/procurement and primary care strengthening. South Africa’s challenges stem from compromised organisational capacity resulting from a poorly developed governance framework over both the public and private systems, not from the existence of medical tax credits.

South Africa needs a principled, evidence-based pathway to the deepening of UHC. It also requires accuracy and truthfulness in the use and interpretation of evidence, and in constitutional understanding. Simplifying these issues into moralistic and manipulative zero-sum arguments undermines the very objectives that need to be advanced. DM

Professor Alex van den Heever holds the chair of social security system administration and management studies at the Wits School of Governance. Max Price is a medical doctor and former vice-chancellor of the University of Cape Town.