Taxing medical schemes a flawed approach

25 May 2016
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IN HIS budget vote speech, Health Minister Aaron Motsoaledi repeated a lie when he asked, "how do we continue to justify a health-care system where 16% of the population, which in essence is the cream of the nation, have pooled their funds together in their own corner, away from the masses?"

As professors Heather McLeod and Servaas van der Berg have demonstrated, although the 16% of the population belonging to medical and bargaining council schemes receive good health services, "public healthcare quality is so inadequate that 30% of people without medical scheme cover pay for private treatment out of pocket".

South Africans have access to healthcare through either self-provision, or the public health-care system. There are many people, including ministers, MPs, senior government officials and a host of others who are supported by taxpayers, that make up the "privileged few having disproportionate access to health-care". These same people are among "the privileged few having disproportionate access" to superior transport, housing, food, clothing, entertainment and many other benefits.

Is it at all realistic to now declare that "this system is neither rational nor fair" and try and work out a scheme for all of these privileges to be shared with the people who do not have access to them? Or do we recognise that people are entitled to work for, and secure for themselves, better healthcare, transport, housing, food, and clothing, especially when they pay for these privileges entirely out of their own resources? There is no evidence that proves voluntary expenditure by private individuals on medical scheme membership disadvantages the poor. More likely, the opposite is true. When more people take responsibility for their own health-care requirements, it relieves the burden on the state so that it has more to spend on the poor.

The minister is trying to bamboozle us when he suggests a tax credit for medical scheme contributions is the same as a subsidy.

Tax credits linked to medical aid contributions were introduced to encourage individuals to pay more towards their own medical expenses and generally not rely on publicly provided medical care. Subsidies are prone to political manipulation and, usually, are channelled to special interest groups — after the government has taken its cut for acting as intermediary. Taking one person’s money to pay for another person’s medical care is a subsidy.

Proposing to scrap tax exemptions is government’s ploy to get more money out of taxpayers at the expense of the private medical care sector. Eliminating tax credits related to medical care will drive up the cost of medical scheme contributions and make them too expensive for new members to join, causing those at the margin to drop out. Fewer people on private medical schemes will swell the already unmanageable burden faced by the public sector.

According to the minister, medical aid reserves are another possible source of funds for the proposed, unfeasible and unworkable National Health Insurance scheme. Ironically, medical aid reserves or statutory solvency requirements were introduced by government to prevent a scheme from going insolvent should it experience an unusually high number of claims and record an operating loss in a particular period. The money in the reserve belongs to the members of the scheme and certainly not government. Any intimation that it can be expropriated (read stolen) will not pass constitutional muster.

Rather than assuming responsibility for all medical care, which is not necessary, the state should allow the private sector to operate more freely. If the government enlisted the help of the private sector, removed barriers that prevent the market from functioning efficiently and contracted out those services that can be provided more efficiently and at lower cost by private providers, it would be able to concentrate its efforts and taxpayer resources on those who truly cannot afford medical care.

Urbach has a masters degree in economics

This article was first published in Business Day on 17 May 2016



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