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Medical aid and the VAT increase unpacked

The VAT increase and additional general fuel levy will have a knock-on effect for consumers.

Since the announcement of the 1% Value Added Tax (VAT) increase, from 14% to 15%, by the finance minister last month, there has been much debate around its impact on consumers and just how this will affect the money left in their pockets at the end of the month. With the revised general fuel levy, it’s clear that consumers will have to tighten their belts and adhere to stricter budgets.

The rising costs of healthcare

One area of concern is the cost of private medical aid and VAT. For years, increasing healthcare inflation and economic pressures have been a challenge for the healthcare industry. The reality is that when consumers are struggling, medical aid, which is essentially a grudge purchase, is often viewed as unaffordable. In addition, healthcare costs are not regulated which is why it is crucial for medical aid schemes to continue to explore ways to contain costs without compromising the level of healthcare offered to members.

Members’ contributions

However, there is some good news regarding VAT and medical aid because the 1% increase will not impact monthly contributions or annual benefits. Many members are confused as to whether VAT is payable on medical aid contributions but let me reassure you it is not. The VAT increase will have no effect on members directly and what they pay every month. Medical aid contributions for 2018 are already set and Bonitas will not increase contributions mid-year to accommodate the change in VAT. So, while the increase in VAT may influence the price of services, it will not impact benefits.

If your plan covers you at 100% of a scheme’s rate, you are still covered at 100% of that rate, no matter what the cost to the scheme because the scheme will absorb the VAT when paying for member’s benefits. The only impact is when it comes to savings and day-to-day benefits with members having a 1% lower buying power.

The Council for Medical Schemes

Changing contributions in the middle of the year can only be made with the permission of the Council for Medical Schemes following a request from the trustees of the medical scheme. This is a rare occurrence and most schemes generally put through contribution increases in January each year.

The law

VAT is never the property of any private entity but belongs to the government. ‘We are therefore only vendors that collect the monies on their behalf. From April 1, Bonitas will increase the VAT to all providers of the Scheme by 1%. However, although this will have a direct impact on the budget of the Scheme for 2018 it will be absorbed by operational surpluses and not passed on to members.

Tax credits

One positive announcement out of the budget speech regarding medical aid was around tax credits. 

Medical tax credits are effectively used as an ‘expense’ when calculating tax and reduces the amount of tax payable by a household belonging to a medical aid. There are eight million people who rely on these credits to make medical aid more affordable. Speculation was rife that the tax credit would be removed but it is a relief that private medical aid members have some reprieve.

Conclusion

The bottom line: The 1% VAT increase and the additional 52 cents general fuel levy will have a knock-on effect for South African consumers, things will cost more. However, it will not affect monthly medical aid premiums or member benefits although it will have an indirect impact in terms of healthcare services being more expensive, which will reduce buying power.

Gerhard Van Emmenis is principal officer of Bonitas Medical Fund.

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All good and well but at the end of the day the Council of Medical Schemes are a total FAILURE as year on year the medical schemes just get the thumbs-up for whatever increases “they” want. The Council of Medical Schemes not taking note of the HUGE profits being declared by listed schemes, private hospitals, etc. – profits for the benefit of the top echelons and shareholders. The Council of Medical Schemes are therefore assisting the medical schemes with the fleecing of the public of hard earned cash. The 15% VAT will be taken into account by these medical schemes for their next increase and once again the Council will be very eager to oblige. The Council and schemes apparently under the same impression: the cow will keep on producing. The cow is running dry as in the private sector year on year salary increases are way below the actual inflation rate of 7,25%, after all not everyone can be a government employees.

End of comments.

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