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Research Note 46

Medical Scheme Tax Credits and Affordability

The 2017 version of the NHI White Paper calls for tax revenue currently paid to medical scheme beneficiaries in the form of medical scheme tax credits to be reallocated towards funding the NHI.1 Econex assesses the impact of the tax credit on the affordability of medical schemes for existing members. In particular, we consider the proportion of medical scheme beneficiaries for whom the removal of medical scheme tax credits would make medical scheme membership unaffordable. Importantly, we consider the impact of removing the tax credit ceteris paribus; i.e. we consider only the impact of removing tax credits. We do not consider how medical scheme affordability will change with adjustments to risk pools such as mandatory membership, risk equalization or single benefit options. The analysis therefore shows the theoretical impact of removing the tax credit on the affordability of medical schemes. We find that following the removal of the tax credit, the proportion of medical scheme beneficiaries who fall above the affordability threshold will increase from 15.10% to 21.28%. In other words, an additional 6.18% of beneficiaries will move above the affordability threshold following the removal of the tax credit.