Is government planning to cut medical scheme tax credits to fund NHI?

Recent statements about how government plans to fund NHI have South Africans worried because it seems as if the controversial plan to offer medical services to every citizen will mean that they will have to forfeit their medical scheme tax credits.

Medical tax credits are important because they make it possible for consumers across all income groups to stay on their medical aid schemes, rather than become dependent on the already overburdened public health system.

Currently, the medical scheme tax credit is R364 per month for the main scheme member and the first dependent, with an additional R246 per month for each subsequent dependent. This equates to an annual reduction of R4 368 in personal income tax for a medical scheme member.

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Treasury asked for clarity on medical scheme credits

The Board of Healthcare Funders (BHF) has now written to National Treasury director general Dr Duncan Pieterse for urgent clarity on recent government statements indicating that medical scheme tax credits may be phased out to fund the National Health Insurance (NHI), a move that will ultimately affect affordability for low and middle-income earners, not just high-income groups.

The BHF’s letter follows remarks by deputy director general for NHI, Dr Nicholas Crisp, in a briefing to parliament, where he confirmed that discussions with Treasury are underway to gradually withdraw medical scheme tax credits.

This was reiterated in a presentation by the department of health to the standing committee on appropriations this week, which confirmed that the phasing process will begin in the 2026/27 financial year, starting with the wealthiest members.

However, the same presentation indicates that the phase-out will take place over a three year period ending in 2028/29, meaning that by the beginning of 2029, medical tax credits would be eliminated for all income groups, although the NHI itself is only expected to be fully implemented over 10 to 15 years.

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Plan to fund NHI will leave millions without financial protection

The BHF warns that this disconnect could leave millions of ordinary South Africans without meaningful financial protection long before a functioning alternative available, which will lead to significant coverage gaps.

This plan also appears to contradict Dr Crisp’s sworn affidavit to the High Court just weeks ago, when he asserted that there was “no intention, in the short or medium term, to remove the tax credits of low and middle income taxpayers”.  

Dr Katlego Mothudi, managing director of the BHF, points out that this inconsistency is deeply concerning, particularly given the legal challenges to the constitutionality of the NHI Act and the importance of transparency in decisions that affect millions of citizens.

“The removal of medical tax credits is not a technical adjustment. It is a policy decision with profound public interest implications. Nearly 67% of medical scheme members come from previously disadvantaged communities. These are not the wealthy elite, they are teachers, nurses, security guards and office workers doing their best to fund their own healthcare.”

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Phasing out medical scheme credits for high earners

Mothudi warns that beginning with the phasing out of medical scheme tax credits for higher earners is also not without risks.

“Affordability constraints among this group may lead to benefit downgrades, reducing the income cross-subsidies that underpin medical scheme risk pools.

“Over time, this could raise contribution costs for all members and prompt some low- and middle-income beneficiaries to exit the system altogether, further exacerbating inequities and undermining financial sustainability.”

In addition, he says, it is clear that this is just the first step in a broader withdrawal of tax credits over time.

“The BHF’s letter to Treasury warns that eliminating the flat rate credit will eventually hit lower income members hardest because the credit represents a far larger share of income and contribution affordability at the lower end of the income spectrum, especially for those with dependants.”

An independent analysis commissioned by the BHF shows that at lower income levels, medical scheme contributions already exceed reasonable affordability thresholds. Removing the credit could make medical scheme membership unaffordable for between 430 000 and 690 000 members, forcing many to downgrade their cover, remove dependants, or exit the system entirely.

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Punishing working people with limited safety nets

Recent household survey data from Statistics SA shows that nearly 30% of uninsured South Africans already use private healthcare providers as their first point of care. Mothudi says this means that for many consumers who lose their cover, the shift will not only burden the overstretched public sector but also increase their own out-of-pocket costs, a financially punishing outcome for working individuals with limited safety nets.

“If government is serious about building a unified health system, it must ensure that reforms are fair, transparent and inclusive. We cannot achieve meaningful progress by undermining the very mechanisms that help low and middle-income earners afford healthcare.”

As government prepares to implement one of the most ambitious health reforms in the country’s democratic history, it is critical that fiscal decisions are communicated clearly and made with due regard for their real-world consequences. Mixed messaging and unclear implementation pathways for the NHI risk destabilising an already fragile system, he says.