Medical Aid Tax Credits Could Soon Be History

The National Department of Health (NDOH) has revealed that it is actively engaged in discussions with the National Treasury regarding proposed changes to South Africa’s medical aid tax credit system, with the long-term objective of eliminating the rebate entirely. The department argues that once the National Health Insurance (NHI) scheme becomes operational, maintaining these tax credits would not only be redundant but could also constitute a form of “double funding” of healthcare services.

Key Takeaways

• Medical aid tax credits to be phased out: The government is actively working with the National Treasury to eliminate medical aid tax credits, redirecting approximately R34 billion annually toward funding the National Health Insurance (NHI) scheme.
• Gradual transition expected: Officials have confirmed that the removal of tax credits will occur progressively through phased thresholds and reduced benefits, aiming to avoid collapsing existing healthcare systems while slowly shifting toward state-funded healthcare.
• Taxpayers face higher financial pressure: With medical aid rebates frozen and not adjusted for inflation, South Africans can expect diminishing tax relief, effectively increasing their financial burden while the government prepares to implement the NHI.

Discussions Between Health and Finance Authorities

During the presentation of its 2024/25 annual report on 10 October, the NDOH addressed several questions about how the NHI would be financed. Dr Nicholas Crisp, the Deputy Director-General overseeing the NHI project, stated that one of the main funding sources would derive from the existing medical aid tax credit. The NDOH, he explained, is in ongoing communication with the finance ministry to explore how the rebate can be altered and redirected to support the NHI. Insiders suggest that the talks are not merely conceptual, as draft frameworks are believed to be circulating internally outlining potential timelines and transitional mechanisms.

According to Crisp, extensive correspondence has been exchanged between the department, the Treasury, and external organisations about the broader implications of removing the credit. He highlighted that the state currently provides around R34 billion annually in medical aid tax credits to members and beneficiaries of medical schemes. Once the NHI fund begins covering those same services, continuing the rebate would have no practical purpose. It would, in effect, mean taxpayers are subsidising healthcare twice, first through general taxation funding the NHI, and again through individual rebates.

Redirecting Billions to Fund the NHI

The plan to phase out the medical aid tax credit has long been part of the NHI roadmap. Government officials have often pointed to this measure as one of the primary ways to generate the enormous funds required to sustain the new health system. In addition to reassigning existing budgets, other potential funding tools include the introduction of a payroll tax and an additional surcharge on taxpayers. Analysts note that this could mean a triple hit for high-income earners, with fewer tax credits, higher payroll deductions, and potentially higher income taxes to fill the NHI fund.

However, despite years of preparation, there remains no official estimate of how much the NHI will ultimately cost, how long full implementation will take, or which medical services it will provide. Despite these significant gaps, the government appears determined to proceed with plans that could dismantle the financial relief currently provided to taxpayers and undermine private healthcare schemes.

Gradual Phase-Out Rather Than Sudden Removal

The health department has emphasised that the elimination of medical aid tax credits will not happen overnight. Instead, the Treasury and NDOH are developing a systematic process that would slowly reduce or limit access to the rebate. Crisp has clarified that phasing mechanisms are still being designed and that the government’s intent is to implement the changes carefully to avoid destabilising the healthcare sector. Despite these reassurances, no formal timeline has been released, leaving the medical aid industry and taxpayers uncertain about when or how these changes will unfold. Economic commentators have pointed out that the gradual approach could mask the true fiscal impact, as each incremental change might seem minor until the overall benefit has eroded completely.

Government’s Position and Fiscal Strategy

In its legal defence against the challenges brought by healthcare organisations, the government has stated that there are no immediate plans to remove the tax credits in the short to medium term. Yet, the latest comments from the NDOH confirm that preparatory work is already underway through consultations with the National Treasury. This confirms a long-term strategy to divert medical aid-related tax expenditure into funding the NHI. Interestingly, this mirrors models used in countries like the United Kingdom and Canada, where private contributions play a limited role in healthcare, though South Africa’s tax base is far smaller, making sustainability a major question mark.

Adding to taxpayers’ burdens, Finance Minister Enoch Godongwana announced in the 2025 national budget that medical aid tax credits would not be adjusted for inflation. This decision effectively diminishes the real value of the rebate over time, amounting to a subtle increase in the tax burden, a tactic economists often describe as a stealth tax.

Economic Implications and Future Expectations

Economic analysts have expressed mixed views about the future of the medical aid tax credit. While most experts agree that a full withdrawal is unlikely in the immediate future, they expect that the value of the credit will steadily decline. With no inflation adjustments and potential income thresholds being introduced, taxpayers are likely to see the benefit of the rebate erode gradually. Over the coming years, the policy trajectory points towards a complete phase-out once the NHI fund becomes fully operational. As of 2025, South Africa’s medical aid membership stood at around 8.9 million people, meaning any change to tax credits could affect roughly one in seven citizens directly.

Outlook: A Healthcare System in Transition

The slow dismantling of the medical aid tax credit marks a significant shift in South Africa’s healthcare financing framework. It signals the government’s commitment to redirecting private healthcare incentives towards a universal, state-led model. However, without a clear cost structure, implementation plan, or service outline, the NHI continues to face deep uncertainty. Both taxpayers and the private health sector remain in limbo, awaiting concrete timelines and policy clarity. Some financial advisors recommend taxpayers begin planning now by setting aside emergency medical savings or investing in health gap cover policies while private options still exist.

Conclusion

South Africa stands at a critical crossroads in reshaping its healthcare funding system. The planned phasing out of medical aid tax credits and the redirection of billions toward the NHI mark a bold but uncertain step toward universal healthcare. While the intention is to promote equal access to medical services, the absence of clear costings, timelines, and implementation details leaves taxpayers, private medical funds, and healthcare professionals in a state of limbo. The success or failure of this transition will depend heavily on how efficiently the government manages the financial, operational, and structural challenges that lie ahead.