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Medical Schemes
Sunday, January 1, 1989
Why pay more?

The 1988-89 Budget Speech drastically affects the deductibility of medical aid contributions from gross income.
According to Chris Cunningham-Moorat, MD of Bensure Management Services, “It will just be a vicious spiral. There will be more expenses for medical aids, therefore premiums will go up and again the private member will end up paying more.”
In previous tax years, namely 1987-88, one could claim for both the contribution paid to medical aids and the balance of any other medical expenses incurred.
Deductions of medical expenses were broken down into the following categories:
• if age 60 or below and married, one could claim for up to R1 500 per year;
• if age 60 or below and unmarried, one could claim for up to R1 000;
• if between the ages of 60 - 65 and married, one could claim for up to R4 000;
• if between the ages of 60 - 65 and unmarried, one could claim for up to R3 000; and,
• over age 65, the total amount could be claimed.
With the recent changes to the Income Tax Act, for ages 65 and below, regardless of marital status, deductions are limited to an amount of 5% of gross income, or expenses in excess of R1 000. Over age 65, the total amount can still be claimed. The changes therefore do not affect the pensioner, but rather the higher income earner.
Says Pierre de Villiers, legal adviser for Liberty Life. “This means that medical aid deductions are very limited and in most cases taxpayers will not even be able to claim.”
The changes in legislation, therefore, do not affect the industry to the extent that they affect the private taxpayer.
It seems a very curious approach for the government to take at this stage. They are continuously backing off from subsidising health care and moving towards privatisation leaving the onus of medical cover on the individual. But as Mr Cunningham-Moorat says, “They are making it more difficult for the private sector to cover themselves.”
He adds the increase in tax for the individual, if they are in the top tax bracket, is an effective 82%.
Tony Leveton, executive chairman of Affiliated Medical Administrators (AMA) feels that this will create a greater sensitivity to medical aid rates. Premiums are reviewed yearly, and are to go up in January anyway. One possible solution to this problem, according to Mr Leveton, is for the employer to pay the full medical aid contribution and to deduct an amount from the employee as a salary sacrifice. “This is a nice perk for the employee and the employer will be able to claim back from the tax man.”
The effect that the tax changes will have on the industry will be indirect in that the individual is paying with after-tax money. Because of this, according to Mr Cunningham-Moorat, “The individual might now try and claim for every possible expense.”
This will place an administrative burden on the medical aids thereby increasing expenses, and premiums will have to go up to cover these costs.

Copyright © Insurance Times and Investments® Vol:2.1 1st January, 1989
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