VAT hike won’t hit medical premiums

The VAT increase next month won’t result in you paying higher medical scheme contributions, but it will reduce the buying power of your medical savings account. reports

THE INCREASE in VAT will not affect your medical scheme contributions or benefits for the year, but it will affect the prices of medical products and services, which means you will have less buying power on your medical savings account when it comes to day-to-day expenses. And if your medical scheme has not updated its systems by April 1 to cope with the increase, you may experience some hassles in getting your claims paid.

Gerhard van Emmenis, the principal officer of Bonitas Medical Fund, says the one-percentage-point VAT increase will not affect your monthly contributions or annual benefits.

“Many members are confused as to whether VAT is payable on medical scheme contributions, but let me reassure you it is not,” Van Emmenis says.

“The VAT increase will have no effect on members directly and what they pay each month. Medical scheme 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 affect the price of services, it will not affect benefits.”

Van Emmenis says that if, for example, your medical scheme plan covers you at 100% of the scheme rate, you are still covered at 100% of that rate, no matter what the cost to the scheme, and the scheme will absorb the VAT when paying your claim. “The only impact is when it comes to savings and day-to-day benefits, with members having less buying power,” he says.

In fact, changing contribution rates in the middle of the year can be done only with the permission of the Council for Medical Schemes following a request from the trustees of the medical scheme, something that happens rarely, Van Emmenis says.

He says that, from April 1, Bonitas will increase the VAT to all providers by 1%. Although this will have a direct impact on the scheme’s budget for 2018, it will be absorbed by operational surpluses and not passed on to members.

Dr Jonathan Broomberg, the chief executive of Discovery Health, says Discovery Health Medical Scheme will not be passing on the increased costs to its members.

“The increase in VAT will not make a very material difference for individual members. Using the example of a general practitioner visit with a tariff of R400, the increase in the tariff payable from their savings account will be R4. Using a typical member’s claims patterns on a Classic Saver plan, the average increased spend from the member’s savings account is expected to be about R60 for the entire year.”

Patrick Masobe, the chief executive of medical scheme administrator Agility Health, notes that the VAT increase has significant implications for healthcare funders.

“Medical schemes are VATexempt. However, they are required to cover VAT on products and services that members claim for.

“Brokers, who are paid a commission on business they bring to a medical scheme, must charge VAT on their commission at the new rate of 15%,” he says.

“In the R160 billion medical schemes industry, a 1% VAT increase represents approximately R1.6bn – a hefty amount for schemes to absorb until annual contribution increases are announced at the end of the year. This cost was not foreseeable when medical schemes worked out their budgets and membership contributions for 2018,” he says.

So the costs being absorbed now may well hit your pocket when schemes increase their rates for next year.

“We do expect that all medical schemes will need to increase premiums in 2019 to compensate for the additional costs of the VAT increase,” Broomberg says.

Van Emmenis says the VAT increase can have an impact on future contribution increases, but “it remains to be seen how this will play out. Bonitas has several costcontainment strategies in place to limit the impact of escalating costs on our members. We are also making great strides in our fight against fraud, wastage and abuse, which has resulted in us recouping revenue”.

INFORMATION SYSTEMS

Like other sectors, the health-care industry has limited time to ensure that all products and services subject to VAT are updated on their systems and there has been much behind-the-scenes activity in trying to ensure that you don’t have claims hassles come April Fool’s Day.

“This is the first time the VAT rate has increased since 1993 and, for health-care funders that are not adequately prepared, this could potentially have a significant knock-on effect, as the systems that underpin claims in health care must all be updated,” says Wilma Liebenberg, the chief executive of Knowledge Objects, a company providing risk and claims management information systems to the health-care funding industry.

“The immediate implication for consumers, should their medical scheme, its administrator or other stakeholders in the service chain not be fully prepared for the shift, could be a 1% shortfall in the payment of their claims.

“At Knowledge Objects, we will make certain that the machinery supporting claims management is updated with the new tariffs to include 15% VAT from midnight on April 1, and we have pulled out all the stops to ensure our clients have a seamless transition to the new VAT rate,” Liebenberg says.

martin.hesse@inl.co.za