South Africa’s healthcare funding model may be nearing a defining break point. The proposed withdrawal of medical aid tax credits, starting with high-income earners in 2026 and extending to all taxpayers by 2027, is framed as a revenue-raising measure to support the National Health Insurance (NHI). But it is also a structural shift in how healthcare is financed. The change could squeeze household affordability, destabilise parts of the private sector, and push more patients into a public system already under strain.
Early analysis suggests that removing medical aid tax credits could reduce medical scheme membership by about 6%. It could also cut private healthcare spending by roughly R20bn. That would be a sharper shock than the pandemic years, when membership is estimated to have fallen by around 1% and private spending contracted by about 4%. For private hospitals, the potential revenue hit is estimated at R5bn, with the impact concentrated among mid-tier consumers.
Medical Aid Tax Credits Pressure the Middle-Income Base
This is not only a policy story. It is an affordability story. More than half of medical aid tax credit claimants earn between R200,000 and R500,000 a year. That segment has expanded. Yet the ability to carry private healthcare costs has weakened.
Over the past decade, formal employment reportedly grew by 18% while medical scheme membership rose by only 5%. Over the same period, the number of formally employed people without medical aid increased from 2.2 million to 3.5 million. The divergence points to a sustained squeeze on household budgets, especially for working families who are not wealthy enough to absorb large increases in costs.
Removing medical aid tax credits risks intensifying that squeeze fast. Entry-level plans could increase by approximately 33%, mid-tier plans by approximately 13%, and premium plans by approximately 8%. Even after downgrading to lower-cost options, many households may reach an affordability ceiling and discontinue medical aid entirely.
Medical Aid Tax Credits Withdrawal Meets NHI Reality
The immediate disruption matters. But the longer arc matters more. Global experience shows universal health systems are built over decades, not years. South Africa is still in a foundational phase. It is developing governance frameworks, testing contracting approaches, investing in digital patient systems, and planning future workforce capacity. In that context, NHI is not a single policy moment. It is the start of a multi-decade transition.
That is why sequencing becomes critical. South Africa is undertaking a funding overhaul in a tight fiscal environment, while servicing higher debt costs and managing competing pressures in energy, education, and social protection. A sudden affordability shock in the private sector could weaken the capacity that the state may still need in NHI’s early stages. If displaced members move to the public sector faster than delivery capacity expands, patient volumes could rise without corresponding improvements in outcomes, thereby pushing per-patient costs higher and further straining the health budget.
Where The Private Sector Could Still Win
Not all effects are negative. The transition could accelerate models that expand access while lowering unit costs. Digital health platforms, diagnostic networks, high-efficiency day hospitals, and value-based care models are well-positioned to support a hybrid system. Public-private partnerships may become more central as the state seeks to scale delivery without overextending its budget.
The policy question is no longer whether private healthcare will change. It is how it adapts, and how policymakers protect the middle-income base while building a sustainable path to universal coverage.
- Njilo is a senior research analyst at Nedbank Corporate & Investment Banking.
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