Most employers are not prepared to spend any more on their employees' healthcare cover and only 29 percent of employers currently make some contribution to medical scheme costs for retired employees, the latest Old Mutual Healthcare Survey has found.
The survey canvasses the views of 100 employers across economic sectors and ranging from small businesses to large corporates, on medical scheme and other healthcare issues concerning their employees.
Old Mutual Healthcare's report on the results of the survey says the issue of employers not spending more on employees' health care was mentioned a number of times during the survey, and employers rated controlling the cost of subsidising your healthcare cover as their biggest concern.
The report says 82 percent of the employers surveyed said they will not alter the subsidy for medical scheme contributions that they give their employees if the current tax benefits that employees receive are changed or if a social health insurance (SHI) system is adopted in South Africa.
Under the current tax laws, your employer can pay up to two-thirds of your medical scheme contributions on your behalf, and you will not be taxed on this fringe benefit.
In the Budget earlier this year, Finance Minister Trevor Manuel said the current subsidy will change next year and the tax-free portion of the subsidy you enjoy will be capped at a rand amount.
This is because the current subsidies benefit higher-income earners, who join expensive medical scheme options, more than low-income earners.
At the beginning of this month, the National Treasury released a discussion document which proposes that the tax-free portion of the subsidies be capped at R500 each for a member and one dependant, and R300 for any additional dependants. Alternatively, the treasury suggested the tax-free portion of the subsidy be capped at R300 each for the member and all dependants, except those over the age of 65.
When the tax subsidies are capped in March next year, low-income earners on low-cost medical scheme options may be able to receive a 100 percent subsidy tax-free.
But many higher-income earners will receive a lower after-tax subsidy from their employers, unless their employers increase their subsidies.
Employers' second biggest concern is that they may have to offer all employees subsidised healthcare cover.
Only 22 of the 100 employers interviewed had put all their employees on a health plan. Some indicated a willingness to pay up to 15 percent of salary or R250 for healthcare cover for all employees, while others said they could not afford to subsidise all their employees. Some suggested that they would change the subsidy they currently provide to certain employees in order to fund a subsidy for all employees.
Employers have become more concerned about this issue, because the Department of Health is pursuing a SHI system for South Africa. In terms of this policy, taxpayers will pay towards a basic cover from medical schemes through a dedicated SHI tax. Members who want additional cover will buy this directly from their scheme.
Although SHI is still being discussed by the cabinet, if such a system were adopted, taxpayers would be forced to pay for membership of a medical scheme. Employers are concerned that this will put pressure on them to subsidise all their employees' healthcare cover.
Most employers surveyed (62 percent) said they do not understand how SHI will affect the cost of subsidising healthcare cover for employees, but all the employers said they want to be consulted on any transformation that will affect them and their employees.
Most employers are still paying subsidies that increase as contributions increase. According to the survey, 65 percent of employers are still paying a percentage of employees' contributions (between 50 and 100 percent) to a medical scheme, with no limit on the amount of the subsidy.
These employers believe they are unable to do anything about ever-increasing healthcare costs and do not know how much longer they and their employees can continue to pay above-inflation contributions.
The survey found that 15 percent of employers are paying an income-based subsidy and 12 percent are paying a percentage of their employee's contributions, but with a limit on the amount of the subsidy.
Other findings of the survey were:
- There was a "dramatic shift" in the way in which employers are dealing with HIV/Aids. Employers have moved from having no measures in place to introducing HIV/Aids management programmes, paying for anti-retroviral treatment for employees, and implementing HIV/Aids prevalence testing and monitoring in the workplace.
This year's survey found that 71 percent of employers surveyed have already documented their HIV/Aids strategy, with a further eight percent saying they will do so within the next 12 months.
- Employers rated education for their employees as members of medical schemes as one of the top issues that needs to be dealt with. Members needed more information as a result of the complexity of the medical schemes environment.
- Employers fear that the risk equalisation fund (REF) for medical schemes, which is intended to equalise the cost of providing certain minimum benefits to all members across all schemes, will result in schemes doing less to manage the risk of high claims. They believe the REF will have a negative effect on the wealth and morale of schemes that currently manage their risk well.
- Employers whose employees are members of open schemes, and medium and small enterprises, believe that the Government Medical Scheme will result in an increase in contributions on those schemes affected by the withdrawal of government employees who move to the new government scheme.
To curb their costs, many employers have stopped offering to continue to subsidise employees' medical scheme costs after their employees retire. The latest Old Mutual Healthcare Survey found that 89 percent of employers subsidised post-retirement medical scheme costs in 1995. In the 2003 survey, the figure was 43 percent. In 2005, only 29 percent of employers said they were contributing to post-retirement medical scheme costs for retired employees.
If you are employed by a company that will not fund your post-retirement healthcare costs, remember that medical scheme subsidies will be a substantial cost in retirement and you will have to increase your retirement funding to make up the shortfall.
Of the employers who do still contribute to their pensioners' healthcare funding, many have limited the amount they will subside.
The move away from providing post-retirement subsidies was motivated by accounting standards forcing employers to quantify their liability for these subsidies.
"Unless the cost of health care inside medical schemes can become more affordable, it is unlikely that the average pensioner will be able to self-fund the full contribution, either in open schemes, or inside closed schemes," the survey report says, warning that these pensioners will end up having to rely on state healthcare facilities.