The VAT increase and your medical scheme members

The Value Added Tax (VAT) increase to 15% can have far-reaching implications for the highly complex South African healthcare funding industry, which is supported with back-end information systems that consumers are generally unaware of. Like many other sectors, the industry has limited time to ensure that all products and services subject to VAT are updated on their systems.

“This is the first time the VAT rate has increased since 1993 and for healthcare funders that are not adequately prepared this could potentially have a significant knock-on effect, as the systems that underpin claims in healthcare must all be updated to incorporate the additional 1% VAT on products and services,” explains Wilma Liebenberg, chief executive of Knowledge Objects, a company specialising in effective risk management and higher automation solutions within the healthcare funding industry. 

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

“This would naturally be an annoyance for consumers and may well leave them feeling that their healthcare funder has let them down. At Knowledge Objects, we are determined that none of our clients’ reputations should be impacted in this way as we make certain that the machinery supporting claims management is updated with the new tariffs to include 15% VAT from midnight on 1 April 2018.

“We have therefore pulled out all the stops to ensure our clients have a seamless transition to the new VAT rate. As a provider of end-to-end claims management information systems for the industry, Knowledge Objects fully appreciates the importance of integrating the VAT increase on all applicable tariffs and thoroughly testing the updated system before the change comes into effect at the beginning of next month,” Liebenberg adds.

“Our clients can rest assured that the VAT increase will be ‘April fool proof’ because our forward thinking approach to risk management means that our system will be ready to take care of many of the logistical aspects on their behalf.”

Patrick Masobe, chief executive officer of Agility Health, which administers Resolution Health and Spectramed and is one of the medical scheme administrators making use of Knowledge Objects’ systems, notes that even with these logistical aspects of the VAT increase being provided for, this development has significant implications for healthcare funders.

“Medical schemes are VAT exempt, however they are required to cover VAT on products and services that members claim for. Brokers, who are paid a legislated commission on business they bring to a medical scheme, are also entitled to VAT earned on their commission at the new rate of 15%,” he adds.

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

“The alternatives, either introducing mid-year contributions hikes or refusing to cover the additional 1% and leaving members with a shortfall, are unlikely to be well received by members, particularly in the current financial climate,” he observes.

“From our side, it is a huge relief when we are faced with shifts such as the VAT increase and the recent change in standard national electronic unique identifier codes, to know that Knowledge Objects has designed agile systems that take a great deal of pressure off us and the medical schemes we administer,” Masobe says.

Liebenberg explains that the short time period between the announcement of the VAT increase and the date when it comes into effect could pose challenges for any stakeholders in healthcare funding that do not make use of such highly automated and agile systems as those offered by Knowledge Objects.

“Without advanced information technology infrastructure in place to support such a change, the process would be highly labour intensive and time consuming. Fortunately, our clients and their customers need not be concerned about this as our system will be ready and thoroughly tested to ensure that we can continue to provide end-to-end claims management for administrators, medical schemes and managed care providers without disruption,” she concludes.