Options for medical aid cover in a small business


The issue of whether and how to provide medical aid cover for employees is one that small business owners must tackle as the business grows and more employees are hired.

Although it can be an attractive perk for small businesses trying to recruit and hold onto the best talent, the reality for small business owners is that the affordability of medical aid cover is a decisive factor. It is therefore not automatic that small businesses will offer medical aid cover as part of the terms and conditions of employment.

Some South African medical aid schemes offer flexible packages that allow small business employers to provide their employees with hospital cover as well as a fund for day-to-day medical expenses, all at affordable rates. In this scenario, the small business owner can choose between co-payments (i.e. where both the business and the employee contribution towards the medical aid cover), or a model where the entire bill is footed by the small business owner.

Either way, before signing on the dotted line, small business owners should ask employees what their needs are to ensure that the selected package is appropriate and will be utilized by the intended beneficiaries. The services of medical aid brokers can be engaged to advise small business owners on the best options taking into account affordability and tax implications.

Another approach small business owners can take is to expect their employees to pay for their own medical aid contributions. In this scenario, all payments and decisions concerning the choice of service provider and type of cover are the responsibility of the employee and the small business owner is not involved in any way. Whilst hassle-free for the small business owner, it is debatable whether the monthly salaries paid to employees are adequate to cover the costs of medical aid in addition to other living expenses.

The South African Department of Health’s proposed National Health Insurance (NHI) system aims to ensure equitable access to high-quality medical care for all. The NHI will precipitate fundamental changes in the medical insurance landscape of South Africa. Consequently, the discussion above regarding medical aid cover may be rendered obsolete when the NHI comes into full effect and small business owners are faced with a different operating environment.

According to research conducted by KPMG Inc, once implemented, some of the positive impacts of the South African NHI will include: an increase in life expectancy from about 52 years to about 59 years; and an increase in labor productivity in the medium to long term. Both of these outcomes are good news for South African small business owners, who will have a healthier and more productive workforce.

What remains to be resolved is the funding model for the NHI. Increased personal income taxes, value-added tax (VAT), and sin taxes have all been tabled. All are likely to impact small business owners either through employee demands for higher disposable post-tax income (in the case of increased personal income taxes and sin taxes); or by imposing a higher tax burden on the business (in the case of increased VAT).

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