All systems go for healthcare funders’ 1 April 2018 VAT increase
— Forward-thinking claims management system ensures new VAT rate is ‘April fool proof’—
The Value Added Tax (VAT) increase to 15% came to light in the Finance Minister’s 2018 national Budget Speech recently. The new VAT is due to come into effect on 1 April this year. This can have far-reaching implications for the highly complex South African healthcare funding industry. That is because back-end information systems support the industry that consumers are generally unaware of. The industry has limited time to update all products and services subject to VAT on their systems.
First VAT Increase Since 1993
“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 one percent 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.
“There is an immediate implication for private healthcare consumers. Their medical scheme, its administrator or other stakeholders in the service chain may not be ready for the shift. And then there could be a one percent shortfall in the payment of their claims.
“This would naturally be an annoyance for consumers. And it may well leave them feeling that their healthcare funder has let them down. At Knowledge Objects, we believe that none of our clients’ reputations should be affected in this way. Therefore we make certain that the machinery supporting claims management is updated with the new tariffs. They will include 15% VAT from midnight on 1 April 2018.
Pulling Out the Stops
“We have therefore pulled out all the stops to ensure our clients have a seamless transition to the new VAT rate. We are a provider of end-to-end claims management information systems for the industry. So Knowledge Objects fully appreciates the importance of integrating the VAT increase on all applicable tariffs. We are thoroughly testing the updated system before the change comes into effect,” Liebenberg adds.
“Our clients can rest assured that the VAT increase will be ‘April fool proof’. That is because our forward thinking approach to risk management. That 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 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.
VAT on These Products
“Medical schemes are VAT exempt, however they must cover VAT on products and services that members claim for. Brokers, who receive a legislated commission on business they bring to a medical scheme, will also get VAT 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. That is a hefty amount for schemes to absorb until the next annual contribution increases. This cost was not foreseeable at the time when medical schemes worked out their budgets and membership contributions for 2018.
“Customers are unlikely to welcome the alternatives. These are either introducing mid-year contributions hikes or refusing to cover the additional one percent. That would leave members with a shortfall. And particularly unwelcome in the current financial climate,” he observes.
“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. That is because Knowledge Objects has designed agile systems that take a great deal of pressure off us and the medical schemes we administer,” Masobe
Liebenberg says the short period between the announcement of the VAT increase and the date when it comes into effect could pose challenges. But only for 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.
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