It offers free GP and A&E care, lower cost prescriptions, as well as dental and school transport services. Not only that, but medical cards may also entitle their holders to reduced rates of income tax.
First introduced back in 2011, the lower rate of universal social charge (USC) enjoyed by certain medical card holders may have reduced in value but is still attractive, as it offers tax savings of up to €326 a year.
However, the current regime is due to expire at the end of this year. Typically, the Government announces an extension come budget day; but might this be the year it finally pulls the plug on the relief?
Some 140,000 people are now claiming lower rates of USC due to the relief, and the Department of Finance is currently undertaking a review scheme.
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“They’ll have to decide are they going to make this a permanent measure or set an end date to it,” says Michelle Murphy, research and policy analyst with Social Justice Ireland.
So, might there be an announcement come budget day?
The tax relief offered to medical card holders was never supposed to be permanent. Rather, back in 2011, it was introduced as a “transitional relief”, to assist certain taxpayers get used to the new universal social charge tax (which of course was also supposed to be temporary, but that’s an issue for another day!).
According to this summer’s tax strategy papers, the relief was introduced to “ultimately act as a stepping stone to achieving full exposure to the charge for such income earners”.
It made sense. Before the introduction of the USC, there were health and income levies, both of which had full exemptions for medical card holders, regardless of their income level.
And when first introduced in 2011, USC was charged at a much higher rate – the top rate of 7 per cent kicked in on any earnings over €16,016, compared with a top rate of 8 per cent on earnings of €70,044 and over today.
Medical card holders would have arguably faced a higher tax burden from the introduction of the USC, without the exemption.
Back in 2011, a claimant would have received annual tax savings of as much as €1,320 because of the transitional relief. This has since shrunk to €326, due to repeated falls in the rate at which USC is levied and the widening of the USC bands.
So why does the relief still exist?
The issue has repeatedly been put on the long finger. The relief has been extended seven times, most recently in the 2024 budget, when it was given an end date of December 2025.
However, medical cardholders might reasonably argue that it has been in place so long that it makes sense to keep it in situ.
How it works
At the moment, if you hold a medical card (details on eligibility here), and earn less than €60,000 a year, you will pay a maximum USC rate of 2 per cent – instead of 3 per cent – on earnings of between €27,382 and €60,000. This means that those eligible will save up to €326 a year, depending on earnings.
It’s not the first time the relief has been reviewed. Back in 2022, for example, the Department of Finance concluded that the case for extending the relief “was not a strong one”, given that it was originally introduced on a temporary basis, and for reasons of equity for all taxpayers.
It said it had been in place for “a much longer time frame than that originally envisaged”, while the issue of linking tax relief directly with health policy decisions “outside of the remit of the Minister for Finance is questionable”.
As a result, it recommended that the reduced rate be withdrawn. Given the cost-of-living pressures on the agenda at the time, however, it was extended until the end of this year.
But the longer the relief is in place, the higher the number of claimants. When it was first announced, back in 2011, the number of medical card holders was fewer. Latest figures from the HSE up to April this year show that 1.6 million individuals now have such a card.
It is estimated that about eight in 10 of these qualified for a medical card via a means assessment, with the rest qualifying through criteria such as undue hardship or certain government work schemes.
And more medical card holders mean more people qualifying for the relief. The most recent year for which figures are available is 2022. In that year, some 140,000 taxpayer units (which could be an individual or a couple) benefited from the relief. This is substantially up on 2016 when just 102,000 taxpayer (units) claimed it.
Unsurprisingly then, the costs associated with the relief are rising. As the report notes, both the number of claimants and the associated cost have increased every year, with the exception of the pandemic year of 2020.
Between 2016 and 2022, the number of beneficiaries increased by more than a third, or just under 38,000 taxpayer units. The cost increased by about two-thirds, or €17.6 million.
By 2022, this niche relief was costing the exchequer €44 million, compared to €17.6 million in 2016.
Should it go?
So, is it time for the relief to go? As the tax strategy report puts it: is this “preferential treatment the most efficient use of State resources”? Or could the annual cost be better directed to those who need assistance?
“From our perspective, a better way to use that €44 million would be looking at other measures targeted at that group, so it’s not tied to the medical card,” says Murphy.
“It’s questionable as to whether it delivers what they want it to,” she says , noting that those who do benefit do so on the double – both in holding a medical card and qualifying for a reduced rate of USC. But those who don’t have a medical card lose out on the double.
A broader issue for Murphy is that households earning around €40,000 or less have not benefited as much from tax changes in recent years as those earning more, with many of the changes focused on widening the standard rate tax band.
And those among this cohort who do not have a medical card haven’t enjoyed the reduced USC rate either.
“They haven’t really benefited from changes to date,” she says, adding that this is a group that is being “really squeezed” by rising prices and is “really in a bind”.
“We would argue that there could be a better way of using and targeting that money, while still supporting those working households earning less than €60,000,” she says.
This could be through the introduction of refundable tax credits, something Social Justice Ireland is calling for in this October’s budget.
Noting that depending on how much tax you pay, some households won’t be able to claim the full €4,000 available in individual tax credits, introducing refundable credits then, would allow workers have the unused portion of their credits “refunded”.
Figures compiled by the think tank suggest this would cost about €140 million in 2026.
