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NHI will cost every South African taxpayer an extra R43,000 per year

Each South African taxpayer would have to pay an additional R43,000 in tax every year to fund the National Health Insurance (NHI) scheme proposed by the government. 

The NHI is a centralised national insurance fund from which the government purchases healthcare services from public and private providers.

All eligible South African residents, as defined in the NHI Act, will be able to visit these providers whenever they need healthcare without any payment.

The Act, in its current form, would also forbid private medical aid providers from covering healthcare procedures that the NHI provides for. 

There have been varying estimates as to what the NHI would cost South Africa, with the Department of Health saying it would cost around R200 billion a year. 

However, private companies and their research have indicated that it will likely cost significantly more, depending on the quality of care provided under the scheme. 

The government’s current estimate is based on the level of care provided by the state, which is far below that of the private sector. 

Momentum Health estimated the private sector spends an average of R1,750 a month, or R21,000 a year, on 9 million medical scheme beneficiaries. 

If the NHI plans to offer the same care to all 63 million South Africans, this would translate into a cost of R1.3 trillion annually. 

Momentum said that while there would be savings through the use of medical aid tax credits and enhanced scale, this would only bring the cost down to R900 billion per year. 

Minus the existing budget for healthcare of R272 billion, this would require R628 billion in additional funding for the NHI.

This is far higher than the government’s initial estimate of R200 billion. 

South Africa has 14,667,133 registered taxpayers. The additional NHI costs mean each taxpayer will have to pay R42,817 per year.

If the payment is limited to personal income taxpayers, the additional tax burden on these individuals will be R88,176 per year.

The NHI Act states that the scheme will be funded in four ways—three of which are individual tax-related.

  • Shifting funds from government departments and agencies, provincial budgets, and conditional grants as part of general tax revenue.
  • The removal and reallocation of funding for medical aid tax credits.
  • Payroll taxes on employers and employees.
  • Surcharges on income tax through a Money Bill by the National Treasury.

However, the shortfall will still be significant even if the tax burden is spread across multiple sources. 

Aaron Motsoaledi
Health Minister Aaron Motsoaledi

NHI tax hikes will wreck the economy

South Africa’s largest medical aid provider, Discovery, has been clear about the economic consequences of a large increase in the tax burden. 

Discovery CEO Adrian Gore told Daily Investor the Act, in its current form, is simply unworkable and unfeasible given its exclusion of private medical aid providers and unconstitutionality. 

“This is a complex issue. It is an intergenerational process that will take time, but it is a problematic piece of legislation,” Gore said. 

The main concern Gore and Discovery has with the NHI is how it will be funded and the potential impact of steep tax hikes on the South African economy. 

“We have been unequivocal as business, as Discovery, and as a sector, that the NHI is unworkable without private sector collaboration,” he said. 

“There is just not enough funding available if the NHI is imposed in a draconian form that excludes private medical aids.”

“These tax increases would wreck the economy and do not do enough for anyone. You need more funding,” Gore said.

“It’s not a healthcare issue – it creates a real economic problem. I don’t think people would bear paying 30% more taxes and having 70% less healthcare.” 

Gore was only talking in reference to the government’s R200 billion estimated cost for the NHI. 

According to Discovery, even this smaller amount would need –

  • A 31% increase in personal income tax or
  • A 6.5% increase in VAT or
  • A ten times increase in payroll tax

South Africa’s already small tax base would be put under even more strain, and increases may even lead to less tax being collected as people try to avoid higher rates. 

Adrian Gore
Discovery CEO Adrian Gore

The solution

According to Gore, the only viable solution for universal healthcare in South Africa is for the public and private sectors to collaborate within an economy that is significantly larger than it is currently. 

If the government were to try to implement the NHI without raising any taxes, South Africa’s economy would have to experience a boom it never had before.

Discovery’s calculations show that to cover the Health Department’s estimated cost of the NHI of R200 billion a year, the economy would have to grow at 7.2% for 20 years. 

This would result in a sufficient increase in tax revenue from additional economic activity without tax hikes. 

If the NHI also covers primary care, extended chronic medication, maternity, and Prescribed Minimum Benefits (PMBs), it would need around R600 billion in additional revenue to fund. 

This would require the South African economy to grow at an annual rate of 8.6% for twenty years to fund without tax hikes. 

The cost may still be higher if the government wants the NHI to cover extended hospital stays and specialist procedures. 

This advanced cover would require nearly a R1 trillion in additional funding and need economic growth of 10.4% a year for 20 years to fund without tax increases. 

While these levels of economic growth are extremely high, Gore said it is the only sustainable option to fund the NHI. 

“Our view is you need more resources overall. For this, you need private sector funding and its delivery systems. I think that is kind of almost axiomatic,” Gore said. 

“We do not believe NHI is workable without private-sector inclusion. We need more funding, we need more doctors, we need more resources, and that’s a key issue.”

Gore told Daily Investor he is encouraged by the government’s willingness to engage business further on the NHI and for a workable solution to be found. 

“I don’t think people should be concerned about in the short term, but in the medium to long term, we’ve got to find solutions.” 

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