South Africa

Government wants additional taxes to move medical aid money to the NHI

The government wants to use additional taxes to fund its controversial National Health Insurance (NHI) to provide “good healthcare for all”.

South Africa’s National Assembly recently passed the NHI Bill, which will introduce universal health insurance.

The Department of Health explained that NHI would provide good healthcare for all by sharing the money available for healthcare among all our people.

However, there is a challenge – funding. The NHI’s money bill – the financing part of the plan, which must come from the National Treasury – has not been published.

Finance Minister Enoch Godongwana made little reference to NHI in his latest budget speech, and Treasury clearly did not do much work on financing the NHI.

The NHI relies strongly on money that currently flows into the private healthcare system, typically via medical aid schemes, to fund the NHI.

National Health Insurance Deputy Director General, Nicholas Crisp, said South Africans spent over R550 billion on healthcare last year.

49% of the money is spent in the public sector. “That means the majority of funding needed to fund the NHI is already in that half,” he said.

“R277 billion was spent in the private sector last year looking after around 16% of the population,” he said. “That is very wasteful, duplicative, and administratively intensive.”

“We can do with a lot of that money to improve what we are doing in service delivery rather than pay people to administer the money.”

However, it is not easy for the government to get its hands on that money to fund the ambitious NHI project.

Ryan Noach
Discovery Health CEO Ryan Noach

Discovery Health CEO Ryan Noach said it is naive for the Department of Health to assume that medical aid contributions will be redirected into a national health insurance scheme.

Medical aid funds are voluntarily contributed by members of the medical schemes from their after-tax earnings.

“These funds are well-protected by the medical schemes, which are effectively trust funds. They are functioning as mutual funds that hold the money on behalf of members,” he said.

“By law, there is no way anybody could take or nationalise access to those funds. That would be completely beyond the realm of realistic thought.”

Noach equated it to the government taking people’s pension fund money or nationalising it.

“We see no mechanism whatsoever to do that, and we think medical aid funds are well-protected by law,” he said.

Health Minister Joe Phaahla
Health Minister Joe Phaahla

The Department of Health realises this challenge and said additional taxes would be needed to fund the NHI.

“When we come to the contributions made in the private sector, the only way to move that money into the NHI fund is through taxes,” he said.

“Whether that is through VAT or other forms of taxes is a matter for National Treasury and the money bill, which will come later.”

Crisp added that the National Health Insurance Bill creates alternative mechanisms that do not currently exist, like a payroll tax.

It echoes the view of Health Minister Joe Phaahla, who said taxpayers would be footing the bill for national health insurance.

“The NHI is a fund from which the government will buy healthcare services for South Africans from healthcare providers in the public and private sector,” he said.

“It is a fund to pay for healthcare, and all of us will contribute to this fund through taxes and special contributions in line with what we can afford.”