Insurers tank as NHI looms

Shares in Discovery and other South African medical insurers slumped after President Cyril Ramaphosa said he’d sign into law a new health bill that’s opposed by businesses.

Ramaphosa will assent to the legislation on Wednesday, two weeks before national elections in which the ruling African National Congress risks losing its majority for the first time since coming to power three decades ago.

The president has vowed on the campaign trail to use the legislation to end “health-care apartheid.”

Discovery dropped as much as 7.4%, the most since March, while peers, including Momentum Metropolitan Holdings, Sanlam and Old Mutual, also traded lower.

Discovery has dropped 22% this year, compared with a 2.7% increase in the FTSE/JSE Africa All Share Index.

The so-called National Health Insurance bill provides a framework for the provision of universal care through a state-run fund and will ban the private sector from financing treatment covered under the plan.

Ultimately, the legislation aims to provide quality health care for the 85% of South Africans who have no medical coverage and rely on a decrepit public system with too few doctors.

Discovery derives about 34% of earnings from its South African health business, according to data tracked by Bloomberg.

Under the NHI Bill, that division will no longer be allowed to operate, Avior Capital Markets Ltd. analyst Adrienne Damant said in an emailed response to questions.

“Ultimately, it’s an essential part of Discovery’s business that regulation is outlawing,” she said.

South Africa’s FTSE/JSE Health Care Providers Index was among the biggest decliners on the Johannesburg stock exchange Tuesday, with hospital operator Netcare leading a retreat in the sector, falling 5.7%, the most since April 2023. Shares in Life Healthcare dropped 2%.

While there’s widespread support for reform of a system in which a multibillion-rand private healthcare industry services less than a fifth of the population, NHI critics argue the government’s proposals haven’t been properly costed and may be successfully challenged in court. 

“The implementation of the NHI bill in its current format is not sustainable, and we expect the already documented challenges made by numerous stakeholders to become more vocal, particularly around the constitutionality of the bill,” Damian McHugh, chief marketing officer at insurer Momentum, said in an emailed statement.

South Africa’s main opposition Democratic Alliance said it plans to challenge the law in court once it’s signed into law.

“We have built up reams of correspondence, including with Ramaphosa himself, that we will enter into evidence to show that the process which led to the adoption of this bill by Parliament disregarded public input and that the bill itself is flagrantly unconstitutional,” DA leader John Steenhuisen said in a statement on Tuesday.