South Africa

The real cost of the NHI

Implementing the government’s National Health Insurance (NHI) scheme will cost South Africa trillions, and it is still unclear how the scheme will be funded, but early estimates indicate it could cost the state up to R40,322 per citizen.

The NHI Bill, which President Cyril Ramaphosa signed into law last month, aims to introduce universal healthcare coverage (UHC) in South Africa.

“In essence, South Africa already has UHC, though some will argue that in some cases this is not ‘quality health care services’ and it still has a ‘financial hardship’ element,” according to the South African Institute of Chartered Accountants’ (SAICA) Executive for Taxation, Pieter Faber.

“It is controversial as the real reason for the NHI seems to rather be the creation of a single pool of healthcare funding and services (i.e. single-tier), with the intent of essentially removing ‘classes’ of healthcare beneficiaries – achieved by removing “classes” of healthcare providers and replacing them with the state.”

“Therefore, if government ultimately controls the demand and market, it controls who can supply healthcare services and to whom.”

“This will impact costing as it fundamentally alters demand and supply rules,” Faber said.

“UHC, in general, however, has nothing to do with ‘class removal’ ideology and all to do with universal healthcare access. It therefore seems that the NHI debate should focus on the former and not the latter as to policy clarification on costing.”

“If the private sector may only supply what the NHI does not, knowing what NHI will supply informs what it will cost and whether there will be sufficient ‘free market’ for business to remain in the sector.”

While the government seems adamant that the private sector will have a role under the NHI, Faber said state-owned buyer-seller monopolies have not been successful in South Africa.

This is because it creates an embedded conflict of interest where the sole producer and buyer of services and products is also a competing seller.

“Segregating buying and selling arms and managing the inherent conflict whilst creating a space for the private sector to compete in one leg has produced better results,” he said.

This creates a conundrum for the NHI – setting the bar too low will mean that nothing really changes while setting it too high risks completely excluding the private sector.

“This is similar to Eskom’s historical monopoly on production and distribution of electricity, which unfortunately has not resulted in significant cost savings for the poor or the economy,” Faber explained.

“It is for this reason that some estimate the NHI to cost R450 billion and others, like Discovery Health, cost NHI if just covering prescribed minimum benefits (PMB), at R800 billion.”

“Given the UHC requirement of a ‘full range of medical services’, PMB coverage alone would not cut it regarding the level of services that the people should be entitled to under a proper NHI.”

“The government has also not indicated what the vision is for the level of services that would be expected or to be transitioned to, though the National Core Standards could be seen as the legislative ‘vision’ of the standard of care the government currently envisages that our people should receive.”

“Sadly, these standards have not been meaningfully met and enforced.”

In a four-year review (2011-2014) of 1,427 public hospitals and clinics, the regulator found that only 6% met the 70% compliance pass rate. On the other hand, 100% of private hospitals met the compliance rate.

“The perception is that things have gotten a lot worse since then (including governance and management, with corruption scandals further plaguing the public healthcare system at both National and Provincial levels),” Faber said.

“Public hospitals and clinics had a 41% deviation from the mean. If we accept that these remain the standard of care for whatever minimum NHI services, and there is only a single buyer of services, can this differential still be tolerated?”

Joe Phaahla
Health Minister Joe Phaahla

What the numbers say

Below are some of the numbers relevant to the NHI scheme’s implementation and the funding options available for the NHI according to Faber’s calculations.

  • 62 million South African citizens
  • 350,000 documented refugees
  • 2.5 to 5 million illegal immigrants in South Africa
  • The current budget of the Health Department is R259 billion
  • 9 million medical scheme beneficiaries, with 4.1 million paying contributions while the rest are dependents, with 3.1 million on comprehensive medical plans and 6 million getting PMB and some level of private hospital cover
  • Medical schemes have R109 billion in net assets and annually receive contributions of R232 billion
  • Tax relief for medical expenses is R36.5 billion

Option 1

One option would be to divert 100% of the current medical scheme’s monies via tax or other instruments and add the removed tax allowance as an additional budget, i.e., the total budget available.

This would move the public budget from R4,886 to R8,508 per South African citizen.

Option 2

“If we had to just accept the ‘classes’ within the current medical scheme regime as acceptable, then matchbox sums would indicate the cost of NHI, if at the same level of cost and service as current private healthcare,” Faber said.

This would cost R22,032 per citizen.

Option 3

“However, the vision is not having classes of ‘beneficiaries’ and also providing comprehensive medical coverage,” he said.

If the collective vision is comprehensive coverage at the current private hospital level of services, then matchbox sums could be R40,322 per citizen.

The UK NHS is used as a regular comparative, and it costs 11.3% of UK GDP. The equivalent amount for South Africa in 2024 would be R824 billion.

However, the UK’s GDP base is a lot bigger at R71 trillion versus South Africa’s R7.2 trillion. This means that 11.3% of GDP would give a 10-fold amount per person given that the UK has a similar population of 66 million. It also only has an unemployment rate of 3.8% versus South Africa’s 42%.

President Cyril Ramaphosa after signing the NHI Bill

Hidden costs

“So, if we had to pay for comprehensive medical cover for 62 million people at the current cost of private medical coverage, it would be R2.5 trillion plus current pocket medical expenses,” Faber said.

“The latter for tax claims over the threshold is about R3 billion, but the World Bank global average of 18% of spend is probably more accurate, so another R241 billion to R450 billion for the above option 2-3 to cost ‘comprehensive’.”

“Then there is also another hidden cost, medical negligence liability, which is currently sitting at R120 billion (2018: R70 billion).”

Faber said this pool currently excludes the 9 million people who probably have access to the funds and networks to litigate against the state for medical negligence.

“Given that the standard of service won’t improve overnight and may take 10 years or more to do so, how will the government fund this additional cost, which may just double overnight?”

NHI a necessity

“What is clear is that everyone agrees that UHC is a societal necessity and not a want,” Faber said.

However, he said it is also not ideal for the government or the private sector to go at it alone in any one sector, as this seldom achieves societal goals that are a mix of efficiency, coverage and sustainability.

“Alternate proposals, like, for example, allowing the private sector to provide healthcare at lower coverage and standards, appropriate to our country and its needs, may just be one of the many solutions that best fit the South African context,” he said.

“What we see in the successful examples is a need for a plan that starts small, with a clear vision, and then expands as the economy or funding expands, increasing not only the coverage but also the standard of the coverage and location of the coverage.”


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