NHI threatens government finances
The government’s National Health Insurance (NHI) scheme – projected to cost around double the current health budget – could further constrain government finances in a country already struggling with a large debt pile.
This is according to asset manager Futuregrowth, which said fiscal flexibility remains a constraint for government finances in the medium term.
President Cyril Ramaphosa signed the NHI Act into law on 15 May this year. The legislation promises a complete overhaul of the country’s healthcare system.
This plan aims to establish a universal healthcare coverage system, ensuring all South Africans have access to essential medical services.
Under the NHI, a single public fund will act as the sole purchaser and payer for healthcare services, drawing from both the public and private sectors.
The government has promised that signing the NHI into law will result in universal healthcare free at the point of delivery. Many experts warned that this ambition is far from reality.
“The hasty pre-election signing of the NHI Bill has the potential to further constrain government finances – although implementation was always due to be phased in over time and might yet be hindered by litigation and wrangling within the GNU,” the asset manager said.
Many questions surround how the newly formed Government of National Unity (GNU) will approach NHI, as the ANC has been a staunch supporter while the DA has vehemently opposed it.
However, South Africa’s new Health Minister, Aaron Motsoaledi, has voiced his support for the legislation, saying in a recent address that the NHI Act is imperative and must be implemented.
While some believe South Africa isn’t ready for NHI and others consider it unaffordable, it is, in fact, “a health-financing system which is meant to be an equalizer between the rich and the poor”, the minister said.
“If you want to see what inequality means, come to the health sector in South Africa,” he said. “We can no longer, with our eyes open, sustain such gross inequality.”
While many support the NHI Act’s intention to achieve universal healthcare, they have voiced their concerns about the current form of the legislation.
Importantly, the legislation does not currently include a funding model, leaving many wondering how it will be funded.

The Bureau for Economic Research (BER) has previously said the question of NHI affordability is complicated and largely depends on how the basic benefit package is structured.
Several estimates of the annual cost of an NHI scheme are in the public domain, but the National Department of Health has not yet shared its basic benefit package publicly.
It is, therefore, not clear what will be included. However, the BER said it is likely that, at least initially, the basic benefit package will be focused on child health, preventative primary healthcare services and maternal and reproductive healthcare services, with the package to be expanded over time.
“The initial package will probably be closely aligned with the primary healthcare services offered at public primary facilities and emergency services provided in the public health system,” it said.
The potential cost of NHI becomes clearer if we examine the Department of Health’s cost estimates, the latest of which are available in the 2011 NHI Green Paper.
The White Papers of 2015 and 2017 shared the same cost estimates. At the time, NHI was estimated to cost R256 billion (2010 prices) by 2024/25.
Adjusting for CPI inflation, this comes out to a full roll-out cost of about R470 billion by 2024/25 (2022 prices).
The allocated government health budget for 2024/25 equates to R254 billion (in 2022 prices).
“This implies that the original projected NHI cost is about twice the current health budget,” the BER said.
“The Green and White papers rely on reallocating private health spending to the NHI Fund and further fund-raising through other means,” it said.
“However, even this simple calculation illustrates that South Africa is unlikely to afford this cost, given current fiscal and economic conditions and competing areas of social expenditure such as grants and education.”
“The idea that South Africa can double its health expenditure relies on the assumption that private health expenditure is fully reallocated to the NHI Fund, which is highly unlikely.”
Futuregrowth estimated that, based on the current fiscal framework, debt sustainability for South Africa will only be achieved with real GDP growth approaching 3% per annum.
This is a low watermark in an emerging market context yet meaningfully removed from South Africa’s growth rate of 1% to 2% over the past decade.
“The liberalisation of electricity production is a first important step to stimulating growth, with the now prolonged absence of load-shedding lending hope to an improved growth outlook in the medium-term,” it said.
“The other policy initiatives driven by Operation Vulindlela also remain key to stimulating aggregate growth. This remains a key watchpoint for us in the seventh administration of the Republic of South Africa.”
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