NHI tax hikes could ‘wreck’ South African economy

Discovery CEO Adrian Gore has warned the tax hikes needed to fund the government’s National Health Insurance (NHI) scheme in its current form have the potential to wreck the South African economy. 

Gore outlined the tax hikes that would be needed to roll out the NHI during the company’s annual Discovery Day, where new products are typically launched. 

During this year’s Discovery Day, Gore also explained the current operating environment Discovery finds itself in following the formation of the Government of National Unity (GNU) after the national elections at the end of May. 

One of the major threats to Discovery’s business as South Africa’s largest medical aid provider is the government’s NHI scheme. 

The Act, as it has been signed into law, would forbid private medical aid providers from covering healthcare procedures covered by the NHI. Companies such as Discovery would only be able to cover complementary services. 

Gore said this is simply unworkable and unfeasible, given the vague definition of complementary services and the unconstitutionality of the Act. 

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

However, his main concern with the NHI is its lack of funding and the potentially disastrous impact it would have 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.”

Discovery’s calculations show that if private medical aids are excluded from funding healthcare procedures in South Africa, the government would have to impose massive tax hikes to fund the NHI. 

 The Department of Health has confirmed that tax increases and other tax changes are on the cards to fund the NHI. However, it is not clear which taxes will be raised or if a new tax will be introduced. 

The company laid out the tax increases that would be needed to fund the NHI, which would require around R200 billion in additional funding each year, according to the Department of Health –

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

This is unsustainable for a country with an extremely small tax base, which is already being squeezed to raise revenue for the government. 

“That would wreck the economy and does 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.” 

He said Discovery will continue to engage with the government to ensure the Act that is finally implemented is workable. 

Gore also assured Discovery’s medical aid members, saying that until the NHI is fully implemented there are no effects on medical aid schemes. 

President Ramaphosa, in recent weeks, has appeared to walk back his hard stance on the implementation of the NHI in its current form. 

Earlier this week, he called on Business Unity South Africa (BUSA) to submit proposals on its concerns about the NHI Act as a basis for further engagement on the issue. 

“Government remains committed to engaging with all stakeholders in good faith on the process of health-care reform and to finding workable solutions that will advance quality and affordable health care for all,” the presidency said.

Ramaphosa met with BUSA on Tuesday to discuss the matter, after which he called upon the lobby group to submit proposals. 

BUSA has previously described the plan as unaffordable and unconstitutional. It’s also said the “legislation, in its current form, is unimplementable and damaging to the country’s health-care sector, to the economy more broadly and to investor confidence.”

Its CEO, Cas Coovadia, said the organisation has a responsibility to ensure the country chooses a path that is sustainable and viable. 

“BUSA has never wavered from its genuine commitment to healthcare reform and our country’s objective of achieving universal health coverage,” Coovadia said.

“Our primary objective, in conjunction with government and other stakeholders, is to ensure that everyone in South Africa has access to quality healthcare and that the inequalities across the healthcare system are addressed in a responsible and expedited manner.”  

“This is not only a social necessity but also essential to driving the economic growth our country so desperately needs.”

“We have also been extremely clear in our position that the NHI, as is envisioned in the Act, is unaffordable, unimplementable and unconstitutional, and therefore requires urgent amendment,” Coovadia said.

“We are disappointed that despite commitments by the government to engage on the NHI Act, structured discussions have not yet taken place.”