The true cost of the NHI

South Africa would need to grow its economy at an annual rate of 7.2% for 20 years for the government to be able to afford the National Health Insurance (NHI) scheme without any tax increases. 

This was revealed by Discovery in its latest annual results presentation, where the company outlined the estimated cost of the NHI and why it is not workable. 

President Ramaphosa signed the NHI Act into law in May this year, marking the end to a decades-long process. 

The scheme seeks to reform South Africa’s healthcare system, establish universal access to health services, and address significant socio-economic disparities from the past.

The legislation outlines a state-run fund to deliver universal care and prohibits the private sector from funding treatments included under the plan.

Although the government has pledged that the NHI will offer universal healthcare free at the point of service, this goal remains distant.

The NHI Act indicates that full implementation will take approximately 10 to 15 years, and even then, private medical aid will only be able to cover complementary services.

Discovery CEO Adrian Gore was clear in saying the government’s scheme is unworkable and unsustainable as it has no funding model. Moreover, the South African economy is simply too small to fund such an ambitious project. 

The Department of Health estimates the NHI would cost an additional R200 billion a year, and while this estimate is likely to be less than what is needed, it is all it has provided. 

Discovery’s calculations show that to make up this R200 billion, there would have to be a 31% increase in personal income tax, a 6.5% increase in VAT, or a ten times increase in payroll tax. 

“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.” 

If the government were to try to implement the NHI without raising any taxes, South Africa’s economy would have to experience a boom it never had before.

Discovery’s calculations show that to cover the Health Department’s estimated cost of the NHI of R200 billion a year, the economy would have to grow at 7.2% for 20 years. 

This would result in a sufficient increase in tax revenue from additional economic activity without tax hikes. 

However, the NHI is likely to cost far more, particularly if it covers increasingly specialised medical procedures. 

If the NHI covers primary care, extended chronic medication, maternity, and Prescribed Minimum Benefits (PMBs), it would need around R600 billion in additional revenue to fund. 

This would require the South African economy to grow at an annual rate of 8.6% for twenty years to fund without tax hikes. 

The cost may still be higher if the government wants the NHI to cover extended hospital stays and specialist procedures. 

This advanced cover would require nearly a R1 trillion in additional funding and need economic growth of 10.4% a year for 20 years to fund without tax increases. 

While these levels of economic growth are extremely high, Gore said it is the only sustainable option to fund the NHI. 

“Our view is you need more resources overall. For this, you need private sector funding and its delivery systems. I think that is kind of almost axiomatic,” Gore said. 

“We do not believe NHI is workable without private-sector inclusion. We need more funding, we need more doctors, we need more resources, and that’s a key issue.”

Gore told Daily Investor he is encouraged by the government’s willingness to engage business further on the NHI and for a workable solution to be found. 

“I don’t think people should be concerned about in the short term, but in the medium to long term, we’ve got to find solutions.”