R37,000 extra tax for every South African employee to fund NHI

Each South African employee would have to pay an estimated R37,000 in additional payroll tax annually to fund the National Health Insurance (NHI) scheme. 

The NHI is a centralised national insurance fund through which the government plans to procure healthcare services from both public and private providers.

As outlined in the NHI Act, all eligible South African residents will have access to these services whenever they require healthcare without the need for direct payment.

Under the Act in its current form, private medical aid schemes would be prohibited from covering healthcare services already included under the NHI.

Estimates of the NHI’s cost to South Africa have varied, with the Department of Health projecting an annual expenditure of approximately R200 billion.

This is likely to be a very conservative estimate, with research from private medical aid providers showing that the NHI will cost significantly more depending on the level of care provided. 

The government’s estimates are based on the level of care provided by the state, which is far below that of the private sector. 

The Health Department’s estimate excludes services like primary care, extended chronic care, maternity care, and Prescribed Minimum Benefits (PMBs).

The cost will increase further if the NHI covers extended hospital stays and specialist procedures. 

Momentum Health estimated the private sector spends an average of R1,750 a month, or R21,000 a year, on each of the country’s 9 million medical scheme beneficiaries. 

If the NHI plans to offer the same care to all 63 million South Africans, this would translate into a cost of R1.3 trillion annually. 

Momentum said that while there would be savings through the use of medical aid tax credits and enhanced scale, this would only bring the cost down to R900 billion per year. 

With the existing healthcare budget of R272 billion deducted, this would require R628 billion in additional funding for the NHI – far higher than the government’s initial estimate of R200 billion. 

The government has said it would explore various options to raise the funds necessary to implement NHI, with increases to personal income tax, VAT, and others potentially on the cards. 

More recently, the idea of funding the NHI through a specific payroll tax has been floated. A payroll tax is a percentage withheld from an employee’s salary and paid to a government to fund public programs.

This would result in the NHI being funded similarly to the Unemployment Insurance Fund (UIF). 

To fund the NHI in this way, each of South Africa’s 16.9 million employees would have to pay an additional R37,159 payroll tax annually.

Such an increase in South Africans’ tax burden would be unsustainable and potentially result in many leaving the country. 

“If you were to do that, I would argue that you would destroy the economy,” Discovery CEO Adrian Gore previously 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 the NHI, in the form described in the NHI Bill, is not something the country can currently afford.

“If we get rapid economic growth and, over time, we find ways to do this in different ways with many different methodologies, then it may be workable,” he said.

“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 previously told Daily Investor. 

“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.”

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 NHI budget 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. 

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 20 years to fund the NHI without tax hikes. 

According to Discovery’s calculations, advanced cover, such as extended hospital stays and specialist procedures, would require nearly R1 trillion in funding. 

To achieve this without tax increases, the local economy would have to grow at 10.4% a year for two decades. While these levels of economic growth are extremely high, Gore said it is the only sustainable option to fund the NHI.