The NHI’s hidden threat to South Africa

The National Health Insurance (NHI) Act threatens to shrink the supply of healthcare in South Africa through the implementation of a centralised purchasing power under a single state-run entity. 

This threat comes amid many others, such as the likelihood of increased taxes to fund the NHI, which may cripple the local economy, and healthcare expenditure crowding out other items in the budget. 

It is estimated that personal income tax (PIT) would have to more than double to fund the NHI’s ambition to provide comprehensive, high-quality healthcare for all South Africans for free at the point of service. 

While most of the concern has focused on potentially higher taxes, affordability issues, and a lack of healthcare access, there is a hidden threat in the form of a centralised purchasing power run by the state. 

This is feedback from the Health Funders Association (HFA), which has been a staunch opponent of the NHI in South Africa. 

It explained that the NHI Fund, once fully implemented, will function as the single buyer of healthcare services for the entire country. 

In theory, this gives the state leverage to reduce costs by negotiating lower prices with providers and suppliers through economies of scale. 

A single buyer for the whole country could drive down prices through the bulk procurement of medication, reduced profit margins in private hospitals, and use existing spare capacity in the private sector. 

However, a major risk is that this could push prices below sustainable levels, making it no longer economically viable to supply medication in South Africa or operate a private hospital. 

The HFA said that research from Genesis Analytics shows that in countries around the world with a dominant healthcare purchaser, suppliers reduce investment, exit the market, and redirect resources to other countries. 

This leaves them with a shortage of medication and hospital capacity, in some cases. 

In South Africa, this risk is particularly acute in the pharmaceutical sector, with a significant degree of cross-subsidisation occurring between the private and public sectors. 

Public sector procurement, typically at lower prices, is partially sustained by higher margins in the private sector, allowing suppliers to remain viable across both domains. 

If the NHI Fund becomes the sole purchaser and imposes public-sector pricing across the board, this delicate balance collapses and threatens the feasibility of continued medicine supply.

Other problems of a single buyer

Another major issue with having a single buyer in South Africa is that the savings it could generate would not be enough to cover the additional healthcare spending of the NHI. 

Genesis finds that delivering comprehensive care for all South Africans at the same level currently accessed by medical scheme members would cost R941 billion annually. 

Savings from a single buyer cannot bridge that gap and may create even greater systemic issues, with tax increases likely to make up the shortfall. 

Alternative models, such as HFA’s proposed hybrid multi-fund model, would retain the NHI Fund as a major buyer while allowing for a supplementary role for medical schemes. 

This approach preserves price leverage, protects supply and improves health system resilience. It also eases the funding constraints of the NHI. 

A major concern of the private sector comes from the government’s historical financial mismanagement and rampant corruption. 

Earlier this year, Bonitas warned that the NHI poses a significant risk to its business because of the potential impact of corruption. 

“All international concepts of universal healthcare make provision for freedom of choice, and we believe citizens should be allowed to purchase additional healthcare should they have the desire and means to do so,” Bonitas said.

Several lawsuits against the NHI have been filed for this reason and for the potential infringement of companies’ legal right to conduct business in South Africa.

While the NHI Act clarifies that private medical schemes can only offer ‘complementary services’, it is not clear what these services will be.

In addition, Bonitas stated that it is unclear how the government will ensure the required “rigorous governance” of the fund.

The company highlighted that the impact of potential corruption and misuse of health funds under the NHI presents a significant risk to its sustainability and structure.

This concern has also been voiced by Professor Alex van den Heever of the Wits School of Governance.

Van den Heever has previously warned that the possibilities for corruption with the NHI scheme are “endless” as it will effectively put around R600 billion in funding under the control of a single institution – the National Department of Health.