The curious case of costing the NHI
Johannesburg, Tuesday, 4 June 2024 - While the President has signed the National Health Insurance (NHI) into law, the bean counters at National Treasury have yet to start looking for their excel sheets needed to ensure the NHI is fully costed. SAICA’s Executive for Taxation, Pieter Faber, provides clarity on why funding the NHI has been so elusive.
The first reason is due to the confusion of objective versus political ideology.
The NHI has been touted as introducing “universal healthcare coverage” (UHC). The World Health Organisation (WHO) defines UHC as meaning:
“that all people have access to the full range of quality health services they need, when and where they need them, without financial hardship. It covers the full continuum of essential health services, from health promotion to prevention, treatment, rehabilitation, and palliative care across the life course.”
Crossing the political divide
If we look at the South African public healthcare system, all people have access to a full range of health services, this is however matched to their ability to pay (e.g. an unemployed person will get all these services for free while an employed salaried person may have a co-contribution). In essence, South Africa already has UHC, though some will argue that in some cases this is not “quality health care services” and it still has a “financial hardship” element.
So why then is the NHI so controversial? It is controversial as the real reason for the NHI seems to rather be the creation of a single pool of healthcare funding and services (i.e. single tier), with the intent of essentially removing “classes” of healthcare beneficiaries (achieved by removing “classes” of healthcare providers and replacing them with the State). Therefore, if government ultimately controls the demand and market, it controls who can supply healthcare services and to whom. This is evident from clause 2(a) of the NHI Act that seeks to achieve “universal access to quality health care services by – serving as single purchaser and single payer of health care services in order to ensure the equitable and fair distribution and use of health care services".
This will impact costing as it fundamentally alters demand and supply rules. “Class removal” for health care services is therefore a key objective of the NHI, which depending on which political ideology they support, some will agree with and some will not. UHC in general however has nothing to do with “class removal” ideology, and all to do with universal healthcare access. It therefore seems that the NHI debate should focus on the former and not the latter as to policy clarification on costing.
This obscure objective has resulted in the second matter impacting costing, namely scope of services. If the private sector may only supply what the NHI does not, knowing what NHI will supply informs what it will cost and whether there will be sufficient “free market” for business to remain in the sector.
Though government seems adamant the private sector will have a role, state-owned buyer and seller monopolies have not been successful in South Africa, as seen first in telecommunications with Telkom and then in electricity with Eskom, as it creates an embedded conflict of interest where the sole producer/buyer of services and products is also a competing seller. In both instances it is also clear that segregating buying and selling arms and managing the inherent conflict whilst creating a space for the private sector to compete in one leg has produced better results.
This all creates a political ideological conundrum; if the NHI sets the bar too low, class distinction and “2+ medical health service classes” will remain in a significant form. If the bar is set too low, it risks closing down all private sector participation on the purchasing side (i.e. it gives government a monopoly on healthcare services as to purchasing and dispensing). This is similar to Eskom’s historical monopoly on production and distribution of electricity, which unfortunately has not resulted in significant cost savings for the poor, or the economy.
It is for this reason that some estimate the NHI to cost R450 billion and others, like Discovery Health, cost NHI, if just covering prescribed minimum benefits (PMB), at R800 billion. Given the UHC requirement of a “full range of medical services”, PMB coverage alone would not cut it regarding the level of services that the people should be entitled to under a proper NHI.
The government has also not indicated what the vision is for the level of services that would be expected or to be transitioned to, though the National Core Standards could be seen as the legislative “vision” of the standard of care the government currently envisages that our people should receive. Sadly, these standards have not been meaningfully met and enforced.
In a 4-year review (2011-2014) conducted by the regulator on 1 427 public hospitals and clinics, only 89 (6%) met the 70% compliance pass rate. The perception is that things have gotten a lot worse since then (including governance and management, with corruption scandals further plaguing the public healthcare system at both National and Provincial levels).
In comparison, 100% of the private hospitals reviewed met the 70% compliance pass rate. It was particularly in the management and leadership service element where private hospitals on average scored 30 points higher than their public sector counterparts. Public hospitals and clinics had a 41% deviation from the mean. If we accept that these remain the standard of care for whatever minimum NHI services, and there is only a single buyer of services, can this differential still be tolerated? Further, who will negotiate this with the public sector unions and political leadership?
What the numbers say
There are 62 million South African citizens and about 350 000 documented refugees. There are other foreign nationals as well who are legally in the country. Depending on the NHI scope, there are anywhere between 2,5-5 million illegal immigrants in South Africa.
The current budget of the Department of Health is R259 billion. There are 9 million medical scheme beneficiaries with 4,1 million paying contributions while the rest are dependents. However, only 3,1 million of those individuals are on comprehensive medical plans (i.e. 6 million are getting PMB and some level of private hospital cover). Medical schemes have R109 billion in net assets and annually receive contributions of R232 billion (2022).
Tax relief for medical expenses is R36,5bn (2022).
Option 1
If we merely divert 100% of the current medical scheme’s monies via tax or other instruments and add the removed tax allowance as additional budget i.e. total budget available determines cost of NHI then:
R259 billion + R232 billion + R36,5bn= R527,50 billion
That moves the public budget per SA citizen from R4 886 to R8 508
Option 2
If we had to just accept the “classes” within the current medical scheme regime as acceptable, then matchbox sums would indicate the cost of NHI, if at the same level of cost and service as current private healthcare, as being
R232 billion x 53 million/9 million = R1366 billion
That’s R22 032 per citizen.
Option 3
However, the vision is not having classes of “beneficiaries” and also providing comprehensive medical coverage. If the collective vision is comprehensive cover at current private hospital level of services, then matchbox sums could be:
Calculate what comprehensive medical aid would cost current medical aid contributors?
R232 billion x (2,76 x 6/9) = R426 billion
(Assumption: scale up current medical aid members to comprehensive using % diff of GEMS Tanzinite (R882) vs Emerald Value R2434))
Then extrapolate to the whole SA population
R426 billion x (53/9) = R2 500 billion
That’s R40 322 per citizen.
The above can also be discounted with approximate savings of single buyer bulk purchase of goods and services. What that discount would be is highly subjective, though on the face of it seems like a large divide between what the private hospitals currently provide and the quality of that service vs what could be achieved with a similar spend. The UK NHS is used as a regular comparative and it costs 11,3% of UK GDP, the equivalent amount would in 2024 be R824bn. However the UK GDP base is a lot bigger at R71 trillion vs R7,2trillion so that means that 11,3% of GDP would give a 10 fold amount per person given UK has similar population of 66 million. It also only has a 3,8% unemployment rate vs 42%.
Hidden costs
So, if we had to pay for comprehensive medical cover for 62 million people at the current cost of private medical coverage, it would be R2,5 trillion plus current pocket medical expenses. The latter for tax claims over the threshold is about R3 billion but the World Bank global average of 18% of spend is probably more accurate, so another R241-450 billion for the above option 2-3 to cost “comprehensive”.
Then there is also another hidden cost, medical negligence liability, which is currently sitting at R120 billion (2018: R70 billion). This pool currently excludes the 9 million people who probably have access to the funds and networks to litigate against the state for medical negligence. Given that the standard of service won’t improve overnight and may take 10 years or more to do so, how will the government fund this additional cost, which may just double overnight?
Is the dream realistic?
Once the reality of the numbers is added into the equation, it begs the question of whether this is all a pipe dream and financial disaster.
Just replicating the private sector model of healthcare is however not the vision, as the government is trying to secure central procurement efficiencies and also remove the profit-taking portion, though monopoly inefficiencies usually trump both these savings. In addition, it is a reality that UHC is implemented as the NHI in countries such as Canada, Taiwan and South Korea, with Brazil being the only country that has full free medical coverage for everyone, irrespective of status. The real question is however whether UHC can only be achieved whilst having a single-tier system or whether, political ideology aside, UHC can be achieved with a 2-level (public and private) multi-tiered system. The latter includes both scope and standard of service with the latter benchmarked against first-world countries, being a large cost contributor.
The question posed is whether there are other ways of realising what everyone agrees is a noble vision. Well, what can we learn from our history as inclusion of the historically disadvantaged and the poor has been a hallmark policy?
Lessons learned before
This is not the first time that intervention was required to ensure that the poor and marginalised are included and provided with access to fundamental rights. Let’s look at local and some international success stories.
Banking success
Banking faced similar problems of exclusions of the poor whilst having a world class banking sector, which resulted in the Mzanzi account initiative. As of 2023, 91% of SA citizens have access to a bank account; this from an initial low of 50%. Though a state bank has been part of the plan, it has been less of a success, with a half-hearted attempt in the form of the failed Post Office Bank.
Maintaining a balance between the public and private sector has also worked in other areas globally where the poor have been excluded.
Housing success
In the 1950s, Britain had to address a housing shortage particularly for the poor as the exclusive private sector did not cater for this cohort. This was implemented through the local council ownership model. First, council-owned blocks of flats and then mixed estates, including terraced and semi-detached houses. By the 1970s a third of the UK were living in council housing. However, in the 1980s council housing stock was sold off privately, recreating the problem addressed in the 1950s with only 17% of UK citizens now in council housing and 4,3 million backlogs in homes in the market.
Singapore followed the UK model in the 1960s, however, it never fully allowed privatisation of public housing stock. However in the 1990s, it started allowing it to be treated as an asset for limited sale, with some terms like 99-year leases. It also followed a National government-owned model (through the Singapore Investment Trust). It has also ensured that it diversifies housing to new towns, and like the UK model, started with low-cost housing and then expanded to middle-class housing as the economy improved. This initiative is complemented with housing grants for low-income households to purchase their own homes. This has ensured that the demand and price increases in the private sector have remained in check. As of 2020, 79% of Singapore residents live in public housing.
What is clear is that everyone agrees that UHC is a societal necessity and not a want. However, we also see that the government or the private sector going at it alone in any one sector seldom achieves societal goals that are a of mix of efficiency, coverage and sustainability. By having both the private and public sectors involved ensures inclusivity and coverage, but also tames exclusion in the private sector by limiting narrow “profit-taking” focus. At the same time, the good attributes of the private sector as to efficiency, choice and innovation are maintained. Alternate proposals, like for example, allowing the private sector to provide healthcare at lower coverage and standards, appropriate to our country and its needs, may just be one of the many solutions that best fit the SA context.
What we see in the successful examples is a need for a plan that starts small, with a clear vision, and then expands as the economy or funding expands, increasing not only the coverage but also the standard of the coverage and location of the coverage.
Following the above costing exercise, we need to explore funding options that requires a whole new article and discussion.
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