A phased hybrid approach that advances financing reforms alongside investment in governance capacity is the most feasible pathway to enable progress toward universal health coverage (UHC) in South Africa, argue SM Cleary, M Haji and GC Solanki in the SA Medical Journal as they explore financial options and alternative models for this country.
They write:
With current health sector reform initiatives challenged by polarising debates and legal contestation, this paper aims to compare and contrast reform options to encourage engagement and debate that advances UHC.
An adapted UHC analytical framework is applied to four alternative health financing models that have either been implemented or considered in the post-apartheid period: the current public sector (National Health Service) (NHS) model, the current private sector (voluntary health insurance), and two key alternatives, namely National Health Insurance (NHI) and Social Health Insurance (SHI).
This analysis suggests that, while NHI offers the most comprehensive vision for UHC, its success depends on overcoming significant governance and fiscal constraints. SHI offers a more incremental and financially sustainable pathway by expanding formal sector coverage and enabling regulated risk pooling. However, a key finding is that no financing model, however well designed, will succeed without addressing underlying governance failures in the public health system.
Drawing on lessons from the post-apartheid period, this paper argues for a phased hybrid approach that advances financing reforms alongside investment in governance capacity as the most feasible pathway to enable progress toward UHC.
Country-specific
SA’s current health system is characterised as a plural or mixed health system, with a combination of public and private financing and delivery models.
The public sector is based on a National Health Service (NHS) model with public financing and delivery.
Mixed or plural health systems have become the norm globally. In SA, however, private sector weaknesses include poor value for money, driving disproportionately high spending, while public sector weaknesses centre on inefficient governance and poor quality of care.
This paper presents a brief overview of the historical trajectory of health sector reform in SA, identifying four key health system models: public sector NHS, voluntary private health insurance, NHI and SHI – all of which have been implemented or proposed at various times.
History of universal health coverage
SA’s vision for healthcare equity dates back to the 1940s, when the Gluckman Commission proposed a centrally controlled NHS, funded through a national health tax and delivering free care at the point of use.
This aligned with the thinking outlined in the Beveridge Report, which enabled the establishment of an NHS in Britain.
However, this proposal was abandoned as apartheid- era policies institutionalised a fragmented, racially segregated system, including a public sector organised under multiple health departments for different racial groups and geographical regions.
Toward the end of apartheid, health sector reforms included deregulation of medical schemes, relaxation of licensing requirements to allow the development of private hospitals, and rapid increases in public sector user fees.
Since democracy in 1994, considerable progress has been made in dismantling these structures, framed by the vision articulated in the 1997 White Paper for the Transformation of the Health System. The racially based public sector was consolidated under a single National Department of Health and nine provincial departments, and user fees were removed, first for pregnant women and children under six, and then for all primary care services.
While user fees for hospitals were maintained, they were reduced and means-tested. In this way, elements of the Gluckman vision of an NHS were achieved in the public sector, although this did not realise the full vision of a universalist system.
In the private sector, reforms to medical schemes were implemented through the passage of the Medical Schemes Act of 1999, reversing much of the deregulation implemented in the late 1980s.
While a hybrid health system was maintained, the system nevertheless produced notable gains toward the goals of UHC.
This progress has been accompanied by real per capita increases in government spending on the public sector since democracy.
Before Covid-19-related health budget fluctuations, SA nominally met key health financing benchmarks, like the Abuja target of dedicating 15% of total government expenditure to the health sector and the WHO's recommendation of government expenditure on health of 4.5% of gross domestic product.
However, since the end of the pandemic, the public sector has experienced real decreases in health budgets, exacerbated by the withdrawal of funding from Pepfar and the United States Agency for International Development (USAID), amid ongoing economic uncertainty.
During this post-democracy period, consideration was also given to further health sector reform that would enable convergence between the public and private sectors. While the history is complex and coloured by political contestation, broadly speaking, these alternatives converged into either SHI or NHI models.
For example, the 2002 report of the Committee of Inquiry into Comprehensive Social Security for SA (the Taylor Committee) considered various options for health sector reform, but ultimately recommended a progressive form of SHI to overcome some of the challenges of voluntary health insurance and private sector cost escalation, arguing that universalist options of either an NHS or NHI were unaffordable.
This stance was supported by a 2005 Ministerial Task Team. The proposed SHI model entailed an expansion of medical scheme cover (in part via the allowance for low-cost benefit options), as well as the implementation of a risk equalisation mechanism to allow for cross-subsidisation between pools.
Further aspects of such an approach also formed part of the detailed recommendations in the final report of the Competition Commission 2019 Health Market Inquiry.
However, at its annual policy congress in 2007, the ANC voted in favour of a universalist NHI model, in contrast to the previous SHI reform agenda.
While contested, this was nevertheless followed by the 2011 NHI Green Paper, the 2015 NHI White Paper, the 2018 NHI Draft Bill, and ultimately the signing of the NHI Act in May 2024.
Evaluating health sector reform models against a universal health coverage assessment framework
We adapted a UHC framework from Kutzin to evaluate the strengths and limitations of the four models: the current public sector model (NHS), the current private sector model (voluntary health insurance), and two alternatives proposed since democracy, namely NHI and SHI.
The framework draws attention to four financing arrangements:
• The sources of, and approaches to, revenue collection (with prepayment and mandatory approaches being strongest).
• The nature of pooling (with larger pools enabling better cross-subsidisation between younger and healthier, and older and sicker, populations).
• Whether the system can purchase from public and/or private providers, and how providers are paid (with historical budgets and user fees tending to produce worse outcomes than strategic purchasing and newer provider payment mechanisms such as capitation and diagnosis-related groups).
• The extent to which the health benefit package (i.e. the package of services and interventions) is clearly defined and used to guide or mandate service delivery.
These financing arrangements are conceptualised as contributing toward two intermediate UHC goals: equity in resource distribution and efficiency, specifically:
• Equity as financial progressivity (cross-subsidisation between wealthier and poorer populations).
• Equity as risk equalisation (cross-subsidisation between healthier and sicker populations).
• Technical efficiency (the ability of the health system to convert available resources into the maximum possible services or outputs).
• Allocative efficiency (the cost-effectiveness of the services and interventions included in the health benefit package).
Together, these contribute to the two final UHC goals: (i) ensuring access to quality services when needed; and (ii) financial protection against the costs of care.
Using this framework, we mapped SA’s current public and private sectors and evaluated the potential for NHI and SHI reforms to advance UHC. This comparative assessment helps identify which models – and which combinations of financing arrangements – offer the greatest potential to accelerate progress given contextual realities.
Current health systems
The current public sector NHS model serves 85% of the population and is primarily financed through general tax revenue, allocated from national to provincial treasuries via a combination of equitable share formulae and conditional grants.
The system embodies a high degree of income and risk cross-subsidisation owing to its progressive financing and pooling arrangements.
A combination of governance and capacity challenges results in uneven quality of care and service coverage across regions and facilities, undermining the system’s promise of equal access to necessary care.
By contrast, the private sector covers 15% of the population and is primarily financed through voluntary private health insurance contributions, supplemented by out-of-pocket payments, including co-payments and user fees.
Risk pooling is limited in a highly fragmented system, comprising 71 medical schemes and more than 300 registered benefit plans.
Providers are often independent practitioners, reimbursed via fee-for-service payment models. Prescribed minimum benefits (PMBs) are the base requirement for all benefit options, providing more explicit definitions than in the public sector. PMBs cover a defined set of 270 diagnostic and treatment pairs, including emergency care, certain chronic conditions and hospital admissions, ensuring that medical schemes cover the costs of these conditions regardless of the benefit option chosen by members.
Coverage of other services depends on the selected benefit option.
While private insurance offers financial protection for those who can afford it, the absence of meaningful income and risk cross-subsidisation renders the system regressive and inequitable.
Based on the findings of the Competition Commission’s HM Commission’s HMI, the private sector also suffers from multiple market failures, including structural, behavioural and regulatory constraints that undermine competition and restrict access.
Transitioning to NHI
While still tax-financed, the NHI proposes a consolidation of all funding into a single national fund, as opposed to nine provincial pools, and the elimination of user fees entirely. Over time, the tax allocation to health would need to increase to accommodate up to 100% of the population, given the proposal to limit private health insurance coverage once the system is ‘fully implemented’.
Both public and private providers meeting accreditation standards would be able to contract with the NHI and would be remunerated through mechanisms such as risk-adjusted capitation for primary care and diagnosis-related groups for hospitals.
If implemented effectively, NHI has the potential to advance population-wide coverage, promote equitable financing through progressive risk pooling and enhance financial protection.
It also enables the integration of private provider capacity into a universalist system.
However, these benefits hinge on overcoming significant challenges related to governance, technical inefficiency and fiscal capacity. Without adequate expansion of the funding envelope, NHI could lead to real per capita decreases in spending, resulting in an unintended outcome: apparent progress toward UHC goals alongside a reduction in health benefits and potentially in health outcomes.
Transitioning to Social Health Insurance
The SHI model is characterised by mandatory, income-linked insurance contributions (typically payroll-based), community rating and potential user fees. Unlike the current fragmented private insurance market, SHI has the potential for risk pooling (possibly through risk equalisation mechanisms), income cross-subsidisation and standardised benefit packages and provider payments.
Implementing SHI would require systems for contribution collection, enrolment and claims management. Public and private providers would contract with SHI funds and deliver care based on clearly defined entitlements.
Private funders would be regulated to ensure community rating and standardised coverage. This represents a shift from voluntary, fragmented coverage to mandatory, regulated insurance for certain categories of the employed population.
Overall assessment and recommendations
The passing of the NHI Act signals a commitment to a particular UH pathway, yet high levels of contestation and legal challenges indicate poor stakeholder buy-in.
Many of these legal challenges relate to the intended reductions in private health insurance. By contrast, key innovations proposed under NHI – explicit health benefits, removal of hospital user fees, provider payment reforms and accreditation for quality, and private sector contracting – are already possible within the current public sector under the National Health Act.
A key difference between NHI and an NHS model lies in the introduction of a purchaser–provider split, where the NHI fund acts as purchaser and provincial departments of health and private sector entities act as providers.
This would enable the fund to terminate contracts with providers or facilities and, where alternative facilities exist within a particular jurisdiction, potentially improve quality of care.
However, certain important strengths of an NHS model are weakened under NHI. Although the provision of health services would remain the mandate of provincial governments, the funding of services would no longer be the responsibility of provincial treasuries.
This may disrupt the potential for provincial governments to implement ‘whole-of-government’ or ‘whole-of-society’ approaches to improve social determinants, like community-oriented primary care.
It may also complicate the management of the health ecosystem and the sharing of resources between facilities. Examples include specialist support to peripheral facilities via telemedicine and redeployment of oxygen to hospitals with high burdens during the Covid-19 pandemic.
The verticalisation proposed by NHI could generate significant fragmentation within such an ecosystem.
An underlying theme of this analysis is that, however well designed, none of the financing models will succeed without addressing the underlying governance failures that contribute to technical inefficiency in the health system. The NHI’s centralised fund will concentrate significant resources within a single public entity. If implemented within the current governance environment, it risks amplifying rather than resolving existing weaknesses.
Conversely, SHI’s more incremental approach may allow for parallel governance strengthening, but it would not automatically resolve the public sector challenges affecting the majority of the population.
This suggests that health sector reform must proceed on two parallel tracks: financing reforms (whether NHI, SHI or hybrid) must be accompanied by sustained investment in governance capacity, including financial management, human resource systems, supply chain integrity and accountability mechanisms.
Without this dual approach, progress toward UHC will remain uneven, regardless of legislative reform or the selected financing model.
SHI, meanwhile, provides a pragmatic and financially sustainable entry point for addressing the challenges of the current private sector by introducing mandatory formal sector coverage and risk pooling within a regulated environment.
This has the potential to advance UHC goals for this segment of the population and may pave the way toward a future universalist system. Whether this system is based on NHI or an NHS model, absorbing the entire population – including those currently dependent on private health insurance – would require a substantially larger government health budget.
Conclusion
The NHI reform includes multiple innovations that could accelerate progress toward UHC, yet many of these are already feasible within the current public sector system and should be implemented. In parallel, SHI-related reforms should be pursued to strengthen the private sector.
Ultimately, SA’s health reform trajectory should prioritise pro-poor, cost-effective and politically feasible steps toward a more equitable health system that maximises health outcomes and financial protection, rather than strict ideological adherence.
S M Cleary,1,2 MA (Economics), PhD – Head of Department and Director, School of Public Health, Faculty of Health Sciences, University of Cape Town; Division of Health Economics, School of Public Health, Faculty of Health Sciences, University of Cape Town;
M Haji,2 MPH (Health Economics) – Division of Health Economics, School of Public Health, Faculty of Health Sciences, University of Cape Town;
G C Solanki,2,3 BChD, DrPH – Division of Health Economics, School of Public Health, Faculty of Health Sciences, University of Cape Town; Principal Consultant, NMG Consultants and Actuaries, Cape Town.
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