First NHI fund to start operating this year

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The government plans a National Health Insurance (NHI) fund this year that would start with maternal health services, improved psychiatric care and services for the elderly and disabled, and may be partially financed by a reduction in the tax subsidy currently given to medical scheme members, Finance Minister Pravin Gordhan announced.

Business Day reports that this is the first strong signal of progress on the NHI from Treasury since last year’s budget when Gordhan said it would soon issue a financing proposal for the policy, which promises sweeping reforms to South Africa’s healthcare system. That proposal has yet to materialise, partly because work is still under way to refine the NHI White Paper put out by Health Minister Aaron Motsoaledi in 2015.

The Treasury said the proposed NHI fund would start with maternal health services, improved psychiatric care and services for the elderly and disabled. It will also provide hearing aids and glasses through the school health programme. These were priority areas identified by Motsoaledi, said Treasury chief director for health and social development Mark Blecher. "It reflects an agreement between the ministers (of health and finance) to move ahead with NHI, even if it’s relatively modest to begin with. It is likely a small amount of money, about R5bn per annum, will be taken from the medical scheme tax subsidy to begin with," he said. The proposed NHI fund would require enabling legislation and a revised White Paper, Blecher said.

Further details would be provided in the October adjustment budget, Gordhan said in his budget speech. Treasury said the package would be offered through public and private sector providers and would be gradually expanded.

The report said consolidated health expenditure is set to rise by 8.3% over the medium-term expenditure framework, making it the fastest growing category of government spending after debt servicing and post-school education. Health expenditure will grow from R170.9bn in 2016-2017 to R187.5bn in 2017-2018, and then rise to R201.4bn in 2018-2019 and R217.1bn in the outer year.

Treasury said the increase in expenditure was mainly driven by the expansion of free anti-retroviral treatment for people living with HIV, highlighting the government’s commitment to tackling South Africa’s massive HIV/Aids epidemic. An extra R885m has been added to the baseline for improving access to HIV treatment, which now reaches an estimated 3.5m patients.

The report said the comprehensive HIV/ Aids grant is the fastest growing segment of health expenditure and is projected to increase by an average of 13% per year over the medium term. It is due to rise from R15.29bn in 2016-2017 to R22.04bn in 2019-2020.

Treasury emphasised the pressure facing the health budget as a result of increased personnel costs, higher spending on ARVs and currency depreciation. "Although centralised procurement of medicine has resulted in estimated savings of R1.6bn per year, these savings have largely been offset by the weaker rand which drives up the cost of imported medicines," the Treasury said in the budget review.

Blecher said R1bn had been added to the provincial equitable share in 2019-2020 to protect provincial health departments from future currency depreciation. Treasury has also added R600m to the baseline for the Nelson Mandela Children’s Hospital in Johannesburg.

The report said the South African Health Products Regulatory Agency, which is due to replace the Medicines Control Council in the coming financial year, is allocated R397.6m over the medium term. It will be a public entity and will retain the revenue it collects from the pharmaceutical industry when it registers their products.


Eleven pilot sites have been used to assess how to grow the insurance system, and Eyewitness News report that Gordhan says government is revising its NHI White Paper based on the 160 submissions it received from the public.

The next phase of the NHI will be the implementation of a fund to improve access to maternal health and ante-natal services, to provide spectacles and hearing aids through its school programmes and to improve services for people with disabilities, the elderly and mentally ill.

The expansion of public health services includes a new Limpopo Central Hospital, R600m for the commissioning of the new Nelson Mandela Children’s Hospital and a new medical school at the University of Limpopo.


Also coming out of the budget is the news that government's proposed 20% sugar tax will not come into effect from April this year as originally mooted. According to Business Report, Gordhan said further consultations are currently taking place on the tax on sugary beverages. He says, as a result of these talks, and input from the Department of Health, the proposed design has been revised to include both intrinsic and added sugars. The tax will be implemented later this year once details are finalised and the legislation is passed.

The report says South Africa’s proposed tax on sugary drinks has not been tabled without some controversy. Economists have argued it will not succeed because it will not deter people from buying fizzy drinks, as has been the case in other countries. In addition, companies in the sector have warned that it could cost thousands of jobs.

However, Treasury’s Budget Review document, handed out on the occasion of the speech, says its preliminary socioeconomic impact assessment shows a relatively small effect on job losses, most of which can be prevented if companies reformulate their products.

“Over the past year, the National Treasury published a draft policy paper and consulted with industry associations and other interested parties on the tax.”

As a result, the design has been revised: a broader World Health Organisation definition will be applied to cover both intrinsic and added sugars in sugary beverages; the sugar content will remain the base on which the tax is applied because it is well suited to public health goals; the proposed tax rate will be 2.1c/gram for sugar content in excess of 4g/100ml; and of the proposed rate, 50% will apply to concentrated beverages.

Some of the revenue will be used to support health-promotion interventions as part of a strategy to fight non-communicable diseases, National Treasury is quoted in the report as saying. The tax, at 20% on all drinks with sugar, could raise R5bn in revenue for government.


Health-e News reports that Treasury has watered down the proposed tax – now at around 11% rather than the proposed 20% – and pure fruit juices are not yet included. Deputy finance minister Mcebisi Jonas says 100% fruit juice will not be taxed at this stage despite the Budget Review saying “intrinsic sugar” will be taxed. “We are only targeting soft drinks at this stage,” Jonas is quoted as saying.

The report says the Healthy Living Alliance (HEALA), an alliance made up of activist and health organisations, expressed disappointment at the weakened tax proposal: “HEALA is concerned that the proposed level of taxation might not be sufficiently high to deter consumption of these drinks. It appears from the Budget Review that the tax will be in the region of 11%.”

“Tackling obesity is a national health priority,” says HEALA coordinator, Tracey Malawana. “While there is no silver bullet that will slim down the nation, cutting sugar consumption is a non-negotiable public health measure. Sugary drinks are a major contributor to excessive sugar intake.”

Dr Craig Nossel, head of Vitality Wellness, welcomed the proposed tax: “We believe that action is required to reduce the intake of sugary drinks, and support the proposed sugar tax. From a health point of view, it is excellent news that sugar content will remain the base on which the tax is applied – this encourages reformulation and the availability of drinks with a lower sugar content.

“We are also pleased to hear that some of the revenue generated from the proposed tax will be used to support health-promotion programmes aimed at non-communicable diseases. We have much to do as South Africans to combat the increasing prevalence of obesity in our country, and the sugar tax is a step in the right direction.”

The report says South Africa has the highest obesity rates in Africa. It is a major risk factor for diabetes, strokes, heart disease and some cancers. These and other non-communicable diseases (NCDs) in combination cause one in three deaths among South Africans under the age of 60. Diabetes alone claimed an average of 62 lives a day in the country in 2014.

Economic modelling done by the Wits School of Public Health’s think-tank PRICELESS SA (Priority Cost Effective Lessons for Systems Strengthening) indicates that a 20% tax on these products would result in 220,000 fewer obese South Africans and contribute up to R7bn in revenue that could be used to fund health initiatives.

Business Day report Eyewitness News report Business Report report Health-e News report

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