Friday, 19 July, 2024
HomeNHIPinning down the real cost of the NHI: SA tax expert

Pinning down the real cost of the NHI: SA tax expert

Implementing the National Health Insurance (NHI) scheme will cost South Africa trillions, and while it is still unclear how it will be funded, early estimates are that it could cost the state up to R40 322 per citizen, according to a taxation expert in Daily Investor.

Allowing the private sector to provide healthcare at lower coverage and standards might, however, be one of the solutions that would works best, according to Pieter Faber, the SA Institute of Chartered Accountants’ (SAICA) Executive for Taxation, who calculates that the funds needed to provide universal healthcare via the NHI could be exorbitant.

“In essence, South Africa already has UHC, though some will argue that in some cases this is not ‘quality healthcare services’ and it still has a ‘financial hardship’ element,” he told Daily Investor.

He added that the real reason for the NHI “seems to 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 will affect costing as it fundamentally alters demand and supply rules, he said.

“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.

“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.”

While the government seems adamant that the private sector will have a role under the NHI, Faber said state-owned buyer-seller monopolies have not been successful in South Africa.

This is because it creates an embedded conflict of interest where the sole producer and buyer of services and products is also a competing seller.

“Segregating buying and selling arms and managing the inherent conflict while creating a space for the private sector to compete in one leg has produced better results,” he said.

This creates a conundrum for the NHI – setting the bar too low will mean nothing really changes while setting it too high risks completely excluding the private sector.

Faber said this was 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 that the NHI will cost R450bn and others, like Discovery Health, cost NHI, if just covering prescribed minimum benefits (PMB), at R800bn.

“Given the UHC requirement of a ‘full range of medical services’, PMB coverage alone would not cut it regarding levels of services to which people should be entitled 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.

“Sadly, these standards have not been meaningfully met and enforced.”

In a four-year review (2011-2014) of 1 427 public hospitals and clinics, the regulator found that only 6% met the 70% compliance pass rate. On the other hand, 100% of private hospitals met the compliance rate.

“The perception is that things have deteriorated since then (including governance and management, with corruption scandals further plaguing the public healthcare system at both national and provincial levels),” Faber said.

“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?”

What the numbers say

Below are some of the numbers relevant to the NHI scheme’s implementation and the funding options available, according to Faber’s calculations.

• 62m South African citizens
• 350 000 documented refugees
• 2.5m to 5m illegal immigrants in South Africa
• The Health Department’s current budget is R259bn
• 9m medical scheme beneficiaries, with 4.1m paying contributions while the rest are dependents, with 3.1m on comprehensive medical plans and 6m getting PMB and some level of private hospital cover
• Medical schemes have R109bn in net assets and annually receive contributions of R232bn
• Tax relief for medical expenses is R36.5bn

Option 1

One option would be to divert 100% of the current medical scheme’s monies via tax or other instruments and add the removed tax allowance as an additional budget, i.e., the total budget available. This would move the public budget from R4 886 to R8 508 per South African citizen.

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,” Faber said.

This would cost R22 032 per citizen.

Option 3

“However, the vision is not having classes of ‘beneficiaries’ and also providing comprehensive medical coverage,” he said.

If the collective vision is comprehensive coverage at the current private hospital level of services, then matchbox sums could be R40 322 per citizen.

The UK’s NHS is used as a regular comparative, and it costs 11.3% of UK GDP. The equivalent amount for South Africa in 2024 would be R824bn.

However, the UK’s GDP base is a lot bigger at R71 trillion versus South Africa’s R7.2 trillion. This means that 11.3% of GDP would give a 10-fold amount per person, given that the UK has a similar population of 66m. It also only has an unemployment rate of 3.8% versus South Africa’s 42%.

Hidden costs

“So, if we had to pay for comprehensive medical cover for 62m people at the current cost of private medical coverage, it would be R2.5 trillion plus current pocket medical expenses,” Faber said.

“The latter for tax claims over the threshold is about R3bn, but the World Bank global average of 18% of spend is probably more accurate, so another R241bn to R450bn for the above option 2-3 to cost ‘comprehensive’.”

“Then there is also another hidden cost, medical negligence liability, currently sitting at R120bn (2018: R70bn).”

Faber said this pool currently excludes the 9m 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 ten years or more to do so, how will the government fund this additional cost, which may just double overnight?”

NHI a necessity

“What is clear is that everyone agrees UHC is a societal necessity and not a want,” Faber said, adding that at the same time, it is also not ideal for the government or the private sector to go at it alone in any one sector, as this seldom achieves societal goals that combine efficiency, coverage and sustainability.

“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 South African context,” he said.


Daily Investor article – The real cost of the NHI (Open access)


See more from MedicalBrief archives:


Government dodges issue of NHI funding model – DA


No decision on taxes funding NHI, says Finance Minister


NHI — a funding model masquerading as a delivery system


Government open to more talks and ‘collaboration’ on NHI








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