Does the ANC’s National Health Insurance really matter?

Sharing and article written by Cobus Venter, Nicola Theron and Marine Erasmus of
02 February 2011

Does the ANC’s National Health Insurance really matter?

The recent debate regarding a possible National Health Insurance scheme for South Africa started when a copy of an ANC proposal was leaked during 2009, but the ideal goes back to 1994 and even earlier. The NHI was supposed to offer fully comprehensive healthcare to all South Africans with no out of pocket expenses and free choice of provider. So far government has not committed to implementing NHI other than statements of intent. Having said all that, the question remains why all this matters and whether it will affect day to day life?

Providing fully comprehensive healthcare to all in a society must surely rate as a worthy aspiration that no sane person could dispute, but it is much harder to achieve in reality. South Africa suffers from a quadruple burden of disease stemming from HIV/AIDS, other communicable diseases, non-communicable diseases and injuries. This implies a disproportionally high requirement for healthcare. In an environment with scarce resources fully meeting demand stemming from massive need is unlikely and promising a system with free choice and fully comprehensive care is a bit like legislating away poverty – a nice idea but hardly practical. This further implies that the need/demand for healthcare is much higher than in most other countries.

The provision of free universal quality healthcare is arguably the most complicated and expensive task that any government can undertake. It cannot be entered into lightly as reversing such decisions has proven to be almost impossible. International experience indicates that in those countries with well functioning universal health cover such as the UK, Sweden, South-Korea, Brazil etc it is extremely expensive and took many decades to implement fully. The latest ANC document prices a fully functioning NHI by 2025 at R 376 billion annually, in real terms, which correlates reasonably well with other estimates, including our own. At present, the public health budget constitutes 3.9% of GDP (at R 101.9 bn). However, total annual health expenditure is about 8,5% of GDP, the remainder made up by private sector health expenditure and out of pocket expenses.

And this is where the proverbial rub lies — in the fact that 16% of the South African population chooses, or can afford, to spend money buying a good that is essentially already “free” (or provided at minimum cost) in the public sector. This can only indicate perceived higher/better levels of care in the private sector.

The logic seems to be that if health expenditure is roughly at 8% of GDP, the country can afford an NHI that will also constitute 8% of GDP (the ANC projection of the NHI cost by 2025 is 7,8% of GDP).

This, however, is based on the notion that private spending on healthcare will decline, and that more health expenditure will be directed towards the public sector (in other words, NHI spending) as the NHI is implemented. But people make rational choices, and if the quality differences between the private and public sectors persist, there will always be a demand for private healthcare. All that will change is that people will pay a mandatory NHI tax and, in addition, contribute to private medical insurance turning the NHI tax into a straight forward wealth tax.

How many people will be able to afford such a dual system remains unclear, but one can expect some currently on a private medical aid to be forced into the public sector under such a scenario.

The intention is to have the system fully functional by 2025 which is perhaps overly optimistic given international experience.

In countries where universal coverage has been achieved it was typically implemented during periods of near full employment and strong economic growth. The National Health System (NHS) operating in the UK was implemented directly after the Second World War when all related resources had been organized into one integrated war system so adjustment costs were minimal.

The question that needs to be asked is whether South Africa could afford this burden, but as our research has unfortunately found, the affordability issue is but one of many constraints that we will face when attempting to implement an NHI scheme in SA. There are many practical issues that need to be addressed before one could properly plan and cost a national scheme – never mind implement one.

We have a well functioning private sector and an under resourced and over utilized public sector, but the systems operate very differently. Adjustment costs will be substantial in our context and the process might actually worsen the situation, hopefully only initially, as human resources emigrate during the adjustment years or decide on other forms of employment.

Any national scheme that involves every single citizen and many hundreds of thousands of providers being used daily is by definition very complex. Implementing, managing and costing such a system requires extremely detailed data over time on matters such as disease profiles, mortality, morbidity, cost of procedures, etc. Moreover this data needs to be all the way down to the lowest level (municipal wards?) and needs to be current if there is any hope of managing the system. South Africa simply does not have this data and capturing it will require years, great expertise and huge expenses.

No matter the assumptions, the financial costs are dramatic. When one assumes that there will be no fiscal substitution, as it will be difficult to justify cutting spending on education, housing, etc (presumably all government expenditure is important) then the total government budget will have to increase from approximately 40% of GDP now to over 60% by 2025. This implies massive increases in taxes and crowding out of the productive private sector with all the probable downsides that go along with such actions.

But would this mean that the outcomes will be similar for those that currently have private medical cover?

This is unlikely as the private sector is currently better funded and staffed and the resources to expand this to the full population are simply not available; meaning that there will be a lowering of care levels from those currently offered by the private sector to those lucky enough to be able to afford it.

There can be little doubt that the perceived level of care for those with private medical cover clearly surpasses that of those that are reliant on the public sector – especially in the rural areas. This is confirmed by the fact that nearly 30% of the uninsured population visit private sector GPs while theoretically they might have gone to the public sector for a minimal fee or even for free in some cases.

The effect of this is that should the same level of care still be required by Mr/Mrs Middle Management, substantial top-up insurance will be required to purchase better quality care than is provided by NHI benefits. This will lead to a dual system where many people will pay the mandatory NHI tax, but in addition will continue to contribute to private medical insurance. The private sector will continue to operate, but possibly become more expensive as the pool of people using it becomes smaller.

What is clear is that the effect on those currently enjoying private care and being able to choose who to go to when they feel the need, will probably change drastically. The ANC policy has the stated aim of offering a service with outcomes similar to those now in the private sector FOR ALL but it is unlikely to be able to deliver. This also then means that it is unlikely that people will be able to choose their doctor at will, as system requirements will require being allocated to a GP or multi disciplinary practice and they will serve as gatekeepers. Having free access to specialists will most certainly be curtailed as the gatekeeper will have to direct the flow otherwise budgeting and planning becomes impossible. Free choice with no co-payment is almost never a feature of a universal national health system.

A range of possible funding sources for the NHI are being explored, and plans to finance the increased expenditure on health services include the removal of tax subsidies for medical scheme contributions, a surcharge on taxable income, a mandatory NHI payroll contribution, an increase in VAT and a larger allocation of general tax revenue. The mandatory NHI payroll contribution is planned to be progressively structured, from less than 1% of income for the lowest income earners to a maximum of between 7% and 8% for the highest income earners.

This implies an effective increase in taxation for these individuals without any increased benefits – a direct deadweight loss for this portion of the population. As in most cases in the dismal science of economics, this loss should be seen against the backdrop of a potential gain for the rest of the population.

The demand for healthcare is infinite and should people be allowed to choose their provider (doctors versus nurses for example) then one could assume a massive spike on the burden of South Africa’s medical resources. Apart from the obvious financial constraints, the imposition of NHI will fundamentally be hampered by a massive supply constraint – specifically that of doctors. South Africa only has approximately 27,000 doctors or a ratio of 56/100,000 people. Given past emigration, stagnant levels of training and the eventual retirement of a substantial portion of our doctors, the supply of people to man the system is simply inadequate. Of more concern is the probability that the absolute number of doctors will diminish over the next decade which will in turn worsen the ratios substantially to under 40/100 000.

When comparing current South African ratios to countries such as Brazil with a doctor to population ratio of 180/100,000, it becomes clear that no matter the final version of the NHI, it cannot hope to achieve reasonable and adequate outcomes in the short term even if the funding was somehow forthcoming. This certainly does not mean that universal coverage should not be aimed for. Rather, measures should be put in place to address all the constraints to prepare the environment for an eventual comprehensive national health system. The training of medical staff requires substantial lead times and as such the sooner the process starts the better however, it further draws into question the current 14 year implementation ideal.

This is not unique to South Africa and is the reality for any country trying to fundamentally improve their healthcare system.

The question is not whether we need a national health system or not — clearly this country needs equitable access to quality healthcare. But there must be no doubt that an NHI-type system will be expensive, and if quality differences persist, people will still choose to pay for private insurance in addition to the mandatory NHI tax.

This will place a huge extra burden on taxpayers, who will rightly wonder what they are paying for.

Healthcare is already available at minimal cost, or in many cases free of charge in the public sector, and it is not clear that more money will solve the persistent quality problems. The vacancy rates in the public sector approach 50% and this shortage cannot only be ascribed to financial constraints as salary levels have been adjusted substantially during the past few years.

The NHI can work only if the extra expenditure is efficiently allocated, if there are proper reporting mechanisms and sufficient financial oversight/accountability, if the number of healthcare professionals is drastically increased (somehow?), and if quality in the public sector improves substantially.

Otherwise, the extra money will just be an extra tax for the country’s narrow tax base, which will keep contributing to private medical aid funds in order to ensure continued access to quality care.

And the dream of equal access to quality care will remain just that for the majority who rely on the public healthcare system. In all jurisdictions where it is allowed, the private sector continues to operate to provide care above that which is available under the public health system, so the debate should not degenerate into a public versus private debate as this is not relevant unless ulterior motives are at play.

A more prudent direction might be to start the process by radically improving the public sector in South Africa. The public sector already operates with the pretext of being available to all. What differs is that there is a very large discrepancy between perceived levels of care between the private and the public sector and working towards fixing this is where government should be focusing efforts.

Cees Bruggemans – Chief Economist FNB

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About FIAC

Mr. Gavin Bruce Ferrier Dip. Prod, CEA, GA, CIPS, TRC, is the founder of FIAC, with over thirty years of general management and investigation experience and has worked throughout Southern Africa during this period in the Commercial and Industrial sectors. I have conducted and managed various successful businesses and projects on behalf of clients across the business spectrum. I understand the importance of relationships, and how to use my gifts and passion to positively influence those I have come into contact with.

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