National health could burn through R376bn per annum by 2025
It seems economists at the African National Congress (ANC) have finally cottoned on to the costs involved in extending free and fair healthcare to all. The ANC general council meeting, held a couple of weeks ago, put a price tag of approximately R376bn on
Not much has changed
NHI is not a new idea. The concept of universal health benefits for all South Africans is evident in government health policy documents dating back to 1994. And an ANC task team policy document on healthcare solutions for South Africa was leaked to the media early in 2009. As far back as September 2009 we attended a presentation by a senior executive at Discovery Health. The questions he asked then are still largely unanswered.
Q1: What benefit package is affordable on NHI?
A successful NHI implementation will require an unprecedented investment in healthcare infrastructure and would certainly require a flood of foreign medical specialists for success. And that’s just to get it off the ground... The biggest question centres on the balance of income and expenditure in the proposed model. An independent cost analysis shows that a prescribed minimum benefit (PMB) would set taxpayers back approximately R146bn per annum. To extend a basic comprehensive benefit package to all South Africans would require R249bn, while extending the average comprehensive package (as offered by private medical schemes today) to the entire population would cost a staggering R325bn. The R376bn mentioned in the opening paragraph is close to an inflation-adjusted “PMB” solution. At today’s money we’re talking approximately 14% of the country’s GDP. In the 2008/9 year government spent approximately R80bn on health.
Q2: What level of additional tax revenue will be required for NHI?
Funding the system remains a contentious issue. Fin24.com quoted the head of the ANC health team, Dr Olive Shishana, as saying the new system would be financed from an additional levy on taxpayer income, a payroll tax for employers and workers, the removal of the existing tax subsidy on medical schemes and an increase in VAT. This mix of revenue collection is certainly more sensible than a payroll only tax with experts suggesting a comprehensive NHI would require as much as 20% of gross salaries. It’s an awful burden when we consider the annual NHI budget estimate dwarfs existing tax revenues in each category: income tax, customs and excise and VAT. How will the proposal affect individual taxpayers?
The argument against increasing the 14% standard VAT rate has long been the impact of this tax on the poorest of the poor. According to Econex economist Mariné Erasmus, VAT, as a regressive tax, constitutes a larger proportion of the lower income group’s income and consequently the effect of an increase will be heaviest on this group! Low income earners could find themselves paying proportionally more than higher income earners for medical services which, one could argue, they were already receiving from the state anyway. But middle and high income earners will feel the pinch too. Whatever form the NHI eventually takes, these taxpayers will have far less disposable income at month end.
Q3: Does South Africa possess the resources for a successful NHI implementation?
For FAnews the main obstacle remains whether government can source the general practitioners, nurses and medical specialists required to implement the NHI model in any form. A few simple calculations show that extending current private sector healthcare service to the entire population would require 70 000 additional hospital beds, 140 000 new general practitioners and 410 000 extra nurses! Even if government doubles efficiencies by cutting out “unnecessary” procedures and medication it is going to fall way short of the mark!
Fin24 reports: “The ANC’s latest proposal that the plan be phased in over 14 years from 2012, instead of in the five years that the party initially proposed, is considered more realistic by role-players.” But the party isn’t allowing enough time given the five years plus it takes to build a new hospital – and seven years required to train a doctor. In a country where doctors are selected and trained by Universities applying bizarre race-based selection criteria and where nursing colleges have long been abolished the human resource factor could be impossible to address. Government’s: “We’ll source doctors from abroad” doesn’t hold much water either… An untold number of South African healthcare professionals head offshore each year in search of greener pastures!
Q4: What role will private healthcare play in the NHI system?
Under the latest “plan” those who wish to remain on private medical schemes and make use of private medical services will be allowed to do so. But will they be able to afford to do so. If tax concessions for medical schemes payments are abolished – and a triple tax introduced to fund NHI – then private medical aid will be forced even higher up the income scale. In a country where a mere five million individuals fund social commitments for upwards of 50 million individuals, only the super rich will still go private. And that would mean the good progress made in the private medical schemes industry – with regards benefits and coverage – will unravel in a matter of years.
Editor’s thoughts: Government’s most recent thoughts on NHI at least indicate it appreciates the cost and complexity of the task at hand. But it doesn’t indicate whether NHI is a suitable solution for a developing world with a small tax base and high unemployment. The best solution could still be to drop NHI as unaffordable and focus on gradually improving healthcare services under a public funded model. Should South Africa pursue NHI at ANY cost? Add your comment below, or send it to gareth@fanews.co.za
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