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Is South Africa ready for what the NHI will cost?

21 August 2019 Jonathan Faurie

Since the Department of Health released the National Health Insurance (NHI) Bill on 8 August, a lot of its weaknesses have been exposed. This was an issue that was raised at a recent briefing that was held by the Institute of Race Relations (IRR).

The size of the beast

One of the undeniable challenges of the NHI is that it will come with a heavy price tag. How heavy do you ask? Well, that is hard to tell and can only be projected using educated guesses and projections. 

Dr Anthea Jeffery, Head of Policy Research at the IRR, pointed out at the briefing that when former Minister of Health Dr Aaron Motsoaledi discussed the NHI Bill in 2010 at the release of the NHI White Paper, he said that the NHI could cost as much as R1 trillion a year. 

This has been reigned in a bit. Speaking at the IRR briefing, Dr Johann Serfontein, a Senior Consultant at Health Management and Networking Services, pointed out that under Dr Mostsoaledi, the Department of Health took the spending on public healthcare in 2010 and increased it on an annual basis. “Assuming inflation of 6.7% a year between 2021 and 2026, they arrived at the figure of R256 billion a year which is an amount that the Department feels is a realistic projection,” said Dr Serfontein.   

“This is still an unrealistic figure at best,” said Dr Jeffery, “currently, R220 billion is budgeted this year for public health. In addition, combined public and private spending on healthcare this year is roughly R450 billion.” 

Something is missing here. A key promise of the NHI is that it will drive down costs and make healthcare affordable for everyone. But if we take the current spend of R220 billion (government’s budget on public healthcare) and assume inflation of 6% a year, we are looking at a number significantly higher than R256 billion a year in 2026, no matter how much costs are driven down. 

Stumbling down the road

This means that the NHI will experience something that is all too familiar in political circles, a funding shortfall. 

Fortunately, Dr Serfontein pointed out that the White Paper, accounted for budget shortfalls. 

“If we focus on the Whitepaper figures, and not the 2019 Bill figures, a few assumptions can be made. If the economy grew by 5% a year (which was government’s goal at the time), the funding shortfall for the NHI would increase to R27 billion a year in 2026. If the economy grew by 2% a year (a figure agreed by former President Jacob Zuma as a realistic growth figure), the funding shortfall would increase to R108 billion a year. The economy is currently growing at 0,6% a year; therefore, the funding shortfall of the NHI will be significant,” said Dr Serfontein.  

Dr Serfontein points out that to give the public an idea of what the funding shortfall looks like at the moment, we need to consider the following; if you update the 2% growth figure of the R108 billion shortfall (discussed above) to what the rand was worth in 2017, the funding shortfall would grow to R156 billion. That is the additional amount that the South African taxpayers would have to pay just to fund public healthcare, whether the NHI is implemented or not. 

“With this R156 billion, you can fund four FIFA World Cups a year and build 1,4 billion RDP houses,” said Dr Serfontein.  

Footing the bill

If the cost of the NHI and the possible funding shortfalls was not scary enough, the funding model of the NHI will knock some people completely off their feet. 

As per the Bill, some of the funding of the NHI will come from existing medical scheme tax credits. Dr Jeffery points out that in addition, there could be a 3% increase in payroll tax, a 3% surcharge on income tax, and a 4% increase in the VAT rate which would take it to 20%. 

There was a lot of resistance when the VAT rate was increased to15% with a lot of people pointing out the effects that this will have on lower income earners. Imagine the public outcry if the VAT rate was increased to 20%? 

A major problem

Again, we are faced with a major problem. Currently, a small percentage of the population, often believed to be about 8%, foots the country’s tax bill. South Africans are already taxed to the limit, can they afford to be taxed more? 

When arguing the NHI, politicians often quote the fact that South Africans don’t pay as much tax as people in Scandinavian countries pay where the public is taxed at upwards of 60% of their salary. South African politicians further argue that public healthcare in Scandinavian countries works so well because these taxes are so high. 

Firstly, government needs to appreciate the fact that the tax base in Scandinavian countries is a lot higher than ours. In fact, it is considered a civic duty to pay taxes in those countries. Secondly, their taxes are funding world class services. 

The bottom line is that South Africans won’t mind paying increased taxes if the tax base is increased and more people pay taxes and tax revenue actually funds world class services and not find their way into politician’s back pockets who then appear before the Zondo commission of inquiry. 

Editor's Thoughts:
A significant worry about the NHI is that while some of the tax revenue will be used for funding public healthcare, the NHI will also be a cash cow for the misappropriation of tax revenue. We cannot ignore this concern. Until President Cyril Ramaphosa proves that he is getting serious about rooting out corruption, this will continue to be a concern. The current dispensation will be judged on their actions more than their words. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Andre, 21 Aug 2019
We do not want to pay more taxes, that is false!. Goewerment must simply use the money that is disappearing and upgrade existing facilities and manage it properly. I also do not have empathy with the medical aids and medical profession since they are in it to make money, as much as possible... very few people will be able to afford medical aid a few years from now, due to rising costs...so to mee , it is a catch 22
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