Alternatives to the NHI

The Department of Health’s Dr Anban Pillay has slammed the Free Market Foundation (FMF) for criticising the National Health Insurance (NHI) Bill and has requested that we submit reasons why we believe the government’s proposed NHI scheme will not work and a list of proposed alternatives. Specifically, Dr Pillay states, “It can't be on an ideological basis, it has to be on a technical basis as to why any system that they [the FMF] propose would be better than the system we [government] are proposing.”

It’s ironic that Dr Pillay states that the proposed alternatives must be of a technical nature and without an ideological bias because, although the government has been working on its proposed NHI scheme for over a decade, we are no closer to understanding any of the material details, such as how much its proposed scheme will cost, where the money to finance its grandiose plan will come from, and what exactly will be included in the so-called “comprehensive service benefits package”. Despite the lack of these critical technical details, government is pushing ahead with its “free healthcare for all” which, in the absence of any economic data, can only be described as a politically motivated proposal ahead of the 2019 general elections.

We estimate that the government’s NHI scheme will cost R471bn in 2018 terms. Government has suggested that the money will come from an increase in VAT; a dedicated payroll tax (split evenly between employers and employees); and a surcharge on taxable income – or a combination of these three sources. Given that VAT has already been raised by a percentage point, it’s highly unlikely that it will be raised again to finance NHI. The obvious recourse then is more taxes on workers. The consequences of increasing taxes on workers will be lower take home pay and even job losses. Leaving people and companies with less money for savings and investment, the NHI will usher in even slower economic growth and less job creation, again hurting the poor. SA’s 9.6 million unemployed cannot afford the costs NHI will impose. Moreover, when one considers that total revenue from personal income tax collections – South Africa’s main source of tax revenue – amounted to only R453bn in 2017, we get some idea of the futility of this ambitious proposal.

The country not only lacks the financial resources to fund NHI but the quality of care in the public sector is so abysmal that few facilities would qualify to provide services under NHI. According to inspection records published by the Office of Health Standards Compliance (a government agency), hospitals and clinics in the government’s flagship NHI pilot programme are failing to improve any faster than those in the rest of the country. Among the 696 hospitals and clinics it inspected in 2016-17 only five complied with the Department of Health’s norms and standards to achieve an 80% “pass mark”. Facilities fell short on matters ranging from the availability of medicines to infection control.

There is a critical shortage of skilled healthcare professionals in South Africa – not only in the government-controlled sector but also in the private sector. There are many reasons for this critical shortage – including but not limited to the high rate of violent crime that has caused skilled professionals to seek refuge elsewhere. The sub-standard working conditions in South Africa’s government-controlled healthcare sector also drive away qualified staff. But the main reason is that government has a monopoly on the training of doctors. Since the 1970s, South Africa’s eight government controlled medical training facilities have not adjusted their quota and continued to produce approximately 1,500 doctors per annum, regardless that, over this period, the South African population has more than doubled, the country suffers from an extraordinarily high burden of disease mainly driven by the HIV/AIDS crisis, has a high rate of violent crime and road accidents. Moreover, government adopted an ill-conceived policy of restricting the number of skilled healthcare professionals who may practice in South Africa.

Our proposal to alleviate the chronic shortage is to increase the number of positions available at government-controlled facilities and to allow more skilled healthcare professionals to practice medicine in South Africa. We also propose that government abolishes its monopoly on the training of doctors and allows the private sector to train doctors.

Laws should be judged not by their intentions, but by their outcomes. We all want good things for the poor and to see better healthcare for all. Aside from healthcare, South Africans have other constitutional rights, such as for housing and education. We at the Free Market Foundation have proposed for many years that healthcare be treated the same way as these other rights. The government should look after the poor and leave the private market alone.

More specifically, we think the state should simply finance healthcare for the poor and leave the rest of the population to decide for themselves how to spend their money. However, the NHI proposals seem to be more concerned with removing the so-called “two-tier system” than trying to design an affordable mechanism to provide high-quality healthcare for the poor. We have a multi-tier system for both food and housing, and most of us recognise that driving private restaurants out of existence and implementing state-controlled food delivery will not deliver food to the poor. If you doubt that, take a look at what is going on in Venezuela.

The only question government should ask is: what is the best way for the poor to get high-quality healthcare? It is neither necessary nor appropriate for the government to provide “free healthcare for all” because doing so would waste scarce taxpayer resources. Taxpayers could fund healthcare for those who cannot afford it, but where is the sense in interfering in the arrangements of those who can?

The proposed mandatory payments into the central NHI fund will crowd out private insurance as cash-strapped individuals will not be able to afford to pay their voluntary private-insurance premiums as well as the mandatory NHI payments. Those unable to pay the two premiums will be forced to use the already overstretched public health service.

While the rich can hop on a plane and seek medical care anywhere they please, it will be the poor and middle-class who will be unable to escape the vagaries of the government-controlled system. NHI would perversely increase the inequalities in healthcare while concentrating power in the hands of state officials, leaving no room for private medical schemes.

Whether directly or indirectly, the government would control the availability, financing and delivery of all healthcare — the choice will no longer be for the individual to make. Compulsory NHI funding would serve the government’s interests, not individual South Africans.

This is not scaremongering. These are the economic realities. South Africans need to exercise real personal choice in choosing medical insurance that best meets their individual needs. Increased competition would force medical schemes and providers to compete directly for members by providing value and choice. Personal ownership of healthcare would help control costs and guarantee better quality, eliminating the need to depend on the government.

South Africans fought hard for their freedoms from an overbearing state. Allowing the government to take over that most personal aspect of our lives, our healthcare, would undo these hard-won gains.

Would it not be better to adopt a universal healthcare model, where the government funds healthcare for the poor, and allows the private healthcare sector to grow, innovate and expand? Such a healthcare model would not only be good for South Africa’s financial health, but would lead to better health outcomes for the poor, which is surely what we all want.

Jasson Urbach is an economist and a director at the Free Market Foundation