Health care policy in SA continues in limbo as we await the National Health Insurance (NHI) scheme. Although no official documents on the NHI have yet been released, Finance Minister, Pravin Gordhan, has already begun to “lay the foundations”. In his February budget, he made provision for two major initiatives: R117-million to set up an Office of Standards Compliance (an independent authority that would include an inspectorate and an ombudsman), and R1.2-billion to launch a "family health approach" to primary healthcare. Both initiatives to be carried out over the next three years.
The ANC government’s mantra that the NHI will provide “free health care for all” is well-meaning, but not practically possible. They do not recognise that the reality of life on our planet is that while resources are limited, the wants of people are unlimited. When we cannot have as much of everything as we would like, we are forced to choose from whatever alternatives are on offer. When resources are used to produce one article or service, it reduces their availability to produce others. Similarly, government’s resource, the pool of revenue available to it to fund competing alternatives such as policing, schooling and health care is limited, whereas the people’s demand for these services is limitless, especially when they are perceived as ‘free’. The amount of funds government uses to provide one service, leaves it with that much less to provide every other one.
So how much should we be spending on health care? As an economist, the theoretical answer is straightforward: we should spend money on health care until, at the margin, a rand’s worth of health care spend is equal to a rand’s worth of some other good or service that we can buy. Practically, however, I have no idea what your personal preferences are for spending. Similarly, you have no idea what sacrifices I am willing to make with my limited financial resources. Simply put, every individual is unique and faces a different set of circumstances, preferences and tolerance for risk. But now, along comes the government, proposing to treat everyone the same, taking control of all our health care financing under the NHI, a single payer model, and promising “free healthcare to all”.
Promising “free health care for all” raises an unrealistic expectation of what is actually feasible. Of course, we all would like something for nothing. But, in reality, this is simply not possible. “There ain’t no such thing as a free lunch” (TANSTAAFL). Someone always pays. The SA government, like any other, may be able to shift costs but it can never avoid them. If it introduces a policy of forcing A to pay for B’s medical care and forcing B to pay for A’s, while A and B may be tricked into thinking that someone else is paying and that they are receiving free medical care, in reality neither are. Ultimately, such a system encourages both A and B to overspend on health care. Neither takes responsibility for their own medical care requirements because they are under the illusion that someone else is paying. This is why, whenever possible, we should favour systems that allow individuals to decide for themselves. People reveal their preferences through their actions.
A favourite TV show of mine is the medical drama “House”. In one episode, Dr. Gregory House enters the clinic where ‘free’ health care is provided and offers the people sitting in the waiting room $50 if they get up and leave immediately. Roughly one quarter of the room take the offer and leave the clinic. This little experiment demonstrates that people act rationally when faced with competing alternatives. Of course this was fiction but it was based on truth. One of the largest surveys ever conducted was the RAND experiment in the United States. It showed that when deductibles (own payments similar to an excess on a car insurance claim) were introduced, people responded by lowering their consumption of medical care by almost one-third. More importantly, this reduction in medical care had no impact on people’s health. The RAND research also conducted this experiment in reverse, as Dr House did in the TV episode, with patients offered the cash equivalent of the consultation if they agree to forgo the care – many take the cash and leave the care.
Empowering individuals to choose their health care options for themselves and encouraging private sector competition is the best way to utilise scarce resources efficiently. But what about the truly destitute who cannot afford to sustain themselves, let alone purchase medical insurance?
Instead of promising ‘free health care for all’, government should concentrate its efforts and scarce taxpayer resources on those people who truly cannot afford health care by acting as financier and purchasing for them the best possible care available. To do this, it can and should enlist the support and help of the private sector by contracting out to them those services that they can provide more efficiently. Government should also enlist the help of charities and philanthropists wherever possible. Private charities based in communities have a very good idea of what services are needed and they are not a burden on taxpayers.
If government views “health care for all” to be politically essential, it could require the population to privately and individually purchase mandatory cover to insure against catastrophic health-related events but otherwise leave people to provide for their own and their families’ medical-related and other needs. Furthermore, instead of the government undertaking the management of taxpayer-provided funds intended for covering the medical costs of the poor itself, it should put the task out to tender. In the same way as people have many options to choose from in household insurance, car insurance and myriad other products and services, publicly-funded patients will then have a multiplicity of medical schemes to choose from. Competition between public hospitals and clinics, and with private facilities, to win business from taxpayer-funded public health insurance beneficiaries, will thrive and ensure that the best service for the best price is given.
Government’s “laying the foundations for NHI” before the merits of the proposed system have been adequately discussed is putting the cart before the horse and comes at a cost for every person in South Africa, rich or poor.
Author: Jasson Urbach is a director of the Health Policy Unit and an economist with the Free Market Foundation. This article may be reprinted without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.
FMF Feature Article / 12 April 2011