The Affordability and Political Economy of Implementing the National Health Insurance (NHI) Scheme in South Africa

Essay, 2016

9 Pages, Grade: 73

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The South African Health Care Sector

Financial Viability of the NHI




Only 17% of the South African population benefit from access to private health care through medical schemes (Lorenzoni & Roubal, 2016: 9). This figure stands in a nation facing an over 20 unemployment rate (STATSAA, 2014:5), an over 30% poverty rate (STATSSA, 2009:6), and a level of inequality that is both internationally and historically high (Leibbrandt, Woolard & Woolard, 2007:4). With such a background, and with healthcare services in South Africa are expensive by international standards (Lorenzoni & Roubal, 2016) such that many are priced out of the market, it is socioeconomically crucial to broaden access to health care services in the country. Health insurance exists as one of the proposed solutions in developing countries for the improvement of healthcare service access because direct payment of fees by patients is avoided, and the financial risk is spread among the insured (Morestin & Ridde, 2009:1). National Health Insurance (NHI) would therefore be beneficial in that access to healthcare can be broadened and financial risk borne by the public through the government. But in a country already facing heated argumentation over public finances, the question of affordability of an NHI scheme is of significant concern. This essay, therefore, seeks to present a combination of arguments: that NHI is necessary in South Africa; that NHI is financially viable given a set of conditions; and that the political, ideological, and financial objections to its implementation do not stand up to criticism. The essay thus begins with a brief overview of the healthcare sector and its travails, as well as how the NHI is a positive contribution towards solving problems with healthcare in the country; along with political and ideological arguments against the NHI iteslf. This is followed by an overview of estimates for the budgetary demands the NHI would require, and how this compares to what is possible for allocation.

The South African Health Care Sector

Njisane, Buuren and Blignaut (2012) provide an overview of the South African health care sector. It is majorly by contributions (by people able to afford it) in the form of insurance premiums that the private healthcare sector is funded Njisane, Buuren and Blignaut (2012:4). However, the most seeming obstacle to the provision of private healthcare services is wealth (Njisane, Buuren & Blignaut, 2012:4), considering the developmental and socio-economic state of South Africa (as outlined in the introduction).

Yet, this expensiveness of healthcare services does not exist on the demand side only (the citizenry), but on the supply side (healthcare service providers). Lorenzoni and Roubal (2016:9) show that private healthcare prices in the country are at heights observed in high income levels such as the UK, Germany and France. In fact, between 2011 and 2013 private hospital prices grew faster than inflation (as measured by the Consumer Price Index) (Lorenzoni & Roubal, 2016:21). Private voluntary health insurance represents 41.8% of total health expenditures (Lorenzoni & Roubal, 2016:9), but covers only 17% of the population. Despite substantially lower per capita GDP and absolute GDP levels, private hospital prices in South Africa are comparable to OECD averages: total private hospital prices in South Africa were 94 % of OECD average hospital prices (Lorenzoni & Roubal, 2016:23). Needless to say, compared to similar countries (in terms of developmental status) such as Brazil and India, South Africa’s healthcare costs are exorbitant. Brazil has a lower level of health expenditure as a percentage of GDP than South Africa (8.2% compared to 9.2%) (Ghosh, Datta & Lahiri, 2016) yet life expectancy is higher in Brazil than in South Africa by a significant margin (CIA, 2016). Likewise, Cuba spends 6.3% of its GDP on healthcare (even lower than Brazil’s) (PNHP, 2016) and has a life expectancy significantly higher than South Africa’s (CIA, 2016). So, internationally compared, the South African health system is relatively inefficient.

With this background, a National Health Insurance (NHI) scheme has been proposed. In the Department of Health’s (2015:4) white paper, the aim of the NHI is stipulated as being to ensure that “everyone has access to appropriate, efficient and quality health services”. It outlines the irrationality and unfairness of a health system that is inequitable – whereby the privileged few have disproportionate access to health services. The NHI, by providing coverage to the entire population therefore is expected to ensure that South Africans and legal residents benefit from healthcare financing on a sustainable and equitable basis. It will work in a similar way to medical schemes, in that patients will go to accredited doctors and hospitals without paying upfront, and the NHI Fund will reimburse doctors and hospitals for the services they provide (Mapulumo, 2015).

A key part of the state’s case for NHI is that the scheme will be the sole, or at least hugely dominant, purchaser of healthcare for the whole population (Johnston & Spurrett, 2011). It rationalizes that healthcare prices would be lowered as its power to dictate significantly increases – thereby making healthcare services more affordable for a wider range of the population. Although as Johnston and Spurrett (2011:12) point out, it remains to be evidentially proven whether the government is right in assuming that there is so much margin in private sector pricing, in the shape of excess remuneration and profits, that this is possible. In response to this reservation, it can be argued that there is support from Felet, Lishman and Fiandiero (2012:11) who compute profitability ratios for the major hospital groups in the sector, and reveal that profitability in the sector has increased over time and, compared to the profitability of 82 global hospital firms from 2008 to 2011, is consistently significantly above the global average.

Economically, a country’s ability to innovate, improve and maintain productivity is dependent upon characteristics and quality of its human capital, a key element of which is health (Tompa, 2002:197). Indeed, the NHI white paper’s argument that healthcare should be viewed as a social investment (Department of Health, 2015:10) reflects Morel et al.’s (:2) exposition of the ‘social investment’ perspective in which social policies (aimed at universal healthcare in this case) “should be seen as a productive factor, essential to economic development and to employment growth”. There is a further relation to Sen’s (1999) theory of capability expansion which implies that efficient provision of collective goods such as health and education services are essentially an expansion of the capabilities of the citizenry that is not just a welfare goal, but the “inescapable foundation of sustained growth in overall GDP” (Evans, 2010:38). The NHI white paper claims that estimates also show that life expectancy can have positive impacts on GDP per capita in the long run (Department of Health, 2015:22).

In an article titled “NHI will be an unmitigated disaster”, Urbach (2015a) argues (or more accurately, asserts) that the proposal would negatively impact the quality of healthcare provision, reduce the supply of healthcare professions in the country by driving them out of the country, create a bureaucracy incapable of handling the huge volume of claims, and impose an unnecessary and intolerable burden on taxpayers. This view is shared by the Democratic Alliance’s Wilmot James, reported to have stated that the NHI is a dangerous effort to socially re-engineer the country’s dysfunctional health system that could easily compromise rather than enhance the access citizens have to healthcare (Cullinan, 2015). Malan and Green (2016) report that the Free Market Foundation claim that the NHI scheme would deprive South Africans of their "consumer choice" to access quality private healthcare. In response to this, Health Minister Aaron Motsoaledi said, "our present situation is that there is no choice. Eighty-four percent of the population has no choice. They can only use one health system – regardless of whether it is efficient or whether it’s far from their homes – because they can’t afford to belong to a medical scheme. The NHI wishes to correct that." (Malan & Green, 2016). Yet, the opponents’ criticism that institutional factors are very substantial must not be taken dismissed, as Sithole (2015:1) agrees, current indications are that serious challenges such as poor infrastructure, budgetary constraints and lack of interest from other healthcare professionals, are yet to be overcome; this is in addition to corruption issues that may need to be addressed if the NHI is to be implemented successfully. Therefore, it must not be overlooked, as Urbach (2015) also argues, that the NHI white paper lacks details on how, exactly, the system will be funded, the services that will be provided, and sources of additional personnel needed to effectuate free healthcare.

Struckler et al. (2010:2) point out that adopting universal health coverage (UHC) (which the NHI aims at) is observed to be typically primarily a political, rather than technical issue. They also point out, quite interestingly, that one main determinant of whether a country achieves UHC is the strength of social democratic parties and labour movements. Forslund (2013:1) has argued that the Department of Health and the Treasury have ideologically incongruous visions of a reformed public health sector: “In short, the Treasury does not want to confront the private insurance industry and the private health oligopoly”.

This ideological divide is reflects Segatti and Pons-Vignon’s (2013:538) exposition of an ideological conversion to neoliberal, orthodox policies by the government and, in particular the treasury (which has emerged hegemonic). As an aside, it may be argued that for the NHI to be successful, a strong and centralized bureaucracy should be established to govern its operations, so as to overcome coordination failures that may arise if institutional fragmentation is the case. In other words, the NHI should operate its own finances, its own research, its own data collection and statistical analysis units, institutional policy implementation, and so on. This suggestion derives from Huang’s (2002:540) argument that having a strong and centralized bureaucracy enabled Korea to succeed in overcoming coordination failures with regards to developing its automotive industry. This would also make any political and ideological incongruities with the treasury not be an influence in the NHI’s financial operations.

Additionally, with regards to the procurement facet of NHI, neoliberal-minded pundits have argued that challenging difficulties associated with central planning are faced by a state endeavouring to provide (or plan) health care to the whole country (Biermann, 2013). In general, there is a wide view that governments are inefficient, or at least become inefficient over time. This is especially a strong argument when one considers the state of the public health system in South Africa is not something widely regarded as worth praise and sdmonition. However, the NHI white paper has explicitly made reform of the system a key goal and prerequisite to address this concern. The first step in implementing the NHI is to prepare central hospitals in the provision of specialised services to all citizens, under the control of central government (. For instance, as explained by Matsoso and Fryatt (2013), work has started with central hospitals in Gauteng on improving resource management, administration, information systems, and governance through strengthening boards.

Strucker et al. (2012:2) make known that empirical analysis indicates that political commitment (expressed as a legal mandate), higher tax revenues, and greater democracy are associated with a greater share of GDP going to public health spending. In South Africa, this would correspond to a greater tax revenue share of GDP (as would be explained in the next section), and broader public awareness, informing, and debate (technical and ideological alike) about the initiative; and a broader and deeper penetration of the NHI’s appeal within the political sphere, including within the treasury and other major government departments. This last political aspect has been highlighted by Doherty and McIntyre (2015) who note, amongst other notes, that there are several political and administrative challenges that characterise the struggle policy-makers and health advocates face on a daily basis to protect spending on healthcare, and that these challenges will intensify with the struggle to implement National Health Insurance.

Financial Viability of the NHI

The cost of NHI has been estimated to be R256 billion by 2025 (Department of Health, 2015:45) which, as Malan and Green (2016) point out, is approximately 63% higher than the current national budget allocation toward healthcare. They further note that the estimate is based on several assumptions, one of which is an annual economic growth projection of 3.5%. But the current GDP growth rate is around 1.5% (Malan and Green, 2016), with bearishness characterizing the outlook for the future. It therefore seems unlikely that the assumptions used are feasible, invalidating the estimated cost, Malan and Green (2016) argue. However, the Minister of Health has maintained that because the medical schemes in the private healthcare industry operate on inflated costs, such costs cannot be used to calculate the cost of public healthcare costs (Malan and Green, 2016) as Urbach (2015b) does when used numbers from the Council for Medical Schemes to calculate a higher figure of R330 billion per year as the likely true(r) cost of the NHI. This criticism does hold some water if the general expensiveness exhibited in the sector (as revealed in the first section) is considered.

By 2025, according to the white paper (Department of Health, 2015:45), the NHI funding deficit should be funded by additional tax revenue. The funding deficit estimates are significant in size as they represent up to 69% relative to the current national budget allocation towards healthcare, respectively (Theophanides, 2016). Four potential sources – direct taxation (taxes on income and wealth), indirect taxation, payroll taxation (typically collected from employers and employees) and premiums (membership contributions) – have been listed as options for funding the NHI (Theophanides, 2016).

Although Forslund (2015) was writing with the context of funding higher education, he has proposed raising specific taxes to increase government revenue to fund social expenditure. He proposed a reintroduction of the 45% tax bracket for incomes above R1 million to yield R5-6 billion. Additionally, he states that if only 10, 000 of these High Net Worth Individuals (one having an income of R7 million or an accumulated wealth of R70 million) paid income instead of hiding outside the tax system, this would yield an additional R37 billion in tax revenue. Indeed, this argument could be generalized to address the strengthening of tax collection by preventing tax-avoidance in the country (observe the Panama papers scandal.

Forslund (2015) has also suggested that borrowing from the Public Investment Corporation (which has R1.8 trillion amassed) is possible, at lower-than-market interest rates. Forslund’s overarching argument is that the “budget constraint” is really a political one, and not a technical one. Revenues can be expanded by both tax increases of specific types and improvement of tax collection breadth and depth. This strand of argument is shared by Doherty and McIntyre (2015), who have argued that the fiscal policy limit on government revenue as a percentage of GDP (25%) needs to be lifted if South Africa is to achieve equitable access to the full range of health services. They argue that the limit is well below the average in other middle-income countries, and increasing this limit is critical, given massive income inequality in South Africa.


The South African healthcare sector is in a state which many have called a crisis. With healthcare costs in the country being significantly above average for its level of per capital national wealth, and with dire socio-economic conditions of unemployment, poverty and inequality, the need for National Health Insurance has been justified. Yet, implementing such an initiative faces obstacles of financial, ideological, and political nature. Ideological opposition comes from the free marketers and neoliberals, while financial opposition comes from the “budget constraint” debaters.

The argument that the NHI is unaffordable, it has been argued, ignores the tax expanding capacity the government still has to increase tax revenues for greater social investment. Nonetheless, there are technical obstacles and difficulties that the opponents point out in implementing the NHI that have to be addressed technically and without the simplicity with which the NHI white paper has expressed them.


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The Affordability and Political Economy of Implementing the National Health Insurance (NHI) Scheme in South Africa
Rhodes University
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NHI, South african health sector
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Abel Gaiya (Author), 2016, The Affordability and Political Economy of Implementing the National Health Insurance (NHI) Scheme in South Africa, Munich, GRIN Verlag,


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