Discovery supports better healthcare, but not the NHI Act

While medical scheme Discovery supports structural change that assists in strengthening and improving the healthcare system for all South Africans, it does not support the National Health Insurance (NHI) Act signed into law this week.

Discovery says in a statement it is committed to assisting where it can in building it and making it workable and sustainable, seeking to ultimately strengthen both the public and private healthcare systems for all South Africans.

A central issue is the future role of private healthcare and medical schemes once the NHI is implemented. The NHI Act states that when the NHI is ‘fully implemented”, medical schemes will not be able to provide cover for services that the NHI pays for.

“Our strong view is that limiting the role of medical schemes would be counterproductive to the NHI because there are simply insufficient resources to meet the needs of all South Africans. Limiting people from purchasing the medical scheme coverage they seek will seriously curtail the healthcare they expect and demand.”

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Risk of scrapping medical schemes

It poses the risks of eroding sentiment and denuding the country of critically needed skills, while also impacting negatively on local and international investor sentiment and business confidence, Discovery says.

“Crucially, by preventing those who can afford it from using their medical scheme cover and forcing them into the NHI system, this approach will also have the effect of increasing the burden on public funding which taxpayers need to cover.

“We believe that limiting the rights of citizens to purchase additional health insurance, after they have contributed to the NHI, is not necessary to achieve the objectives of the NHI. It would also be globally unprecedented as in virtually every other country with some form of NHI, citizens are free to purchase additional private health insurance cover, including cover that overlaps with services covered by the national system.”

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Discovery will work with department and Presidency to find a better solution

Discovery says it is seeking every opportunity for constructive engagement with the national department of health and the Presidency to highlight areas that need to be amended to prevent violations of the constitutional rights for medical scheme members and all citizens.

“At the same time, we will take the necessary steps to ensure that the rights of medical scheme members are not compromised as we seek to broaden access to healthcare for all South Africans. The constitution also prohibits unreasonable limitation of existing rights like access to healthcare and mandates government to consider ‘other measures’, within ‘available resources’ in compliance to Section 36 (1) (e) ‘less restrictive means to achieve the purpose’ during any policy reform or amendment.”

Restricting choice of medical scheme cover is not dissimilar to limiting the rights of citizens to purchase private education for their children or private security, on the basis that the public system already provides state schooling and police services, Discovery says.

“We are very concerned that there are substantial risk and harms that this approach of limiting the role of medical schemes will cause. We are of the view that an integrated health financing model which will build on the current (but transformed) health system would facilitate achievement of Universal Health Care (UHC) for South Africa faster and in a less risky manner to the economy, and the national health system in general.”

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This is why NHI Act will not be implemented soon

Although health minister Joe Phaalhla said the NHI Act will be phased in over the next four years, Discovery does not think it will happen anytime soon. Discovery also points out that even on the current framing of the NHI Act, medical schemes will continue to cover all of the healthcare services which they currently cover for the foreseeable future because:

• South Africa’s weak macroeconomic outlook which has led to contraction of the GDP over several years means that increasing taxes to fund NHI is not feasible in the current economic climate.
• The removal or reduction of medical scheme tax credits will increase the tax burden for medical scheme members and may affect their ability to afford private cover thereby increasing the burden on the public sector, particularly for low-income medical scheme members.
• Amendments to taxes require a Money Bill which is the ambit of National Treasury and this requires an impact analysis on the social and economic effects. The proposals in Section 49 of the NHI Act are factually inaccurate and do not appear to be consistent with these principles.
• There is uncertainty about when the NHI will be considered “fully implemented” and this is most likely to be quite far in the future due to resource constraints and the need for health system improvements, including infrastructure revitalisation.
• There is no clear definition of services that will be covered by the NHI and it appears that this definition will be expanded on an incremental basis as affordability allows.
• There is no costing of NHI health service benefits, including the costing of the transitional arrangements.

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Concern about funding NHI

Discovery is also concerned about how NHI will be funded as the NHI Act makes no reference to the likely costs of the NHI once it is fully implemented. “Any fundamental change to public health delivery that improves quality and access and seeks to contract with private providers will require substantial additional funding.”

National Treasury will soon be publishing a costing document and that this is likely to be based on an incremental approach to providing NHI benefits, Discovery says.

“While the NHI Act specifies that payroll taxes and a surcharge on personal income tax could be considered as sources of funding, it would need to be determined by National Treasury. At the presentation of the Act, the minister indicated that no tax changes are envisaged over the three-year period of the current Medium Term Expenditure Framework.”

Discovery’s analysis shows that NHI funding of R200 billion would require massive changes to tax policy which the fiscus cannot necessarily accommodate, such as:

• Collecting R200 billion from VAT would require an increase in VAT from 15% to 21.5% or
• Collecting R200 billion from personal income tax means that tax rates would need to increase by 31% across the board, with each taxpayer having to pay almost one-third more than their current tax payments, a massive erosion of take-home pay or
• Collecting R200 billion as a payroll tax would require a collection of around R1 072 per employee per month. This increases to around R1 565 per employee per month for only those employed in the formal sector.

“None of these options are affordable or realistic. There are material challenges to raising new revenue to supplement the current government budget for healthcare and this is unlikely to change in the foreseeable future. This suggests that the rollout of the NHI will be slow unless there is a substantial improvement in the country’s economic prospects.”