Sovereign Africa Ratings

The National Health Insurance (NHI) is a proposed healthcare system in South Africa with the overarching goal of ensuring universal access to quality healthcare for all citizens. This ambitious initiative aims to provide free healthcare services at both public and private facilities, primarily funded through taxation.

The NHI seeks to address several pressing issues within the current healthcare landscape:

• Unequal Access: Presently, South Africa operates on a two-tier healthcare system, where private healthcare offers superior quality and access compared to the public sector. This disparity results in unequal healthcare access among different income groups.
• High Healthcare Costs: Despite the presence of private insurance, many South Africans struggle with the affordability of healthcare. The NHI endeavours to reduce overall healthcare costs and improve accessibility for all citizens.
• Staffing Shortages: Public hospitals and clinics often grapple with shortages of essential healthcare professionals, including doctors and nurses. These shortages significantly affect the quality of care provided.
• Infrastructure Challenges: Public healthcare facilities frequently lack adequate infrastructure, equipment, and resources, further exacerbating the challenges in delivering quality healthcare services.

While structural changes to improve healthcare for all South Africans are welcome, they must be workable and sustainable, while strengthening both public and private systems.

Despite the noble intentions of the National Health Insurance (NHI) scheme to address healthcare disparities, its funding, feasibility, and potential impact on quality healthcare require thorough analysis.

The Benefits of a Functioning Health System

A recent study by Mobosi et al. (2022) highlights the critical link between health and economic growth. Their research, which focuses on African middle- and low-income economies including South Africa, reveals a concerning trend: the COVID-19 pandemic has significantly worsened health burdens in these nations, leading to a substantial decline in labour productivity.

The study estimates that a 1% increase in health burden translates to a 13-19% decrease in labour productivity, depending on the economy's income level. This underscores the dynamic and detrimental effect that poor health can have on a nation's economic potential.

Key Performance Indicators of the Health Sector

In Table 1 below, a comparative analysis of key performance indicators of the health sector for selected countries including South Africa is presented. In selecting these countries, SAR analysts took a mix of countries from emerging markets, South Africa’s peers, as well as developed countries to present a balanced comparative analysis.

Table 1: Key Performance Indicators of the Health Sector for Selected Countries

Source: SAR Calculations based on World Development Indicators Data

Key indicators such as doctors (0.3 per 1,000 people), hospital beds (1.64 per 1,000 people), and nurses (1.4 per 1000 people) fall below regional and emerging market averages, highlighting South Africa's public healthcare challenges. This staffing shortage contributes to the existing backlog of surgeries and treatments which will result in further strain if left unaddressed.

While the private sector boasts better staffing (1.75 doctors per 1,000), it underscores the unequal access to quality healthcare in the country. The understaffing and underfunding in the public healthcare sector point to health risk factors that are evident in the current backlog and projected future pressures due to lax immigration controls and population growth.

Regular investments in infrastructure maintenance, expansion, and personnel are crucial to meet the country’s growing healthcare needs and ensure quality healthcare for all. However, this will place significant strain on the national budget, requiring innovative solutions, reforms, and strategic resource allocation.

South Africa’s Health Budget

South Africa’s public health infrastructure has many shortcomings, including old and often poorly maintained health facilities in need of repair, refurbishment, and replacement. In Table 2 below, South Africa’s health budget summary is presented.

Table 2: South Africa’s Health Budget Summary

Source: SAR adaptation based on National Treasury Data

South Africa's healthcare system stands at a crossroads. On the one hand, the noble ambition of the National Health Insurance (NHI) scheme promises universal access to quality care. On the other hand, stark realities like underfunding, staffing shortages, and an already strained infrastructure threaten to derail these aspirations.

The 2023 budget for healthcare, which hovers at around 3.9% of GDP, falls short of the usual 4-5% allocation of previous years, indicating immense pressure. Even allocations specifically designated for the NHI fall significantly below estimates, raising concerns about its ability to address the existing backlog in infrastructure, personnel, and essential services. Econex's base case estimation pegs the NHI's annual requirement at R216-295.9 billion, potentially ballooning to R1 trillion for full implementation, a far cry from current allocations.

Looking ahead to 2024, the outlook remains challenging. Competing priorities and economic constraints are likely to maintain pressure on the healthcare budget. The NHI pilot phase, launched in 2023, might unearth further funding gaps and implementation hurdles, potentially fuelling public dissatisfaction with healthcare services.

To navigate this intricate terrain, innovative solutions are paramount. Exploring alternative funding models like public-private partnerships or targeted taxes could bridge the financial gap. Prioritising cost-effectiveness in healthcare delivery and resource allocation is crucial. A phased rollout of the NHI, which focuses on specific regions and services, can help manage costs and optimise its impact. Transparency and public engagement are vital to manage expectations and build trust.

The path forward necessitates tackling tough choices. Ignoring the funding gap and systemic challenges puts not only the NHI's viability at risk but also the well-being of millions of South Africans. By fostering open dialogue, embracing innovative solutions, and prioritising both equity and sustainability, South Africa can strive towards a healthcare system that delivers on its promises.

Is the Funding of the NHI Feasible?

South Africa's National Health Insurance (NHI) scheme aims to provide universal access to quality healthcare. However, its estimated costs, ranging from R216 billion to R295.9 billion annually with a potential peak of R1 trillion, raise concerns about financial feasibility. Compared to South Africa's 2022 GDP of R4.21 trillion and total tax revenue of R1.55 trillion, this poses a significant challenge, potentially accounting for 5-24% of GDP and 14-64% of total tax revenue.

The NHI Bill proposes funding options like payroll taxes, personal income tax surcharges, VAT increases, and corporate tax hikes. Yet, each option presents obstacles: payroll taxes and income tax surcharges risk overburdening individuals and businesses, a VAT increase is politically unpopular and inflationary, and a corporate tax increase could stifle economic growth.

These challenges are compounded by economic realities: lower-than-expected tax revenue due to an economic slowdown, a budget deficit projected to rise to 5.6%, debt servicing consuming 17% of state revenue, and election-year demands for increased social grants. Given ongoing economic uncertainties and potential election-year spending, significant additional resources for the NHI seem unlikely in 2024. The pilot phase launched in 2023 may reveal further cost pressures and implementation hurdles.

To achieve financial sustainability, innovative funding models, economic growth promotion, balanced tax reforms, and a phased implementation approach are crucial. Transparent communication and public engagement are essential for managing expectations and building trust towards a sustainable healthcare system.

Conclusion

Limiting private medical schemes for the NHI is a double-edged sword. While aiming for universal access, it risks alienating those who value choice and potentially driving away skilled healthcare professionals. This could worsen the very resource shortage the NHI seeks to address.

Funding remains a key concern. The proposed sources in the NHI Bill seem inadequate, especially considering South Africa's limited tax base and already high tax burden. Finding the right balance between affordability and quality through innovative funding solutions and strategic implementation is crucial to ensure the NHI's success without jeopardising individual choice and resource availability.

Ultimately, achieving the NHI's goals requires careful consideration of its financial feasibility, potential impact on the healthcare system, and the need to maintain trust and engagement from both the public and private sectors.

Funding the proposed NHI should be viewed in the context of the overall fiscal equation. The funding sources proposed in the NHI Bill are unlikely to generate sufficient revenue to sustain a system like the NHI. South Africa's tax base is limited, and a small proportion of the population pays personal income tax. For example, the top 6% of assessed income taxpayers account for more than half of personal income tax revenue. South Africa already has a relatively high tax-to-GDP ratio when compared with other African states (25.2% vs an average of 15.6%), so there is little room to increase the tax burden. Over taxation can also result in a tax revolt, which is a credit challenge.