IRR Submission to High Level Panel on Proposed National Health Insurance (NHI) - 15 November 2016

According to the White Paper on the proposed National Health Insurance (NHI) system, the NHI will ‘provide universal access to quality, affordable health services’, which will be free to all South Africans at the point of delivery.
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IRR Submission to High Level Panel on Proposed National Health Insurance (NHI) - 15 November 2016

According to the White Paper on the proposed National Health Insurance (NHI) system, the NHI will ‘provide universal access to quality, affordable health services’, which will be free to all South Africans at the point of delivery.

It will do so by pooling all health monies into a single new NHI Fund; drawing on both public and private health resources; introducing comprehensive price controls on fees, medicines, consumables, etc; and giving the state control over all aspects of medical treatment, from the treatment protocols to be applied to the medicines to be prescribed and the diagnostic tests and health technologies to be allowed.

The NHI will effectively put an end to private health care. The medical schemes that currently sustain private practice will mostly not survive once they are confined to providing cover ‘complementary’ to that supplied by the NHI. In addition, state controls will be so extensive that practitioners will have little autonomy in running their own practices.

The NHI will require a huge bureaucracy to implement. This will start with the NHI Fund, into which all health monies will be paid and from which all health expenses will be met. The NHI Fund will need eight sub-units to decide on NHI benefits; approve treatment protocols; set prices; accredit doctors and others; procure supplies; pay providers; monitor performance; and guard against fraud. In addition, there will be an NHI Commission (to oversee the NHI Fund) and a National Health Commission (to help deal with non-communicable ‘lifestyle’ diseases). Also necessary will be committees to decide on health technologies; approve health products; oversee some 3 900 public hospitals and clinics; run ward- and school-health programmes; deliver medicines and other supplies; monitor performance at district level; and maintain a data base with details of all health providers and some 55m patients. The Office of Health Standards Compliance (OHSC) will also need many more inspectors to review, on a four-yearly basis, some 3 900 public facilities and up to 74 000 private practices, so as to decide if they qualify for NHI accreditation (itself a further complex process dependent on assembling and analysing a host of demographic, epidemiological, and other data).

The NHI White Paper assumes that centralised procurement and the state’s price controls will lower health care costs. But, without a market mechanism to help determine needs, officials will have to decide what health services are to be provided, when, and where. This in itself will make for major inefficiency. Bureaucratic control will also stifle innovation and promote corruption, adding to overall costs.

The White Paper further assumes that all private health practitioners and facilities can successfully be drawn into the state-controlled NHI. However, it proposes paying the same capitation-based fees to both public and private practitioners, even though the latter have overhead expenses to meet which the former do not. Experience with the Compensation Fund also indicates that practitioners could wait months or years for the NHI Fund to reimburse them. This could encourage major emigration among professionals already in short supply.

The White Paper seems to believe that all private health care monies (R189bn in 2016/17) can successfully be diverted to the NHI Fund, giving it (if it were to start this year) an overall amount, together with health revenues of R183bn, of R372bn. This is also close to the minimum that would be needed to give 55m South Africans cover for some 300 prescribed minimum benefits (PMBs), at a current cost of R605 per person per month or R396bn a year. But many people now paying for the sound private medical health care of their choice may not be willing to contribute the same amount to the NHI, under which health services are likely to become tardy and often poor. This could fuel emigration among the 480 000 people who currently contribute some 57% of personal income tax. This would greatly erode South Africa’s tiny tax base, making it harder to fund government spending in every sphere.

The White Paper further presumes that the revenue needed to fund the NHI will be limited to 6.2% of GDP in 2025 (when the system becomes fully operative). This figure rests on a flawed belief that the economy will grow by 3.5% of GDP a year between now and then. It also underestimates likely NHI costs, which are likely to start at R396bn a year, rather than the mooted R256bn. Moreover, since both public and private health spending has risen by some 45% over the past five years (see White Paper, p47), annual NHI costs could rise, from R396bn at the start, to R574bn after five years and then to R833bn after another five years.

Such sums are unaffordable, especially with the growth rate so far down (at 0.4% of GDP in 2016) and the government already battling to meet its funding needs. According to October’s mini-budget, increased taxes are already required to bring in another R43bn over the next three years to fund the state’s existing commitments. Current spending must also be cut by R26bn, mostly by reducing the public service (rather than expanding it in the way the NHI requires). Public debt totals more than R2 trillion, the annual interest bill is growing rapidly, and the ratio of public debt to GDP already exceeds 50%.

In addition, the NHI will do little to address often poor standards in public health care. The problem is not simply high demand, but rather bad management in public hospitals, clinics, and provincial health departments. This helps explain, for example, why the R500m Xhariep District Hospital in Trompsburg (Free State), though completed in 2013, remains as yet unstaffed and unused. In addition, late payments and inefficient administration make for persistent stock-outs of medicines and other consumables, along with the patchy maintenance of essential infrastructure and equipment. These factors, combined with poor hygiene and uncaring staff attitudes, contribute to unnecessary deaths and mounting medical negligence claims – and help explain why a mere 16% of public hospitals and clinics currently comply sufficiently with basic health care standards to qualify for NHI participation.

The NHI will also put an end to the efficient private health care system on which millions of people (going far beyond the 16% with medical scheme membership) rely. It fails to acknowledge that mounting out-of-pocket payments remain very low as a proportion of overall health spending (at 6.5%). It further fails to recognise that the government’s insistence on open enrolment, community rating, and payment ‘in full’ for 300 PMBs has made medical scheme membership increasingly unaffordable.  The government has also barred low-cost medical schemes, without compulsory PMB cover (as proposed in 2015), which could have extended membership to 15 million more people at an average cost of between R180 and R240 per adult member per month.

The proposed NHI with its flawed assumptions and false promises should be abandoned. Instead, the government should use public-private partnerships to overcome poor management in the public sphere. It should also make it compulsory for all those with formal jobs to join a low-cost medical scheme, and take out low-cost medical insurance against funding shortfalls and adverse changes in health status. In addition, it should use tax-funded health vouchers to extend similar cover to the unemployed and economically inactive. Combined with other reforms, these proposals would provide South Africans with universal health coverage in an efficient, affordable, and sustainable way.

IRR (Institute of Race Relations)     15th November 2016

IRR TV

It will do so by pooling all health monies into a single new NHI Fund; drawing on both public and private health resources; introducing comprehensive price controls on fees, medicines, consumables, etc; and giving the state control over all aspects of medical treatment, from the treatment protocols to be applied to the medicines to be prescribed and the diagnostic tests and health technologies to be allowed.

The NHI will effectively put an end to private health care. The medical schemes that currently sustain private practice will mostly not survive once they are confined to providing cover ‘complementary’ to that supplied by the NHI. In addition, state controls will be so extensive that practitioners will have little autonomy in running their own practices.

The NHI will require a huge bureaucracy to implement. This will start with the NHI Fund, into which all health monies will be paid and from which all health expenses will be met. The NHI Fund will need eight sub-units to decide on NHI benefits; approve treatment protocols; set prices; accredit doctors and others; procure supplies; pay providers; monitor performance; and guard against fraud. In addition, there will be an NHI Commission (to oversee the NHI Fund) and a National Health Commission (to help deal with non-communicable ‘lifestyle’ diseases). Also necessary will be committees to decide on health technologies; approve health products; oversee some 3 900 public hospitals and clinics; run ward- and school-health programmes; deliver medicines and other supplies; monitor performance at district level; and maintain a data base with details of all health providers and some 55m patients. The Office of Health Standards Compliance (OHSC) will also need many more inspectors to review, on a four-yearly basis, some 3 900 public facilities and up to 74 000 private practices, so as to decide if they qualify for NHI accreditation (itself a further complex process dependent on assembling and analysing a host of demographic, epidemiological, and other data).

The NHI White Paper assumes that centralised procurement and the state’s price controls will lower health care costs. But, without a market mechanism to help determine needs, officials will have to decide what health services are to be provided, when, and where. This in itself will make for major inefficiency. Bureaucratic control will also stifle innovation and promote corruption, adding to overall costs.

The White Paper further assumes that all private health practitioners and facilities can successfully be drawn into the state-controlled NHI. However, it proposes paying the same capitation-based fees to both public and private practitioners, even though the latter have overhead expenses to meet which the former do not. Experience with the Compensation Fund also indicates that practitioners could wait months or years for the NHI Fund to reimburse them. This could encourage major emigration among professionals already in short supply.

The White Paper seems to believe that all private health care monies (R189bn in 2016/17) can successfully be diverted to the NHI Fund, giving it (if it were to start this year) an overall amount, together with health revenues of R183bn, of R372bn. This is also close to the minimum that would be needed to give 55m South Africans cover for some 300 prescribed minimum benefits (PMBs), at a current cost of R605 per person per month or R396bn a year. But many people now paying for the sound private medical health care of their choice may not be willing to contribute the same amount to the NHI, under which health services are likely to become tardy and often poor. This could fuel emigration among the 480 000 people who currently contribute some 57% of personal income tax. This would greatly erode South Africa’s tiny tax base, making it harder to fund government spending in every sphere.

The White Paper further presumes that the revenue needed to fund the NHI will be limited to 6.2% of GDP in 2025 (when the system becomes fully operative). This figure rests on a flawed belief that the economy will grow by 3.5% of GDP a year between now and then. It also underestimates likely NHI costs, which are likely to start at R396bn a year, rather than the mooted R256bn. Moreover, since both public and private health spending has risen by some 45% over the past five years (see White Paper, p47), annual NHI costs could rise, from R396bn at the start, to R574bn after five years and then to R833bn after another five years.

Such sums are unaffordable, especially with the growth rate so far down (at 0.4% of GDP in 2016) and the government already battling to meet its funding needs. According to October’s mini-budget, increased taxes are already required to bring in another R43bn over the next three years to fund the state’s existing commitments. Current spending must also be cut by R26bn, mostly by reducing the public service (rather than expanding it in the way the NHI requires). Public debt totals more than R2 trillion, the annual interest bill is growing rapidly, and the ratio of public debt to GDP already exceeds 50%.

In addition, the NHI will do little to address often poor standards in public health care. The problem is not simply high demand, but rather bad management in public hospitals, clinics, and provincial health departments. This helps explain, for example, why the R500m Xhariep District Hospital in Trompsburg (Free State), though completed in 2013, remains as yet unstaffed and unused. In addition, late payments and inefficient administration make for persistent stock-outs of medicines and other consumables, along with the patchy maintenance of essential infrastructure and equipment. These factors, combined with poor hygiene and uncaring staff attitudes, contribute to unnecessary deaths and mounting medical negligence claims – and help explain why a mere 16% of public hospitals and clinics currently comply sufficiently with basic health care standards to qualify for NHI participation.

The NHI will also put an end to the efficient private health care system on which millions of people (going far beyond the 16% with medical scheme membership) rely. It fails to acknowledge that mounting out-of-pocket payments remain very low as a proportion of overall health spending (at 6.5%). It further fails to recognise that the government’s insistence on open enrolment, community rating, and payment ‘in full’ for 300 PMBs has made medical scheme membership increasingly unaffordable.  The government has also barred low-cost medical schemes, without compulsory PMB cover (as proposed in 2015), which could have extended membership to 15 million more people at an average cost of between R180 and R240 per adult member per month.

The proposed NHI with its flawed assumptions and false promises should be abandoned. Instead, the government should use public-private partnerships to overcome poor management in the public sphere. It should also make it compulsory for all those with formal jobs to join a low-cost medical scheme, and take out low-cost medical insurance against funding shortfalls and adverse changes in health status. In addition, it should use tax-funded health vouchers to extend similar cover to the unemployed and economically inactive. Combined with other reforms, these proposals would provide South Africans with universal health coverage in an efficient, affordable, and sustainable way.

IRR (Institute of Race Relations)     15th November 2016

Free Society Project