Synopsis of Submission White Paper on NHI for South Africa – 31 May 2016

Synopsis of Submission White Paper on National Health Insurance (NHI) for South Africa – 31 May 2016.
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Synopsis of Submission White Paper on NHI for South Africa – 31 May 2016

Synopsis of Submission White Paper on National Health Insurance (NHI) for South Africa – 31 May 2016.

South African Institute of Race Relations NPC (IRR)
Submission to the
Department of Health
regarding the
White Paper on National Health Insurance
for South Africa (Version 40)
Johannesburg, 25th May 2016

Synopsis

Contents
Introduction, page 1
Flawed assumptions underpinning the NHI, page 1
The role of regulation in pushing up private health care costs, page 3
Other government failures, page 4
The high costs and unaffordability of the NHI proposal, page 5
A huge administrative burden, page 7
Alternatives to the NHI, page 9
Unconstitutionality of the NHI, page 12

Introduction
The Department of Health has invited interested people and stakeholders to submit written comments on the White Paper on National Health Insurance for South Africa, Version 40, published on 10 December 2015 (the White Paper) by 31st May 2016.

This submission on the White Paper is made by the South African Institute of Race Relations NPC (IRR), a non-profit organisation formed in 1929 to oppose racial discrimination and promote racial goodwill. Its current objects are to promote democracy, human rights, development, and reconciliation between the peoples of South Africa.

Flawed assumptions underpinning the NHI
According to the White Paper, ‘National Health Insurance (NHI) is a health financing system that is designed to pool funds to provide universal access to quality, affordable health services for all South Africans, based on their health needs and irrespective of their socio-economic status.’  The new NHI system will be implemented through ‘the creation of a single fund that is publicly financed and publicly administered’, while ‘the health services covered by NHI will be provided free at the point of care’. [Para 51, White Paper]

This description emphasises the many advantages the NHI system is supposed to bring about. In practice, however, NHI will reduce access to health care. It will also impose a crippling financial burden on a struggling economy already standing on the brink of recession.

The proposed NHI system is also premised on a number of flawed assumptions. It overlooks many of the gains already made in managing the heavy burden of disease confronting South Africa. In addition, it disregards key reasons for the poor performance of the public health care system. These failings make for a skewed diagnosis of health care problems, leading to a skewed assessment of how these problems can be overcome.

Among other things, the White Paper asserts that ‘South Africa spends 8.5% of GDP on health. [Of this] 4.1% of GDP is spent on 84% of the population, the majority utilising the public health sector, whilst 4.4 % of GDP is spent on only 16% of the population in 2015/16’. [Para 92, White Paper]

Like the green paper before it, the White Paper simplistically assumes that, because 16% of the population belongs to a medical aid scheme, the remaining 84% of the population must depend on the public health care system. In fact, however, very many people who do not belong to medical aids also use the private system, preferring to make out-of-pocket payments for private treatment rather than rely on failing public health facilities with long waiting times and often poor standards of treatment. 

The proportion of people treated in the private sector thus varies between 28% and 38%, leaving between 72% and 62% to seek treatment from the state. In addition, current figures on public/private utilisation show that 37% of people use private GPs, that 38% rely on private nurses, that 28.5% go to private hospitals, and that 59% use private specialists. [Dr Johann Serfontein, Presentation to the Free Market Foundation, 20 April 2016] (The figures on the use of private specialists reflect the fact that 59% of specialists work in the private sector. This in turn is largely the result of the government’s emphasis on primary care, as well as the various other factors, including poor management, that drive specialists out of public health care facilities.)

The White Paper also seems to suggest that the private sector is ‘not doing its share’ in meeting the health needs of the country. In fact, the private sector pays the great bulk of all health care costs in South Africa.  The roughly R178bn spent on private health care in 2015/16, amounting to some 50% of total health care expenditure, comes mostly from private firms and individuals and their contributions to medical schemes, medical insurance, and out-of-pocket fees. The roughly R173bn budgeted for public health care expenditure in 2015/16 comes from tax revenues, the bulk of which is paid by private firms and individuals. In addition, the tax system is extremely progressive, for the wealthiest quintile contributes some 82% of total health care financing and receives 36% of the benefits. [Para 259, Table 2, White Paper; 2016 Survey, p561; Dr Chris Archer, NHI Commentary, Presentation to the Free Market Foundation, 20 April 2016]

The White Paper also assumes that private healthcare costs are inordinately high and that the NHI system is needed to reduce them. However, if all relevant factors were taken into account and like is more strictly equated with like, then private hospital costs were a mere 1.1 times those of public hospitals in 2012. [Mail & Guardian 11 May 2012]

In addition, the main cost drivers in the private sector are not greed, as the health  minister alleges, but rather increased utilisation, a rising number of people with medical scheme membership or other hospital insurance,  a growing burden of disease, an ageing population, the introduction of new medicines and medical technologies, increased labour costs, especially for nurses (as the private sector has had to push up salaries to compete with rapid wage increases in the public service), steep increases in electricity and other administered prices, the declining value of the rand, and significant increases in the overall consumer price index which add to food and other input costs. [Business Day 23 September, The Times 6 February, The Citizen 19 February, The Times 19 August 2015]

The role of regulation in pushing up private health care costs
Often, moreover, it is government’s own regulations that make it harder to bring down costs. The state’s restrictions on the building of new private hospitals and clinics limit new entrants and reduce competition. By contrast, more hospital beds would increase competition and lower costs for patients. Hence, subject to regulations regarding patient safety, the private sector should be allowed, indeed encouraged, to open as many hospitals, clinics, and day medical centres as it wishes. It should also be able to purchase whatever medical equipment it considers necessary or useful, without first having to obtain state permission.

Also relevant here is the state’s prohibition on private hospitals employing doctors and specialists. This means that these medical practitioners have to fund their own consulting rooms and equipment and bill their patients themselves. By contrast, there would be savings if hospitals could employ them and provide them with all the facilities they need, while also benefiting from resulting economies of scale. [The Times 19 August 2015]

In many ways, thus, the government’s own rules serve to push up prices in the private sector by constraining the training of doctors and nurses, the expansion of medical facilities, the purchasing of medical equipment, the hiring of doctors, and the negotiation of price discounts for bulk orders of medicines (which is barred by the government’s insistence on a ‘single exit price’ for all purchasers other than itself). [Anthea Jeffery, Chasing the Rainbow: South Africa’s Move from Mandela to Zuma, IRR, 2010, p76]

There are also many regulatory obstacles imposed by the state which make it more difficult to bring down the cost of medical scheme membership. Particularly significant are rules (in section 29 of the Medical Schemes Act and its accompanying regulation 8) which require all medical schemes to provide all their members, irrespective of the premiums they pay, with ‘prescribed minimum benefits’ (PMBs) for a host of specified conditions. Included on the PMB list are 270 medical conditions, such as cancer and pneumonia, along with 25 chronic conditions and emergency care.  According to Regulation 8, moreover, medical schemes must ‘pay in full’ for the treatment of illnesses covered by PMBs. Every medical scheme member, irrespective of the cover they have signed on to receive, is entitled to these PMBs. This in turn means that medical schemes cannot offer membership at less than R600 per person per month, which is the minimum amount needed to cater for the likely cost of the PMBs. This pushes up medical scheme premiums for everyone. [The Times 6 March 2015]

When PMBs were introduced, the legislation suggested that medical schemes were required to pay for PMBs only if the services were provided at a state hospital. Writes journalist Bronwyn Nortje in Business Day: ‘The result was that patients who had previously been treated at private hospitals under medical aid had to seek treatment at public hospitals which were quickly overwhelmed. The result was a skirmish between the medical schemes, their members and the Council for Medical Schemes (a statutory body charged with regulating the medical schemes industry) over who should foot the bill. After some discussion and a court case, the registrar of medical schemes issued a circular stating that the provision of PMBs by a scheme is obligatory regardless of where the service is received. This was all well and good for the state hospitals, but was the beginning of a lengthy tale of woe for medical schemes, which found themselves responsible for all costs – no matter how high – related to the treatment of PMB conditions. [This] open-ended liability caused havoc on their balance sheets. Apart from costing a lot more and making their risk more difficult to model, the legislation also created a perverse incentive for some providers to charge far higher rates to treat PMB conditions... These higher medical costs have simply translated into higher premiums. These higher premiums have in turn resulted in some people being forced to leave the schemes because they are unable to afford them. This has ultimately reduced medical scheme coverage.’ [Business Day 23 July 2015]

The government has nevertheless refused to allow low-cost medical schemes (as suggested by the Council for Medical Schemes in 2015), which could have extended medical scheme membership to another 15 million people. It is also seeking to bar some of the medical insurance schemes on which many more people rely for access to private health care.

Other government failures
Also relevant is the time (often five years) it takes to register a generic medicine through the Medicines Control Council. This creates a huge backlog in the availability of cheaper medicines. As a result, only around 50% of the medicines prescribed by South African doctors are generic, which is much lower than the 70% in the United Kingdom (UK) and the US. [The Times 9 February 2015]

It is also the deteriorating infrastructure and poor service in public clinics and hospitals that push people towards the private sector. [The Times 9 February 2015] This increases the demand for private health care, even as government regulations make it more difficult for the private sector to meet this higher demand. If the government wants more competition to help drive down prices in the private sector, it has a key remedy readily available to it. All it need do is improve the quality of public health care, for this in itself would remove the imperative that many people now feel to seek private care instead.

Moreover, the often poor standards of health care in the public system are largely the result of avoidable deficiencies. These include poor management (often resulting in unpaid suppliers and crippling shortages of medicines and other essential medical devices and equipment), poor maintenance of existing infrastructure, widespread financial maladministration, and a disturbing degree of medical negligence which has often resulted in avoidable deaths or crippling disabilities.

So bad is the performance of most the public health care system that the most recent inspection of 417 public facilities, carried out by the Office of Health Standards Compliance (OHSC) in 2014/15, found that only 3% of them were ‘compliant’. Another 13% were compliant ‘with requirements’ or were ‘conditionally compliant’. The remaining 84% were non-compliant, of which 16.5% were ‘conditionally compliant with serious concerns’, 27.8% were ‘non-compliant’ and 39.8% were ‘critically non-compliant’. [Serfontein, FMF presentation, 20 April 2016]

Given this high level of non-compliance, it is not surprising that the health minister, Dr Aaron Motsoaledi, has yet to gazette binding norms and standards to cover all health facilities in both the public and the private sectors. Were he to do so, only 16% of public health facilities would qualify for certification by the OHSC. Yet until such time as binding standards are prescribed, the OHSC cannot act to enforce compliance.

In addition, without the appointment of many more inspectors – for which no revenue is available – the OHSC will not be able to extend its inspections to the private health care sector. This has huge ramifications for the NHI system, for it means that the private sector will be unable to obtain accreditation to participate in it. This means that 55 million South Africans will be compelled to rely on the scant 16% of public facilities that currently comply with OHSC norms and standards. [Business Day 24 May 2016; Serfontein, FMF presentation, 20 April 2016]

The high costs and unaffordability of the NHI proposal
There is also no clarity on what benefits the NHI will provide, how much these will cost, or how they will be funded. The White Paper nevertheless estimates that ‘total NHI costs in 2025 will be R256bn (in 2010 terms)’. This projection assumes that ‘NHI expenditure increases by 6.7% a year in real terms after 2015/16… This would take the level of public health spending from around 4% of GDP currently to 6.2% of GDP by 2025/26, assuming the economy grows at an annual rate of 3.5% of GDP’.  On this basis, the NHI funding shortfall would fall between R28bn and R108bn, depending on how fast budgeted revenues for health care were to expand. [Para 252, Table 1, Para 253, White Paper]

The Democratic Alliance (DA) and other analysts have dismissed these projections as ‘little more than a thumb-suck’. Says the DA’s Wilmot James, shadow minister of health: ‘There is no evidence in the White Paper of Treasury’s assessment of the costs; but simply a projection based on 2010 prices’. Journalist and author R W Johnson notes that the long-anticipated White Paper on the NHI was supposed to be presented together with the Treasury’s cost projections. Instead, the document was suddenly released, without the Treasury’s input, soon after the unexpected dismissal of finance minister Nhlanhla Nene. He suggests that Dr Motsoaledi ‘grabbed the chance’ to move ahead with the NHI proposal ‘at a time when the Treasury was in disarray’ and less able to resist what it has long regarded as ‘an unaffordable dream’. [Business Day 14 December 2015; R W Johnson, Where to now? Politicsweb.co.za 14 December 2015]

In these circumstances, the cost estimate put forward in the White Paper lacks credibility. It also seems unrealistic. Back in 2009, when the ANC released a 200-page discussion document on the NHI, Dr Jonathan Broomberg, chief executive at Discovery, said: ‘If the NHI were to provide the current package of benefits provided to the average member of a medical scheme to the entire population, this would cost about R497bn, equivalent to 20% of GDP (at present the fiscus spends 3.5% of GDP on health).’ If cover were to be limited to the prescribed minimum benefits (PMBs) laid down by the government, this too would cost far more than the White Paper estimates. At present, medical schemes need around R600 per person per month to cover the PMBs. On this basis, the cost of providing these benefits to 55 million South Africans, in 2025 alone, will be R396bn rather than R256bn. [The Star 3 June 2009, Business Day 29 July 2015, Mail & Guardian 22 January 2015]

Unless GDP grows significantly – which is unlikely with the country standing on the brink of credit downgrades and recession – R396bn would amount to roughly 10% of GDP. This cost estimate also fails to take into account the cost of the large bureaucracy the White Paper proposes to implement the NHI. It also overlooks the potential for fraud, corruption, inflated prices for medical supplies, and general inefficiency – all of which could raise NHI costs still higher.

In assessing the magnitude of the tax increases that might be necessary, the White Paper assumes that the revenue shortfall will be R79.1bn in 2025. But this figure is unrealistic. As earlier noted, NHI costs are likely to be far higher, while GDP is likely to contract rather than expand over the next nine years. Based on these flawed premises, the White Paper further assumes that the shortfall can be bridged via a 1% payroll tax, coupled with a 1 percentage point increase in the marginal rate of personal income tax and a 1 percentage point increase in the VAT rate. Alternatively, it suggests (among other things) that the shortfall could be met via a 4 percentage point increase in the marginal rate of personal income tax. [Para 297, White Paper]

However, the Davis Tax Committee currently investigating the tax system in South Africa has warned that South Africans are already very highly taxed, leaving very little scope to raise taxes yet higher. The tax base is also very small. In the 2014/15 financial year, for instance, only 10% of the 4.9 million individuals assessed for tax earned more than R500 000 a year. This group, comprising roughly 490 000 people, contributed some 57% (or R140bn) of the R246bn in assessed personal income tax that year. [2016 Survey, p178] These better- skilled and higher-earning individuals already get very little back for their tax payments in the form of public services, preferring (because of quality concerns) to pay for private education, private healthcare and private security out of their after-tax income. They could also be so alienated by the NHI – and the decline in the quality of healthcare that it will surely bring about – that many may choose to emigrate. Yet the White Paper implicitly assumes that some R190bn (and more) can be extracted in additional personal taxes from this small group.

The White Paper also overlooks the extent of unemployment in South Africa and the fact that other countries that have introduced universal health coverage (not necessarily in the same form as the NHI) have a much bigger tax base and significantly less unemployment.
Mexico, for example, has a tax base of 47.8% and an unemployment rate of 4.8%, while Thailand has a tax base of 29% and a jobless rate below 1%. Brazil has a tax base of 25% and an unemployment rate of 6.8%. By contrast, South Africa has a tax base of 10.3% and unemployment at 25.4%. [Serfontein, FMF presentation, 20 April 2016]

Overall, the White Paper’s proposals for the funding the NHI system are unrealistic and poorly thought through. In essence, given South Africa’s bleak economic forecast, unemployment crisis, narrow tax base, and already ballooning public debt, the country simply cannot afford the NHI. [Business Day 4 February 2016] Nor does it need this when far better ways of achieving a higher level of universal health coverage are available (as outlined below).

A huge administrative burden
The NHI requires the creation of a host of new bureaucratic structures. Chief among these is the NHI Fund, which will effectively be a huge, single-payer medical scheme with 25 times as many members as Discovery, the largest private medical scheme within the country. The NHI Fund will also be administered by a government with a poor reputation for competent and clean administration. To understand the magnitude of what is involved, it is useful to consider the experience of the Compensation Fund, which is the closest existing equivalent to the NHI Fund.

The Compensation Fund receives the mandatory ‘workmen’s compensation fees’, which many employers and their staff are obliged to pay. From these monies, it pays out compensation to employees who are injured at work. It also pays the medical fees of the doctors and specialists responsible for providing health care to employees injured in these circumstances. The fund records about R8bn a year in income and has R52bn in assets.

Between 2012 and 2015, the Compensation Fund paid out claims of between R1.4bn and R2bn a year. It often fails to pay out in time: so much so that in April 2015 (in answer to a parliamentary question) the director-general of labour acknowledged that the fund had yet to pay out on 231 000 outstanding claims with an overall value of R23bn. Some of these claims dated back as much as ten years. The director general added that the fund now planned to clear the backlog within two months, but this was clearly beyond its capacity to achieve. [Business Day 24 May 2016]

So bad is the situation that unpaid claimants have had to resort to litigation to compel the fund to pay what is owing to them. In July 2009, for example, Compsol, a company that handles claims against the fund on behalf of doctors, obtained a High Court order instructing the commissioner of the fund to pay out all claims which had already been validated within 75 days and to assess a backlog of remaining claims. However, this was not done, obliging Compsol to seek further judicial relief. In April 2016 the Supreme Court of Appeal (SCA) found the commissioner, Shadrack Mkhonto, in contempt of court for failing to comply with the 2009 High Court ruling. The SCA thus sentenced him to three months in prison, suspended for five years. How much difference this will make also remains to be seen. Moreover, it is not only the claims submitted by doctors that have remained unpaid for many years, but also those of employees injured at work and entitled to compensation from the fund. Persistent non-payment has resulted in hospitals turning Compensation Fund patients away. [Business Day 19 May 2015, 21 April 2016; Legalbrief 21 April 2016]

The implications for the NHI Fund are profound. Says Dr Johann Serfontein of the HealthMan consultancy: ‘The Compensation Fund employs 1 630 people, who paid out R1.4bn in medical claims in 2015. By comparison, Discovery Health, with five times this number of employees, paid out 26 times the amount in medical claims. The required NHI budget is estimated at R256bn a year, which is 32 times larger than the size of the Compensation Fund’s annual income of R8bn. The number of claims payable is likely to be 100 times more, not including the payment of suppliers. Using the Compensation Fund efficiency as a barometer, it would require the NHI Fund to employ between 52 000 and 106 000 people, more than the 90 000 members in the South African military. An army of people to run one health care fund.’ [Business Day 24 May 2016]

This army of bureaucrats is unlikely to be any more efficient than those who work for the Compensation Fund. In addition, it is most unlikely that the officials required can even be appointed, for the Treasury has already imposed a moratorium on the recruitment of new public servants in an attempt to bring down public debt and reduce the budget deficit. This moratorium will make it impossible to appoint anything like the 52 000 officials minimally required to run the NHI Fund.

In these circumstances, long delays in the making of payments to health providers will inevitably follow. So too will long delays in paying for medicines and other essential medical equipment and consumables. The suppliers of pharmaceuticals and other such essentials will soon confront the funding crisis that the National Health Laboratory Service has experienced for many years.   Health care services will crumble further at all public facilities, while private ones will battle to maintain their existing standards.  All South Africans will thus be left worse off than before.

Proponents of the NHI are silent about the size of the bureaucracy required, how much it will cost, and how inefficient it might be. Instead, they simplistically claim that the NHI will help to bring down costs and will be much cheaper than the current system, the costs of which they constantly castigate. However, as a world-renowned public intellectual, Professor Thomas Sowell of Stanford University, has observed: ‘It is amazing that people who think we cannot afford doctors, hospitals, and medication somehow think that we can afford doctors, hospitals, and medication – and a government bureaucracy.’ [Business Day 20 January 2016]

Alternatives to the NHI
The White Paper rightly criticises the fact that only 16% of South Africans belong to medical schemes. However, there are many ways in which the costs of having medical aid could be reduced and coverage extended.

The first step is to revive the government’s earlier proposals for social health insurance (SHI). These were partially implemented but then abandoned (after the ANC’s Polokwane conference in 2007). Yet partial implementation has done much to hamstring the medical scheme sector – and this needs to be rectified.

The SHI requirements of open enrolment and community rating have been introduced, but the government has yet to act on its earlier promise of mandatory medical scheme membership for all employed people. Voluntary enrolment has given rise to ‘adverse selection’, whereby people join medical schemes only when they are sick, or anticipate a major medical event, such as childbirth. This means that there are fewer young and healthy members to subsidise those who are ill. This lack of mandatory enrolment adds an estimated extra 15% to premiums, as Barry Childs, joint chief executive of Insight Actuaries and Consultants, told the Health Market Inquiry in March 2016. ‘That is R20bn per annum. You can pay a lot of GPs with that money.’ [Business Day 22 March 2016]

Mandatory enrolment (coupled with rules that would allow people to choose between medical schemes, health insurance, or both) would help overcome the problem of adverse selection. It would thus bring down the costs of both medical schemes and health insurance and make both far more affordable.

As part of the SHI concept, the government also earlier promised to introduce a ‘risk equalisation fund’ between different medical schemes. Via this fund, schemes with higher numbers of younger and healthier members would contribute to schemes with higher numbers of older and sicker ones. This would allow medical schemes to compete on efficiency, rather than their ability to attract low-risk members. [Business Day 22 March 2016] Hence, the introduction of a risk equalisation fund must also now be re-considered.

One of the most pressing problems is that the costs of medical scheme membership have been greatly increased by the government’s insistence that all schemes must ‘pay in full’ for almost 300 prescribed medical benefits (PMBs). The Department of Health has also failed to review these PMBs every two years, as required by the Medical Schemes Act. [Business Day 22 March 2016] The government is pricing medical aid beyond the reach of most South Africans through its insistence on comprehensive PMB cover that most people do not require and do not want. It should withdraw this requirement and allow South Africans a choice between medical schemes that cover PMBs and schemes that do not. Where people opt for the second and cheaper option, they should be allowed to protect themselves against unexpected and major health care costs by taking out appropriate medical insurance policies.

The Council for Medical Schemes should also revive its 2015 proposal for a ‘low-cost’ medical scheme which provides limited, but important, benefits to low-income households. These would not provide cover for PMBs, but they would nevertheless give people access to a number of specified benefits – to be provided by private practitioners at the primary care level – against monthly premiums starting at around R180 per adult member per month. As the council has acknowledged, this in itself could make medical scheme coverage available to another 15 million South Africans. [Business Day 29 July, 15 October 2015, Saturday Star 1 August 2015] Though these members would have to rely on public hospitals, the fact that 15 million people would be meeting most of their needs for primary health care from the private sector, rather than the public one, would in itself greatly alleviate the pressure on state facilities.

In addition, the government should welcome rather than seek to prohibit the ‘combination’ health insurance policies that give people both hospital cover and a range of primary health care services, to be obtained from the private sector rather than the state. Research commissioned by the Centre for Financial Inclusion and Regulation (Cenfri), on behalf of the FinMark Trust, and made public in April 2016, demonstrates the many advantages that lie in this approach.

According to the researchers, the government should ‘permit the sale of affordable health insurance products’ as this offers an important way for low-income households to access private health care. Most South Africans, they note, earn less than R5 000 a month and cannot afford medical scheme membership (though this problem would, of course, be much reduced if the government were to allow the low-cost option mooted last year). However, medical insurance can be made much more affordable by the discounts of up to 50% that insurance schemes commonly provide where policies are sold to large groups (as this helps spread the risk). In addition, many employers may be willing to help pay the costs of medical insurance premiums, which would also make the insurance option more affordable to low-income households.

According to the researchers, a group discount of 40% would significantly reduce the premiums normally payable by a household earning around R6 250 a month. Premiums then would come down to 6% of disposable income for a hospital-only plan, to 7% for day-to-day cover, to 8% for day-to-day cover plus limited hospital cover, and to 13% for day-to-day cover plus comprehensive hospital cover. If an employer subsidy of 50% is also factored in, premiums would fall to 3% for a hospital plan and for day-to-day cover, to 4% for day-to-day cover and a limited hospital plan, and to 6% for day-to-day cover plus hospital cover. These percentages would be very affordable for all medical insurance products – especially as the standard rule of thumb is that medical cover should not exceed 10% of a household’s disposable income. [Saturday Star 16 April 2016]

The R173bn in tax revenues currently allocated to the public health care system could also be far better used through improved management and increased efficiencies. These gains could best be achieved through effective public-private partnerships. Private firms should be allowed to compete, on price and functionality alone, for contracts to run public facilities within the parameters laid down by the Department of Health.

According to Morgan Chetty, chairman of the Independent Practitioners Association Foundation (which represents doctors), ‘the government seems to see the private sector as a threat’, but in fact it offers the best way of turning the struggling public system around. Says Dr Chetty: ‘Public-private partnerships have the potential to combine the best attributes of both sectors.’  Under such a system, the government would be responsible for setting appropriate parameters, while the private sector would be responsible for effective and cost-efficient delivery. ‘Ideologists think government has all the solutions and should implement the NHI. But pragmatists see a public-private solution.’ Moreover, this approach could quickly bring about major improvements, whereas the NHI will take many years to implement. [Business Day 26 May 2016]

The government should also remove the regulations which currently prevent private training for doctors and restrict private training for nurses. It should encourage the establishment of more private hospitals and clinics, especially day-hospitals with their lower costs. It should allow hospitals to employ doctors and specialists, so reducing the costs to these professionals of running their own practices. It should remove the rules that prevent pharmaceutical companies from offering discounts for bulk orders of medicines in the private sector. It should also scrap the ‘single exit price’ regimen which has seen many pharmaceutical manufacturers exiting the country because permitted price increases are too low to cover mounting costs (especially as the rand weakens and imported ingredients become much more costly). It should strengthen the Medicines Control Council (and the South African Health Products Regulatory Authority which is expected to replace the council next year) and ensure that approvals for new medicines are quickly granted.  The certificate-of-need provisions, which could help push many private health professionals out of the country, should be scrapped.

The government should also encourage innovation and a greater use of technology wherever this can help reduce costs. To name but one example, consultations via smart phones with doctor and specialists would be easier if high-speed broadband were more uniformly available. It should encourage the establishment of day hospitals, where many procedures can be carried out at lower cost. (In the US, some 63.5% of all surgical procedures are now carried out at such hospitals, but South Africa as yet has only around 50 of these institutions while every new one currently requires express government approval.) [The Times 26 May 2016, Business Day 23 July 2015] Instead of threatening patent rights, the government should encourage the inventors of new medicines and new medical equipment and devices to stay inside the country by respecting and upholding their intellectual property rights.

The government should also increase the affordability of medical aid cover and health insurance by introducing state-funded healthcare vouchers for households earning less than R15 000 a month. The current medical aid tax credit could be combined with a portion of current provincial health expenditure to yield significant amounts of annual revenue. This could be used to provide every household within this income range with a voucher which could be used solely for the purchase of health care services from either the public or the private sectors.

Combined with the reforms earlier outlined, this would ensure that every household would be able to gain access to a medical scheme. It would also allow them to top up their cover by buying medical insurance for conditions not covered by their medical aids. Universal coverage would then be assured, while private sector efficiencies would help to keep costs down and performance standards up. This would be a far better option than destroying the private sector, as the NHI envisages. It would also give public facilities important reasons to improve their performance, so that they could compete effectively for households armed with health-care vouchers. It would also give public facilities an incentive to enter into the public-private partnerships that would be so effective in turning failing institutions around.

The introduction of health care vouchers, in combination with the other reforms proposed, would enable the country to build further on the many strengths of its existing health care system. This is far preferable to the NHI system, which will destroy the private health care sector and greatly weaken the capacity of the public system through the massive restructuring, unaffordable costs, bureaucratic bottlenecks, and massive unmet demand that it will usher in.

The pragmatic alternatives outlined here will also help the economy. Whereas the introduction of the NHI will trigger ratings downgrades, further restrict growth, weaken the rand, and add to the unemployment crisis, these practical reforms will provide a welcome signal that South Africa remains open for business. Coupled with other policy reforms, this will help to stimulate investment, push up the growth rate, draw millions more people into jobs – and give all South Africans a realistic prospect of upward mobility and a better life overall.

Unconstitutionality of the NHI
Section 27 of the Constitution says that ‘everyone has the right to have access to health care services, including reproductive health care’. It also obliges the state to ‘take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right’. [Section 27(1)(a), (2), Constitution of the Republic of South Africa]

Proponents of the NHI say that this proposed system is essential to fulfil this right.  This, however, is not so. The alternative solutions outlined here would be far more effective in giving all South Africans access to quality health care on a basis that everyone, helped by state-funded health vouchers, can afford.

By contrast, the proposed NHI system – far from bringing about increased access to health care on a progressive basis – will deprive many South Africans of the access to health care that they currently enjoy. Introducing NHI is thus not a ‘reasonable’ measure for the state to take. It will also require a level of spending far in excess of the resources ‘available’ to the government.

The NHI idea is also inconsistent with other guaranteed rights. Forced participation in the NHI Fund contradicts the right to freedom of association in Section 18 of the Bill of Rights. Confining medical schemes to complementary services – and thereby preventing them from remaining in business – is inconsistent with the right to property in Section 25 of the Constitution. Barring health care professionals from private practice – as the certificate of need and all the state controls implicit in the NHI will do – is inconsistent with the right of every citizen ‘freely…to choose their own profession’ under Section 22 of the Bill of Rights.

Fortunately, however, it is not necessary for the government to breach the Constitution in order to achieve universal health coverage and high standards of health care for all. The reforms that will be effective in achieving these goals have also been outlined. All that is needed is the political will to adopt them.

South African Institute of Race Relations NPC    31st May 2016

IRR TV

South African Institute of Race Relations NPC (IRR)
Submission to the
Department of Health
regarding the
White Paper on National Health Insurance
for South Africa (Version 40)
Johannesburg, 25th May 2016

Synopsis

Contents
Introduction, page 1
Flawed assumptions underpinning the NHI, page 1
The role of regulation in pushing up private health care costs, page 3
Other government failures, page 4
The high costs and unaffordability of the NHI proposal, page 5
A huge administrative burden, page 7
Alternatives to the NHI, page 9
Unconstitutionality of the NHI, page 12

Introduction
The Department of Health has invited interested people and stakeholders to submit written comments on the White Paper on National Health Insurance for South Africa, Version 40, published on 10 December 2015 (the White Paper) by 31st May 2016.

This submission on the White Paper is made by the South African Institute of Race Relations NPC (IRR), a non-profit organisation formed in 1929 to oppose racial discrimination and promote racial goodwill. Its current objects are to promote democracy, human rights, development, and reconciliation between the peoples of South Africa.

Flawed assumptions underpinning the NHI
According to the White Paper, ‘National Health Insurance (NHI) is a health financing system that is designed to pool funds to provide universal access to quality, affordable health services for all South Africans, based on their health needs and irrespective of their socio-economic status.’  The new NHI system will be implemented through ‘the creation of a single fund that is publicly financed and publicly administered’, while ‘the health services covered by NHI will be provided free at the point of care’. [Para 51, White Paper]

This description emphasises the many advantages the NHI system is supposed to bring about. In practice, however, NHI will reduce access to health care. It will also impose a crippling financial burden on a struggling economy already standing on the brink of recession.

The proposed NHI system is also premised on a number of flawed assumptions. It overlooks many of the gains already made in managing the heavy burden of disease confronting South Africa. In addition, it disregards key reasons for the poor performance of the public health care system. These failings make for a skewed diagnosis of health care problems, leading to a skewed assessment of how these problems can be overcome.

Among other things, the White Paper asserts that ‘South Africa spends 8.5% of GDP on health. [Of this] 4.1% of GDP is spent on 84% of the population, the majority utilising the public health sector, whilst 4.4 % of GDP is spent on only 16% of the population in 2015/16’. [Para 92, White Paper]

Like the green paper before it, the White Paper simplistically assumes that, because 16% of the population belongs to a medical aid scheme, the remaining 84% of the population must depend on the public health care system. In fact, however, very many people who do not belong to medical aids also use the private system, preferring to make out-of-pocket payments for private treatment rather than rely on failing public health facilities with long waiting times and often poor standards of treatment. 

The proportion of people treated in the private sector thus varies between 28% and 38%, leaving between 72% and 62% to seek treatment from the state. In addition, current figures on public/private utilisation show that 37% of people use private GPs, that 38% rely on private nurses, that 28.5% go to private hospitals, and that 59% use private specialists. [Dr Johann Serfontein, Presentation to the Free Market Foundation, 20 April 2016] (The figures on the use of private specialists reflect the fact that 59% of specialists work in the private sector. This in turn is largely the result of the government’s emphasis on primary care, as well as the various other factors, including poor management, that drive specialists out of public health care facilities.)

The White Paper also seems to suggest that the private sector is ‘not doing its share’ in meeting the health needs of the country. In fact, the private sector pays the great bulk of all health care costs in South Africa.  The roughly R178bn spent on private health care in 2015/16, amounting to some 50% of total health care expenditure, comes mostly from private firms and individuals and their contributions to medical schemes, medical insurance, and out-of-pocket fees. The roughly R173bn budgeted for public health care expenditure in 2015/16 comes from tax revenues, the bulk of which is paid by private firms and individuals. In addition, the tax system is extremely progressive, for the wealthiest quintile contributes some 82% of total health care financing and receives 36% of the benefits. [Para 259, Table 2, White Paper; 2016 Survey, p561; Dr Chris Archer, NHI Commentary, Presentation to the Free Market Foundation, 20 April 2016]

The White Paper also assumes that private healthcare costs are inordinately high and that the NHI system is needed to reduce them. However, if all relevant factors were taken into account and like is more strictly equated with like, then private hospital costs were a mere 1.1 times those of public hospitals in 2012. [Mail & Guardian 11 May 2012]

In addition, the main cost drivers in the private sector are not greed, as the health  minister alleges, but rather increased utilisation, a rising number of people with medical scheme membership or other hospital insurance,  a growing burden of disease, an ageing population, the introduction of new medicines and medical technologies, increased labour costs, especially for nurses (as the private sector has had to push up salaries to compete with rapid wage increases in the public service), steep increases in electricity and other administered prices, the declining value of the rand, and significant increases in the overall consumer price index which add to food and other input costs. [Business Day 23 September, The Times 6 February, The Citizen 19 February, The Times 19 August 2015]

The role of regulation in pushing up private health care costs
Often, moreover, it is government’s own regulations that make it harder to bring down costs. The state’s restrictions on the building of new private hospitals and clinics limit new entrants and reduce competition. By contrast, more hospital beds would increase competition and lower costs for patients. Hence, subject to regulations regarding patient safety, the private sector should be allowed, indeed encouraged, to open as many hospitals, clinics, and day medical centres as it wishes. It should also be able to purchase whatever medical equipment it considers necessary or useful, without first having to obtain state permission.

Also relevant here is the state’s prohibition on private hospitals employing doctors and specialists. This means that these medical practitioners have to fund their own consulting rooms and equipment and bill their patients themselves. By contrast, there would be savings if hospitals could employ them and provide them with all the facilities they need, while also benefiting from resulting economies of scale. [The Times 19 August 2015]

In many ways, thus, the government’s own rules serve to push up prices in the private sector by constraining the training of doctors and nurses, the expansion of medical facilities, the purchasing of medical equipment, the hiring of doctors, and the negotiation of price discounts for bulk orders of medicines (which is barred by the government’s insistence on a ‘single exit price’ for all purchasers other than itself). [Anthea Jeffery, Chasing the Rainbow: South Africa’s Move from Mandela to Zuma, IRR, 2010, p76]

There are also many regulatory obstacles imposed by the state which make it more difficult to bring down the cost of medical scheme membership. Particularly significant are rules (in section 29 of the Medical Schemes Act and its accompanying regulation 8) which require all medical schemes to provide all their members, irrespective of the premiums they pay, with ‘prescribed minimum benefits’ (PMBs) for a host of specified conditions. Included on the PMB list are 270 medical conditions, such as cancer and pneumonia, along with 25 chronic conditions and emergency care.  According to Regulation 8, moreover, medical schemes must ‘pay in full’ for the treatment of illnesses covered by PMBs. Every medical scheme member, irrespective of the cover they have signed on to receive, is entitled to these PMBs. This in turn means that medical schemes cannot offer membership at less than R600 per person per month, which is the minimum amount needed to cater for the likely cost of the PMBs. This pushes up medical scheme premiums for everyone. [The Times 6 March 2015]

When PMBs were introduced, the legislation suggested that medical schemes were required to pay for PMBs only if the services were provided at a state hospital. Writes journalist Bronwyn Nortje in Business Day: ‘The result was that patients who had previously been treated at private hospitals under medical aid had to seek treatment at public hospitals which were quickly overwhelmed. The result was a skirmish between the medical schemes, their members and the Council for Medical Schemes (a statutory body charged with regulating the medical schemes industry) over who should foot the bill. After some discussion and a court case, the registrar of medical schemes issued a circular stating that the provision of PMBs by a scheme is obligatory regardless of where the service is received. This was all well and good for the state hospitals, but was the beginning of a lengthy tale of woe for medical schemes, which found themselves responsible for all costs – no matter how high – related to the treatment of PMB conditions. [This] open-ended liability caused havoc on their balance sheets. Apart from costing a lot more and making their risk more difficult to model, the legislation also created a perverse incentive for some providers to charge far higher rates to treat PMB conditions... These higher medical costs have simply translated into higher premiums. These higher premiums have in turn resulted in some people being forced to leave the schemes because they are unable to afford them. This has ultimately reduced medical scheme coverage.’ [Business Day 23 July 2015]

The government has nevertheless refused to allow low-cost medical schemes (as suggested by the Council for Medical Schemes in 2015), which could have extended medical scheme membership to another 15 million people. It is also seeking to bar some of the medical insurance schemes on which many more people rely for access to private health care.

Other government failures
Also relevant is the time (often five years) it takes to register a generic medicine through the Medicines Control Council. This creates a huge backlog in the availability of cheaper medicines. As a result, only around 50% of the medicines prescribed by South African doctors are generic, which is much lower than the 70% in the United Kingdom (UK) and the US. [The Times 9 February 2015]

It is also the deteriorating infrastructure and poor service in public clinics and hospitals that push people towards the private sector. [The Times 9 February 2015] This increases the demand for private health care, even as government regulations make it more difficult for the private sector to meet this higher demand. If the government wants more competition to help drive down prices in the private sector, it has a key remedy readily available to it. All it need do is improve the quality of public health care, for this in itself would remove the imperative that many people now feel to seek private care instead.

Moreover, the often poor standards of health care in the public system are largely the result of avoidable deficiencies. These include poor management (often resulting in unpaid suppliers and crippling shortages of medicines and other essential medical devices and equipment), poor maintenance of existing infrastructure, widespread financial maladministration, and a disturbing degree of medical negligence which has often resulted in avoidable deaths or crippling disabilities.

So bad is the performance of most the public health care system that the most recent inspection of 417 public facilities, carried out by the Office of Health Standards Compliance (OHSC) in 2014/15, found that only 3% of them were ‘compliant’. Another 13% were compliant ‘with requirements’ or were ‘conditionally compliant’. The remaining 84% were non-compliant, of which 16.5% were ‘conditionally compliant with serious concerns’, 27.8% were ‘non-compliant’ and 39.8% were ‘critically non-compliant’. [Serfontein, FMF presentation, 20 April 2016]

Given this high level of non-compliance, it is not surprising that the health minister, Dr Aaron Motsoaledi, has yet to gazette binding norms and standards to cover all health facilities in both the public and the private sectors. Were he to do so, only 16% of public health facilities would qualify for certification by the OHSC. Yet until such time as binding standards are prescribed, the OHSC cannot act to enforce compliance.

In addition, without the appointment of many more inspectors – for which no revenue is available – the OHSC will not be able to extend its inspections to the private health care sector. This has huge ramifications for the NHI system, for it means that the private sector will be unable to obtain accreditation to participate in it. This means that 55 million South Africans will be compelled to rely on the scant 16% of public facilities that currently comply with OHSC norms and standards. [Business Day 24 May 2016; Serfontein, FMF presentation, 20 April 2016]

The high costs and unaffordability of the NHI proposal
There is also no clarity on what benefits the NHI will provide, how much these will cost, or how they will be funded. The White Paper nevertheless estimates that ‘total NHI costs in 2025 will be R256bn (in 2010 terms)’. This projection assumes that ‘NHI expenditure increases by 6.7% a year in real terms after 2015/16… This would take the level of public health spending from around 4% of GDP currently to 6.2% of GDP by 2025/26, assuming the economy grows at an annual rate of 3.5% of GDP’.  On this basis, the NHI funding shortfall would fall between R28bn and R108bn, depending on how fast budgeted revenues for health care were to expand. [Para 252, Table 1, Para 253, White Paper]

The Democratic Alliance (DA) and other analysts have dismissed these projections as ‘little more than a thumb-suck’. Says the DA’s Wilmot James, shadow minister of health: ‘There is no evidence in the White Paper of Treasury’s assessment of the costs; but simply a projection based on 2010 prices’. Journalist and author R W Johnson notes that the long-anticipated White Paper on the NHI was supposed to be presented together with the Treasury’s cost projections. Instead, the document was suddenly released, without the Treasury’s input, soon after the unexpected dismissal of finance minister Nhlanhla Nene. He suggests that Dr Motsoaledi ‘grabbed the chance’ to move ahead with the NHI proposal ‘at a time when the Treasury was in disarray’ and less able to resist what it has long regarded as ‘an unaffordable dream’. [Business Day 14 December 2015; R W Johnson, Where to now? Politicsweb.co.za 14 December 2015]

In these circumstances, the cost estimate put forward in the White Paper lacks credibility. It also seems unrealistic. Back in 2009, when the ANC released a 200-page discussion document on the NHI, Dr Jonathan Broomberg, chief executive at Discovery, said: ‘If the NHI were to provide the current package of benefits provided to the average member of a medical scheme to the entire population, this would cost about R497bn, equivalent to 20% of GDP (at present the fiscus spends 3.5% of GDP on health).’ If cover were to be limited to the prescribed minimum benefits (PMBs) laid down by the government, this too would cost far more than the White Paper estimates. At present, medical schemes need around R600 per person per month to cover the PMBs. On this basis, the cost of providing these benefits to 55 million South Africans, in 2025 alone, will be R396bn rather than R256bn. [The Star 3 June 2009, Business Day 29 July 2015, Mail & Guardian 22 January 2015]

Unless GDP grows significantly – which is unlikely with the country standing on the brink of credit downgrades and recession – R396bn would amount to roughly 10% of GDP. This cost estimate also fails to take into account the cost of the large bureaucracy the White Paper proposes to implement the NHI. It also overlooks the potential for fraud, corruption, inflated prices for medical supplies, and general inefficiency – all of which could raise NHI costs still higher.

In assessing the magnitude of the tax increases that might be necessary, the White Paper assumes that the revenue shortfall will be R79.1bn in 2025. But this figure is unrealistic. As earlier noted, NHI costs are likely to be far higher, while GDP is likely to contract rather than expand over the next nine years. Based on these flawed premises, the White Paper further assumes that the shortfall can be bridged via a 1% payroll tax, coupled with a 1 percentage point increase in the marginal rate of personal income tax and a 1 percentage point increase in the VAT rate. Alternatively, it suggests (among other things) that the shortfall could be met via a 4 percentage point increase in the marginal rate of personal income tax. [Para 297, White Paper]

However, the Davis Tax Committee currently investigating the tax system in South Africa has warned that South Africans are already very highly taxed, leaving very little scope to raise taxes yet higher. The tax base is also very small. In the 2014/15 financial year, for instance, only 10% of the 4.9 million individuals assessed for tax earned more than R500 000 a year. This group, comprising roughly 490 000 people, contributed some 57% (or R140bn) of the R246bn in assessed personal income tax that year. [2016 Survey, p178] These better- skilled and higher-earning individuals already get very little back for their tax payments in the form of public services, preferring (because of quality concerns) to pay for private education, private healthcare and private security out of their after-tax income. They could also be so alienated by the NHI – and the decline in the quality of healthcare that it will surely bring about – that many may choose to emigrate. Yet the White Paper implicitly assumes that some R190bn (and more) can be extracted in additional personal taxes from this small group.

The White Paper also overlooks the extent of unemployment in South Africa and the fact that other countries that have introduced universal health coverage (not necessarily in the same form as the NHI) have a much bigger tax base and significantly less unemployment.
Mexico, for example, has a tax base of 47.8% and an unemployment rate of 4.8%, while Thailand has a tax base of 29% and a jobless rate below 1%. Brazil has a tax base of 25% and an unemployment rate of 6.8%. By contrast, South Africa has a tax base of 10.3% and unemployment at 25.4%. [Serfontein, FMF presentation, 20 April 2016]

Overall, the White Paper’s proposals for the funding the NHI system are unrealistic and poorly thought through. In essence, given South Africa’s bleak economic forecast, unemployment crisis, narrow tax base, and already ballooning public debt, the country simply cannot afford the NHI. [Business Day 4 February 2016] Nor does it need this when far better ways of achieving a higher level of universal health coverage are available (as outlined below).

A huge administrative burden
The NHI requires the creation of a host of new bureaucratic structures. Chief among these is the NHI Fund, which will effectively be a huge, single-payer medical scheme with 25 times as many members as Discovery, the largest private medical scheme within the country. The NHI Fund will also be administered by a government with a poor reputation for competent and clean administration. To understand the magnitude of what is involved, it is useful to consider the experience of the Compensation Fund, which is the closest existing equivalent to the NHI Fund.

The Compensation Fund receives the mandatory ‘workmen’s compensation fees’, which many employers and their staff are obliged to pay. From these monies, it pays out compensation to employees who are injured at work. It also pays the medical fees of the doctors and specialists responsible for providing health care to employees injured in these circumstances. The fund records about R8bn a year in income and has R52bn in assets.

Between 2012 and 2015, the Compensation Fund paid out claims of between R1.4bn and R2bn a year. It often fails to pay out in time: so much so that in April 2015 (in answer to a parliamentary question) the director-general of labour acknowledged that the fund had yet to pay out on 231 000 outstanding claims with an overall value of R23bn. Some of these claims dated back as much as ten years. The director general added that the fund now planned to clear the backlog within two months, but this was clearly beyond its capacity to achieve. [Business Day 24 May 2016]

So bad is the situation that unpaid claimants have had to resort to litigation to compel the fund to pay what is owing to them. In July 2009, for example, Compsol, a company that handles claims against the fund on behalf of doctors, obtained a High Court order instructing the commissioner of the fund to pay out all claims which had already been validated within 75 days and to assess a backlog of remaining claims. However, this was not done, obliging Compsol to seek further judicial relief. In April 2016 the Supreme Court of Appeal (SCA) found the commissioner, Shadrack Mkhonto, in contempt of court for failing to comply with the 2009 High Court ruling. The SCA thus sentenced him to three months in prison, suspended for five years. How much difference this will make also remains to be seen. Moreover, it is not only the claims submitted by doctors that have remained unpaid for many years, but also those of employees injured at work and entitled to compensation from the fund. Persistent non-payment has resulted in hospitals turning Compensation Fund patients away. [Business Day 19 May 2015, 21 April 2016; Legalbrief 21 April 2016]

The implications for the NHI Fund are profound. Says Dr Johann Serfontein of the HealthMan consultancy: ‘The Compensation Fund employs 1 630 people, who paid out R1.4bn in medical claims in 2015. By comparison, Discovery Health, with five times this number of employees, paid out 26 times the amount in medical claims. The required NHI budget is estimated at R256bn a year, which is 32 times larger than the size of the Compensation Fund’s annual income of R8bn. The number of claims payable is likely to be 100 times more, not including the payment of suppliers. Using the Compensation Fund efficiency as a barometer, it would require the NHI Fund to employ between 52 000 and 106 000 people, more than the 90 000 members in the South African military. An army of people to run one health care fund.’ [Business Day 24 May 2016]

This army of bureaucrats is unlikely to be any more efficient than those who work for the Compensation Fund. In addition, it is most unlikely that the officials required can even be appointed, for the Treasury has already imposed a moratorium on the recruitment of new public servants in an attempt to bring down public debt and reduce the budget deficit. This moratorium will make it impossible to appoint anything like the 52 000 officials minimally required to run the NHI Fund.

In these circumstances, long delays in the making of payments to health providers will inevitably follow. So too will long delays in paying for medicines and other essential medical equipment and consumables. The suppliers of pharmaceuticals and other such essentials will soon confront the funding crisis that the National Health Laboratory Service has experienced for many years.   Health care services will crumble further at all public facilities, while private ones will battle to maintain their existing standards.  All South Africans will thus be left worse off than before.

Proponents of the NHI are silent about the size of the bureaucracy required, how much it will cost, and how inefficient it might be. Instead, they simplistically claim that the NHI will help to bring down costs and will be much cheaper than the current system, the costs of which they constantly castigate. However, as a world-renowned public intellectual, Professor Thomas Sowell of Stanford University, has observed: ‘It is amazing that people who think we cannot afford doctors, hospitals, and medication somehow think that we can afford doctors, hospitals, and medication – and a government bureaucracy.’ [Business Day 20 January 2016]

Alternatives to the NHI
The White Paper rightly criticises the fact that only 16% of South Africans belong to medical schemes. However, there are many ways in which the costs of having medical aid could be reduced and coverage extended.

The first step is to revive the government’s earlier proposals for social health insurance (SHI). These were partially implemented but then abandoned (after the ANC’s Polokwane conference in 2007). Yet partial implementation has done much to hamstring the medical scheme sector – and this needs to be rectified.

The SHI requirements of open enrolment and community rating have been introduced, but the government has yet to act on its earlier promise of mandatory medical scheme membership for all employed people. Voluntary enrolment has given rise to ‘adverse selection’, whereby people join medical schemes only when they are sick, or anticipate a major medical event, such as childbirth. This means that there are fewer young and healthy members to subsidise those who are ill. This lack of mandatory enrolment adds an estimated extra 15% to premiums, as Barry Childs, joint chief executive of Insight Actuaries and Consultants, told the Health Market Inquiry in March 2016. ‘That is R20bn per annum. You can pay a lot of GPs with that money.’ [Business Day 22 March 2016]

Mandatory enrolment (coupled with rules that would allow people to choose between medical schemes, health insurance, or both) would help overcome the problem of adverse selection. It would thus bring down the costs of both medical schemes and health insurance and make both far more affordable.

As part of the SHI concept, the government also earlier promised to introduce a ‘risk equalisation fund’ between different medical schemes. Via this fund, schemes with higher numbers of younger and healthier members would contribute to schemes with higher numbers of older and sicker ones. This would allow medical schemes to compete on efficiency, rather than their ability to attract low-risk members. [Business Day 22 March 2016] Hence, the introduction of a risk equalisation fund must also now be re-considered.

One of the most pressing problems is that the costs of medical scheme membership have been greatly increased by the government’s insistence that all schemes must ‘pay in full’ for almost 300 prescribed medical benefits (PMBs). The Department of Health has also failed to review these PMBs every two years, as required by the Medical Schemes Act. [Business Day 22 March 2016] The government is pricing medical aid beyond the reach of most South Africans through its insistence on comprehensive PMB cover that most people do not require and do not want. It should withdraw this requirement and allow South Africans a choice between medical schemes that cover PMBs and schemes that do not. Where people opt for the second and cheaper option, they should be allowed to protect themselves against unexpected and major health care costs by taking out appropriate medical insurance policies.

The Council for Medical Schemes should also revive its 2015 proposal for a ‘low-cost’ medical scheme which provides limited, but important, benefits to low-income households. These would not provide cover for PMBs, but they would nevertheless give people access to a number of specified benefits – to be provided by private practitioners at the primary care level – against monthly premiums starting at around R180 per adult member per month. As the council has acknowledged, this in itself could make medical scheme coverage available to another 15 million South Africans. [Business Day 29 July, 15 October 2015, Saturday Star 1 August 2015] Though these members would have to rely on public hospitals, the fact that 15 million people would be meeting most of their needs for primary health care from the private sector, rather than the public one, would in itself greatly alleviate the pressure on state facilities.

In addition, the government should welcome rather than seek to prohibit the ‘combination’ health insurance policies that give people both hospital cover and a range of primary health care services, to be obtained from the private sector rather than the state. Research commissioned by the Centre for Financial Inclusion and Regulation (Cenfri), on behalf of the FinMark Trust, and made public in April 2016, demonstrates the many advantages that lie in this approach.

According to the researchers, the government should ‘permit the sale of affordable health insurance products’ as this offers an important way for low-income households to access private health care. Most South Africans, they note, earn less than R5 000 a month and cannot afford medical scheme membership (though this problem would, of course, be much reduced if the government were to allow the low-cost option mooted last year). However, medical insurance can be made much more affordable by the discounts of up to 50% that insurance schemes commonly provide where policies are sold to large groups (as this helps spread the risk). In addition, many employers may be willing to help pay the costs of medical insurance premiums, which would also make the insurance option more affordable to low-income households.

According to the researchers, a group discount of 40% would significantly reduce the premiums normally payable by a household earning around R6 250 a month. Premiums then would come down to 6% of disposable income for a hospital-only plan, to 7% for day-to-day cover, to 8% for day-to-day cover plus limited hospital cover, and to 13% for day-to-day cover plus comprehensive hospital cover. If an employer subsidy of 50% is also factored in, premiums would fall to 3% for a hospital plan and for day-to-day cover, to 4% for day-to-day cover and a limited hospital plan, and to 6% for day-to-day cover plus hospital cover. These percentages would be very affordable for all medical insurance products – especially as the standard rule of thumb is that medical cover should not exceed 10% of a household’s disposable income. [Saturday Star 16 April 2016]

The R173bn in tax revenues currently allocated to the public health care system could also be far better used through improved management and increased efficiencies. These gains could best be achieved through effective public-private partnerships. Private firms should be allowed to compete, on price and functionality alone, for contracts to run public facilities within the parameters laid down by the Department of Health.

According to Morgan Chetty, chairman of the Independent Practitioners Association Foundation (which represents doctors), ‘the government seems to see the private sector as a threat’, but in fact it offers the best way of turning the struggling public system around. Says Dr Chetty: ‘Public-private partnerships have the potential to combine the best attributes of both sectors.’  Under such a system, the government would be responsible for setting appropriate parameters, while the private sector would be responsible for effective and cost-efficient delivery. ‘Ideologists think government has all the solutions and should implement the NHI. But pragmatists see a public-private solution.’ Moreover, this approach could quickly bring about major improvements, whereas the NHI will take many years to implement. [Business Day 26 May 2016]

The government should also remove the regulations which currently prevent private training for doctors and restrict private training for nurses. It should encourage the establishment of more private hospitals and clinics, especially day-hospitals with their lower costs. It should allow hospitals to employ doctors and specialists, so reducing the costs to these professionals of running their own practices. It should remove the rules that prevent pharmaceutical companies from offering discounts for bulk orders of medicines in the private sector. It should also scrap the ‘single exit price’ regimen which has seen many pharmaceutical manufacturers exiting the country because permitted price increases are too low to cover mounting costs (especially as the rand weakens and imported ingredients become much more costly). It should strengthen the Medicines Control Council (and the South African Health Products Regulatory Authority which is expected to replace the council next year) and ensure that approvals for new medicines are quickly granted.  The certificate-of-need provisions, which could help push many private health professionals out of the country, should be scrapped.

The government should also encourage innovation and a greater use of technology wherever this can help reduce costs. To name but one example, consultations via smart phones with doctor and specialists would be easier if high-speed broadband were more uniformly available. It should encourage the establishment of day hospitals, where many procedures can be carried out at lower cost. (In the US, some 63.5% of all surgical procedures are now carried out at such hospitals, but South Africa as yet has only around 50 of these institutions while every new one currently requires express government approval.) [The Times 26 May 2016, Business Day 23 July 2015] Instead of threatening patent rights, the government should encourage the inventors of new medicines and new medical equipment and devices to stay inside the country by respecting and upholding their intellectual property rights.

The government should also increase the affordability of medical aid cover and health insurance by introducing state-funded healthcare vouchers for households earning less than R15 000 a month. The current medical aid tax credit could be combined with a portion of current provincial health expenditure to yield significant amounts of annual revenue. This could be used to provide every household within this income range with a voucher which could be used solely for the purchase of health care services from either the public or the private sectors.

Combined with the reforms earlier outlined, this would ensure that every household would be able to gain access to a medical scheme. It would also allow them to top up their cover by buying medical insurance for conditions not covered by their medical aids. Universal coverage would then be assured, while private sector efficiencies would help to keep costs down and performance standards up. This would be a far better option than destroying the private sector, as the NHI envisages. It would also give public facilities important reasons to improve their performance, so that they could compete effectively for households armed with health-care vouchers. It would also give public facilities an incentive to enter into the public-private partnerships that would be so effective in turning failing institutions around.

The introduction of health care vouchers, in combination with the other reforms proposed, would enable the country to build further on the many strengths of its existing health care system. This is far preferable to the NHI system, which will destroy the private health care sector and greatly weaken the capacity of the public system through the massive restructuring, unaffordable costs, bureaucratic bottlenecks, and massive unmet demand that it will usher in.

The pragmatic alternatives outlined here will also help the economy. Whereas the introduction of the NHI will trigger ratings downgrades, further restrict growth, weaken the rand, and add to the unemployment crisis, these practical reforms will provide a welcome signal that South Africa remains open for business. Coupled with other policy reforms, this will help to stimulate investment, push up the growth rate, draw millions more people into jobs – and give all South Africans a realistic prospect of upward mobility and a better life overall.

Unconstitutionality of the NHI
Section 27 of the Constitution says that ‘everyone has the right to have access to health care services, including reproductive health care’. It also obliges the state to ‘take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of this right’. [Section 27(1)(a), (2), Constitution of the Republic of South Africa]

Proponents of the NHI say that this proposed system is essential to fulfil this right.  This, however, is not so. The alternative solutions outlined here would be far more effective in giving all South Africans access to quality health care on a basis that everyone, helped by state-funded health vouchers, can afford.

By contrast, the proposed NHI system – far from bringing about increased access to health care on a progressive basis – will deprive many South Africans of the access to health care that they currently enjoy. Introducing NHI is thus not a ‘reasonable’ measure for the state to take. It will also require a level of spending far in excess of the resources ‘available’ to the government.

The NHI idea is also inconsistent with other guaranteed rights. Forced participation in the NHI Fund contradicts the right to freedom of association in Section 18 of the Bill of Rights. Confining medical schemes to complementary services – and thereby preventing them from remaining in business – is inconsistent with the right to property in Section 25 of the Constitution. Barring health care professionals from private practice – as the certificate of need and all the state controls implicit in the NHI will do – is inconsistent with the right of every citizen ‘freely…to choose their own profession’ under Section 22 of the Bill of Rights.

Fortunately, however, it is not necessary for the government to breach the Constitution in order to achieve universal health coverage and high standards of health care for all. The reforms that will be effective in achieving these goals have also been outlined. All that is needed is the political will to adopt them.

South African Institute of Race Relations NPC    31st May 2016

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