How the NHI Bill could spell tragedy for SA: Corrigan - Biznews

President Cyril Ramaphosa signed the National Health Insurance (NHI) Bill into law, dramatising the event by announcing he had found his “most valued pen in the country.” The NHI aims to centralise healthcare funding, pooling resources from public and private sectors into a single fund managed by the state. Critics worry about the costs and potential for corruption, with estimates ranging from R256 billion to R1 trillion annually. The IRR suggests these costs may exceed those related to Eskom.

Terence Corrigan

Signing the National Health Insurance Bill into law, Cyril Ramaphosa dramatically announced that he had found the pen he was looking for earlier in the year. ‘After a long search for the pen, it was the most valued pen in the country in all of history, the bill is now being signed. The president has found his pen, this will go into the archives of history.’

Believe him on that: while the delay in affixing his signature definitely had a lot to do with proximity to the election, it might not in fact have been entirely unrelated to the nature of the pen, since big-deal events like this usually demand high-end stationary as part of the theatre.

That’s quite appropriate in view of what the NHI is intended to do. The idea behind it is not that it will strictly nationalise healthcare provision in toto – although the practical effects would not be dissimilar – but that it would do so to its funding.

In the familiar explanation offered by its proponents, it would pool the resources of the public and private sectors to ensure greater efficiency and equity. This is not entirely accurate: it would set up a fund from which healthcare expenditure would be paid. What the plan envisages is that the money that might have gone to a Discovery or a Bonitas (or for that matter, to a GEMS) would go to the NHI fund.

In other words, it will mandatorily appropriate money it deems necessary, for the NHI. Or, as Dr Nicolas Crisp – head of the NHI implementation at the Health Department – put it: ‘The NHI will not be a provider of any services, but will manage the bulk of the money to buy the bulk of the benefits for every person in the country.’ 

Private schemes would then be prohibited from paying for items provided by the state scheme, although they might be allowed to exist to provide supplementary services. But after the NHI has had first call on people’s money, this will not be a practical option for all but a very small group of the wealthy and connected.

In brief (and at the risk of missing some nuances), it would set up a monopsony, making the state in many respects the effective sole purchaser of goods and services in the health sector.

How much
How much are we talking about? Well, no one knows, because the government hasn’t been willing to put a number on it. This in itself is quite extraordinary, given what the NHI is: a new State-Owned Enterprise (SOEs) whose sole function will be to collect and spend money. The 2017 White Paper put the projected annual cost at R256bn a year (in rather more restrained 2010 prices), and in 2022, the Department of Health indicated that it would need an additional R200 billion per year for the project. Other estimates suggest that this will be far higher. The IRR calculated a likely cost of R700 billion, and others as much as R1 trillion. All of this depends on how one calculates it, what benefits it will provide – which also, curiously, have not been specified – and so on.

Meanwhile, we can look at health spending – public and private – as a percentage of GDP, which is around 8.6% (per World Development Indicators for 2020). This is important as it tends to be a key reference point in arguing for NHI, that we need to put all of this into one fund and share it out equitably. Last year, GDP amounted to R6.97 trillion. Health spending would, in back-of-the-envelope terms, be around R600 billion.

At any rate, it’s safe to say we’re talking about vast sums of money. To put this into perspective, this year’s Budget Review put consolidated government spending at R2.37 trillion for 2024/25. Revenue is estimated to come in at R1.92 trillion. Health expenditure (by functional classification) is expected to be R272 billion. So, in rough terms, we could say the NHI would be the equivalent of around 10% to 40% of expenditure, and between around 10% and 50% of revenue. It would represent at a bare minimum 70% of what we are currently spending on health – and possibly as much as four times what it is now.

I’d be willing to stick my neck out and say that the costs involved will exceed those related to Eskom.

To the credit (sort of) of its proponents, no one is claiming this is going to be cheap. Dr Crisp himself has written that ‘will need serious investment (read: more tax — now).’

Economies of scale
But the same argument also points to the advantages of economies of scale. Combine all this, and we’ll not only have more than enough for everyone, but the efficiencies generated will actually drive down the amounts of money needed. In other words, we’ll all be better off – or so it is claimed.

More than enough has been said about the risks of corruption and mismanagement – incompetent and venal – for a pot of money like this. Lest it be forgotten, the Digital Vibes scandal revolved around work on the NHI. The COVID pandemic provided rich pickings for unscrupulous opportunists (social solidarity seldom survives contact with self-enrichment in South Africa). So, we’ve already arrived in this space. What is less remarked on is whether efficiency and cost-effectiveness will be a driving consideration at all.

There is a depressingly large amount of precedent for this. The notorious arms deal certainly went that route – the late Joe Modise required that the price of aircraft be ignored in the evaluation in pursuit of a ‘visionary approach’. Indeed, such a ‘visionary approach’ has long been part of official procurement policy. The issue here is the various forms of ‘empowerment’, and the extent to which the state should sacrifice straightforward cost and efficiency in pursuit of other policy agendas. In its own phrasing: ‘preferential procurement’.

Preferential procurement has long, tangled and uncomfortable relationship with South Africa and its public wellbeing. It was intended, formally, to assist emerging businesses into the mainstream – in the 1990s, talk from the Department of Trade and Industry was of giving an initial boost to black entrepreneurs, after which they would need to ‘sink or swim’.

In reality, preferences once conferred are very difficult to rescind, especially if they have political backing behind them. Certainly, the state tender market became a lucrative source of business early on – and couching access to it in terms of historical disadvantage provided a compelling argument for doing so.

It also provided an alibi for the politically connected to get inflated slices of the action. The Zondo Commission set out in exhaustive detail just how Broad-Based Black Economic Empowerment was used to frame and legitimise fraudulent and inflated ‘business’ deals – particularly in the country’s compromised SOEs.

Actually, as you read this, another piece of legislation is wending its way through the legislative process: the Public Procurement Bill. In fact, this was passed in the National Assembly on Thursday, the day after President Ramaphosa used his pen. This is intended to regulate public procurement – as the name indicates – and ‘to prescribe a framework within which preferential procurement must be implemented’ (note the ‘must’).

Among other things it creates room for ‘set asides’ and ‘pre-qualification criteria’. President Ramaphosa has said that empowerment is to be intensified, and this is certainly what this piece of legislation delivers. It demands that a range of preferences be extended to a range of beneficiaries.

These include – but are nowhere near limited to – ‘black people’, ‘black women’, ‘women’, ‘small enterprises owned by military veterans’ (not to be confused with ‘military veterans’ as a whole), and ‘co-operatives which consist of members who are black people’ (presumably distinct from ‘co-operatives’ in the clause immediately following).

We at the IRR have pointed to the inherent problems in this bill. As my colleague Gabriel Crouse, heading IRR Legal, has written, this is not only socially corrosive and incentivises ascriptive identity politics, but it comes with staggering cost implications. Treasury has never released any estimates of BEE premiums, despite the clear public interest in knowing their cost.

Public procurement in South Africa currently runs at around R1.1 trillion annually; the country’s hard-pressed taxpayers have a right to know how their funds are being spent, and what the costs and benefits of any given policy are. (An aside: the reluctance to make estimates of these costs available seems a bit odd to me, especially if the policy is having a desirable effect. Success, I’d imagine, is something to be announced, not concealed.)

Hard to find anyone
Actually, it’s hard to find anyone – even a stalwart champion of South Africa’s empowerment policy – who will try to defend it on its record. Most endorsements are phrased in the abstract and with an appeal to its nominal intentions. It’s actually rather easier to find criticisms of its failings and of the manner in which unscrupulous operators have profited off it (some of whom, as in the case of Bosasa, were white businesspeople…). And while South Africa is hardly alone in using its procurement spend to push goals other than getting the best goods at the cheapest price, doing so demands skilled, adept and above all honest management and oversight to be effective.

Crouse points out that the procurement system is chronically unfit for purpose. As much as 40% may be lost to waste of one form or another, with prices inflated by empowerment premiums being a contributor. Indeed, he argues compellingly that cutting the BEE premium – in other words, doing precisely the opposite of what the Procurement Bill proposes – would drive direct savings and improve the ability to control corruption, leading to a ‘Zondo dividend’ of as much as R150 billion annually.

This makes NHI a truly implausible proposition. The scale of the funds that are intended to flow through it, with no alternatives available, and the multitude of payments it will be intended to process, combined with an obligation to apply empowerment demands (it will be subject to the public procurement legislation which demands empowerment as a ‘must’, remember?) provide a perfect template for illicit enrichment. Perhaps more to the point, it is the very ‘economy of scale’ – a ‘diseconomy’ perhaps – that is likely to make it a target for plunder and therefore unworkable.

Stark choice
Bluntly put, if it is meant to deliver cost-effective health services, doing so would have to be its sole purpose. Anything else will invariably be to deprive health consumers of the resources that this is supposed to provide. It is, in this case, a stark choice between the medicines and treatments that the public is being promised (and it’s election time, so…), or the easy money premiums that the coming procurement legislation seeks to enforce. We cannot have both.

Incidentally, IRR Legal can claim credit for having ensured inclusion in the Bill of requirements that cost-effectiveness must be considered. This is a useful inclusion, though one that the prevailing Zeitgeist in the state will likely relegate to a third-tier consideration.

Frustratingly, we remain stuck in familiarly inhospitable territory. This is the land of healthcare premised on ideology and patronage, of R70 loaves of bread and R100 rolls of toilet paper, and of endless handwringing and perennial promises to ‘do things better’. And for that reason, perhaps President Ramaphosa was correct, after a fashion: his pen may not have been the most valuable in all of history, but it may well prove to be the most expensive.

Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy

https://www.biznews.com/rational-perspective/2024/05/20/nhi-bill-sa-corrigan

This article was first published on the Daily Friend.