NHI is a politically motivated policy sure to break this camel’s back - Biznews

1 August 2022 - This is the first in a series of five articles in which Michael Settas will provide readers with the critically important distinction between universal health coverage (a policy objective) and the proposed National Health Insurance (a financing mechanism).

The National Health Insurance (NHI) Bill has been hanging over the already weary heads of South Africans for almost three decades, since it was first recommended by the Healthcare Finance Committee of 1994. Despite the South African government’s lauding of the NHI as a policy based on worthy foundations and a real intention to improve our country’s healthcare sector, it is sure to be the straw that irreparably breaks this camel’s back. This article by Michael Settas succinctly outlines factors that clearly “point to the NHI proposal being a political motivation rather than having any intent to resolve valid failings in the health policy framework that would better serve the country’s citizens”. This article first appeared in the Daily Friend. – Nadya Swart

Michael Settas

This is the first in a series of five articles in which Michael Settas will provide readers with the critically important distinction between universal health coverage (a policy objective) and the proposed National Health Insurance (a financing mechanism). He provides a high-level background of the country’s two major health assets, the private and public sectors, as well as a history of health policy since 1994 that has culminated in the contentious and now imminent National Health Insurance proposal.

Adjacent to attempts by the ANC to implement property expropriation without compensation (EWC), the National Health Insurance (NHI) represents the most significant and far-reaching official policy proposal contemplated during South Africa’s democratic era. Its specifications involve simultaneously amalgamating the private and public health sectors – collectively constituting 8.5% of the country’s GDP – into a state-managed monopoly, called the NHI Fund.

The funding objectives of the proposal are a consolidation of the current health spending of both sectors within the centralised NHI Fund. For current public expenditure this constitutes the revenue streams allocated to the National Department of Health and provinces, the Road Accident Fund, the Compensation Fund, and the subsidies provided for medical scheme tax credits and government employee medical scheme contributions – in total equating to 5.5% of GDP.

Since the aim of the policy is to consolidate the private and public sector expenditures into one entity, the targeted revenue for the NHI Fund is set at the existing combined value of the two sectors, i.e. 8.5% of GDP.

Hence the proposal is to add new dedicated NHI taxes of 3% of GDP to the above existing public expenditure of 5.5% of GDP, which will reach the revenue ‘target’ of 8.5% of GDP. Policymakers have cajoled us that these should not be seen as new taxes because they will be ‘substitutive’ for the current contributions made by citizens to medical schemes, since the NHI Fund will be substantively taking over the role of medical schemes.

“But history tells us that monopolies that are truly benevolent and effective are rare.”

– Michael Porter, Professor of Economics, Harvard

Once constituted, the NHI Fund will be the largest state-owned entity in the country by a significant margin.

In current values, this equates to ±R470bn annually – a single public entity with a legislated monopoly on the funding and management of both private and public health services, governed and controlled through the office of the Minister of Health. The NHI Fund will then also determine which public and private providers will be contracted for the delivery of services and citizens will be restricted to use of these providers only.

An appropriate analogy for the NHI Fund would be that it will become the ‘Eskom of Healthcare’.

Does South Africa Need NHI?

Delivery of improved, affordable healthcare is one of the key pillars used by politicians to advance their health policies, and almost always their success hinges on convincing the electorate of how much better they will be under the new policy.

This is because healthcare is and will likely remain one of the most intimate and personal services citizens will use. Consider the extensive effort spent by former US President, Barack Obama, on advancing his ‘Obamacare’ reforms. Observe the often-hysterical reactions from people in Britain should a politician propose changes to their ‘sacrosanct’ National Health Service.

South Africa is no different in this regard and the incumbent ANC have used this political facet to effectively promote the need for their NHI proposal, although it should be obvious that current public sector failings have made this ‘sell’ rather easy. However, health systems are complex beasts and subsequently require extensive analysis and technical studies on proposed changes to determine whether they will achieve the desired outcomes. Globally, most healthcare reform will indicate minor changes that are implemented incrementally, as the risk of failure on wholesale changes is high. The remainder of this discussion is in this context.

Universal health care

Technically, South Africa’s current combination of public and private sector provision achieves a framework that meets the internationally accepted criteria for universal health coverage (UHC), as the entire population has access to pre-funded services that are free at the point-of-service. Even where access is not free, there is minimal exposure to financial distress. South Africa’s attainment of UHC has been confirmed by various entities, including the Health Market Inquiry (2019) and the International Labour Organisation (World Social Protection Report 2017).

This is an important aspect surrounding the NHI proposal, as the policy process has conflated the implementation of a health financing mechanism – the NHI Fund – with a policy objective of attaining UHC, which, in any event, SA already possesses thus making the stated policy objective redundant.

This conflation has been extended in other superfluous rhetoric, such as when Nicholas Crisp, deputy director general in the health department, often promotes the NHI as a ‘universal’ health system for the country.

Populist promotion of this ‘universal NHI’, clearly aimed at the general electorate, promises that NHI will deliver comprehensive health services that will be free to users. To an electorate that has been subject to the depredations of the public health system for many years now, this obviously sounds very appealing.

But it is important to emphasise that the combination of ‘comprehensive services’ and ‘free’ has never been attained in any health system anywhere in the world, not even within the wealthiest countries.

The policy objective of ‘free healthcare’ remains the illusive populist delusion of left-wing ideologues and, in any event, is not even considered necessary by the World Health Organisation (WHO) in achieving UHC.

What is considered as a necessity by the WHO for a successful UHC framework, is that it avoids patients being exposed to out-of-pocket medical costs that cause financial distress. Many universal health coverage systems apply user charges when accessing care, in order to avoid excessive and/or unnecessary utilisation of services and hence contain costs.

To prevent these user charges from exceeding the level of affordability of individual users, many systems apply a means test by which to vary the amount or to apply a limit to the total out-of-pocket exposure for a user within, say a year. Certain vulnerable groups may also receive full concessions on user charges, for example disabled patients, the unemployed, those with severe health conditions, and so on.

The vast majority of countries also achieve the policy objective of UHC through a ‘multiplicity of funding mechanisms’ – having a monopoly single payer system is very much the exception rather than the norm.

The NHI Bill proposes to create what is technically known as a complementary single payer fund (CSPF) – ‘complementary’ dictates that private health funders cannot cover services included within the NHI benefit package and ‘single payer’ decrees it to be the monopoly funder for all NHI services (section 33, page 19).

“We have lived since modernity under the illusion that centralisation is better, more efficient, that the large works better than the small. Large public projects, under the myth of costs savings, incur disproportionately large costs overruns.”

– Nassim Nicholas Taleb, World Renowned Author on Uncertainty, Randomness and Risk

Logically, the ‘complementary’ nature of a CSPF makes it the most expensive of all health system types, since it legislates for itself a monopoly wherein it is required that the state finances the health services for every citizen. This intentionally incurs the maximum possible state liability.

Reckless

This deliberate action must be regarded as irresponsible, even reckless, in the context of South Africa’s recent economic performance, our severe structural constraints to achieving higher growth rates, rising national debt levels as well as the diminishing tax base.

The vast majority of countries, even wealthy developed economies, not only permit but often promote parallel private health sectors through tax incentives, since an expanding private sector alleviates pressure on limited state resources.

A CSPF also induces all the characteristic failings of a monopoly – inefficiency, high cost, and quality-deficient outputs. This is further exacerbated when there is such overt centralisation of virtually all the major functions within the health system, as the NHI is proposing.

This adequately explains why only five countries have ever developed a CSPF – it is simply too expensive, too inefficient, and almost always falls short when compared to the outcomes of multi-payer systems that are, by their structural nature, decentralised and exposed to efficiency-gaining competition between the rival funders.

A CSPF also represents massive risks in the event of institutional failure, as it is the country’s monopoly supplier. It is precisely the same issue South Africans now face on a continual basis with Eskom’s monopoly on electricity supply. When Eskom fails, the vast majority of citizens are left with no alternatives, with only the wealthy able to look after themselves.

Lastly and importantly, another notable aspect of a CSPF is that it provides for the establishment of a massive bureaucracy. Central monopoly control is a feature of the ANC’s ideological National Democratic Revolution, so there can be no surprise as to why they favour NHI. And along with it will likely come a breath-taking combination of hypocrisy, arrogance and denial, so amply exhibited in the comment below in the midst of the Eskom blackouts of June/July 2022:

“If you privatise electricity, you can forget about the majority of people having access to electricity — it is going to be very expensive for them. That’s why government steps in when there is market failure.”

– Thulas Nxesi, Labour Minister and Deputy Chair of the SACP, 11 July 2022

A National Health System – Version 2

Eskom’s recent failures have placed substantial pressure on government about finding lasting solutions – and without any hint of doubt or concession, the laughable concept of the state creating Eskom-2 has been conjured up.

You might ask why is this relevant to our discussion on healthcare? Here’s the rub – I will outline in the second article in this series the very substantial asset the country possesses in the public health system. I have already outlined above that access to public care is free, so the NHI is not promising anything in this regard that users currently do not have.

In the third article I will elaborate on how this very substantial asset’s ability to deliver quality care has been subverted and ruined, thus bringing it to a point where its failures are now obvious on a virtually daily basis.

Enter NHI! ‘We will not (probably cannot) fix the current health system but rather we’ll bring you a second version’ – a shiny and free public health system with amazing, high-quality services – and call it NHI.

The NHI proposal is no different to the current concept of an Eskom-2. The ANC government has systematically ruined the public health system, and now wishes for citizens to entrust it with building public health system number two – the NHI.

Policy Process Rationale

Any policy proposal requires validation and evidence of the problem that motivates for it. Throughout this policy process, however, there has been a clear disconnect between reality and the motivations for NHI.

The problem statements quoted by government officials and drafted in NHI policy documents can broadly be divided into the following three categories:

The country needs to achieve universal health coverage;
Public sector problems are caused by a declining public health budget, which prevents the state from employing additional medical personnel. Therefore, more funds are required under government control, which will hence lead to improved healthcare services; and
Causal to public sector woes are high expenditure and wastage in the private health sector, therefore it is necessary to nationalise this sector and redirect its resources in accordance with state decree.
All of the above problem statements are deflections from reality.

I have already elaborated above on UHC, suffice to say now that it has been and remains the most obvious weakness in this policy process to argue for the implementation of what already exists. I believe that this may likely be a pivotal point determining the success of any legal challenge against NHI.

The obvious problem that it is the quality of the universal care provided is barely dealt with in the policy process, other than sweeping rhetorical proclamations that plenty of additional funding will automatically rectify such problems.

Which leads us to the second problem statement above, supposedly declining public health budgets. I will dissect this in detail in this series’s second article, but for now it is sufficient to declare that this problem statement is as far removed from reality as one can possibly get.

On the last motivation above for NHI, the state has mustered no evidence to suggest that it can place the blame for its woes at the door of the private sector. In fact, when I analyse the private sector in the fourth article of this series, I outline how regulatory dissonance shown towards the private sector over the past two decades has contributed to its cost maladies, yet the government now disingenuously uses this facet of the private sector to argue for its dissolution.

These factors clearly point to the NHI proposal being a political motivation rather than having any intent to resolve valid failings in the health policy framework that would better serve the country’s citizens.

Measured within the context of a government that operates more like a criminal syndicate, seeking at virtually every turn to impose rent-seeking margins on public sector contracts or to pilfer funds under state-management, the gargantuan NHI Fund would require an extremely robust, balanced, and transparent governance framework for such nefarious activities to be averted.

But alas, it is not to be! I overview the NHI’s exceptionally weak and ineffectual governance framework in the last article but for now readers can accept that if NHI comes to fruition, your hard-earned taxes will almost certainly go nowhere near a doctor or hospital.

Michael Settas is Chairman of the Free Market Foundation's Health Policy Unit.

This article was first published on the Daily Friend.

https://www.biznews.com/health/2022/08/01/nhi-healthcare-3

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