NHI national health insurance Archives

True to form, just before elections South Africa’s ruling party, the ANC, promises whatsoever is needed to get more votes. The last 30 years have proven that the promises count for little and end in failures. The latest such shambles happened yesterday. President Ramaphosa signed the much-critiqued National Health Insurance (NHI) into law. It is nothing short of a fairy-tale.

The SA government analysed the medical environment in South Africa and determined that it essentially is a two-tiered system. The first is the public health system, funded by the state where the service is poor or non-existent, but it is essentially free to everyone. The second is the private health care system, which is world-class but only accessible to those who have got the means to pay for it (mostly via their private medical insurance). As such, the government wants to make the world class health system accessible to everyone by eliminating private medical insurance schemes and becoming the only buyer of health services (seeing it worked so well for all the communist countries). That is a mad.

Firstly, the only reason why we have such a big and well-functioning private healthcare system is because the government failed to manage the public health care system. The local clinics have not enough doctors, yet young qualified doctors sit around at home struggling to find employment. The buildings are not maintained, and the patients need to sit in long ques to get treatments. The provincial health MEC’s are completely out their depth, and their department is out of talent. When one reads about the horror stories of the Tembisa Hospital, it becomes very clear that most state clinics serve as a cash generator for a handful of dubious contractors and suppliers. Instead of fixing the public health care system, the ANC would rather pull down the private healthcare as well.

Secondly, the reason why only the wealthy can afford private healthcare is because they are able to afford the pricey health insurance premiums. The private medical aid plans are expensive because the regulator does not allow cheap plans to be sold. Across the border, in Namibia, the cheapest Medical Aids cost about R500 per month while the cheapest in South Africa cost three times that, and only because the regulator prescribes minimum benefits.

Thirdly, we have a world class private healthcare system because the rich don’t mind paying exorbitant fees. Thus, the most talented doctors can earn in South Africa what they are able to earn anywhere else in the world. However, most of the rich world is desperate for more qualified doctors and nurses. So, if the SA government thinks they can force the medical professionals to work for less, they will be mistaken. They will just emigrate, and thus their know-how will leave as well. The patients will be worse off because the doctors are not available anymore. Young medical professionals will be worse off because there is a lack of knowledge transfer, and the state will be worse off because they will collect less income tax. Everyone loses, no one wins.

Fourthly, a centralized insurance system has not worked anywhere in the world. The NHS in the UK is a disaster, Obamacare is much more expensive than first predicted and the centralized systems of China and Russia might as well be abandoned. A national insurance could only work in very well regulated environments where the government is trusted. Neither could possibly apply to the ANC government.

Fifth, the funding gap is so large, that the only way to pay is for the Taxes to increase. By world standards, the Taxes in South Africa are already excessive, but clearly the government sees no problem in taxing the population a lot more. Why? Thanks to the poorly managed transport system, unreliable electricity, and militant unions the little bit of economic growth we have experience has mainly been through the consumer sector. A consumer with less money in the pocket will not be able to buy as much, hence the ANC government would have finally managed to shrink every sector of our economy. Thus, the little bit of growth we have had over the last 15 years will completely evaporate and most South Africans will be poorer than they have been in 2005.

Sixth, the fund that will accumulate in the NHI will be so big, and the “suppliers” so many that in no time it would resemble a cesspool for corruption. The state capture inquiry showed know how quickly funds are siphoned off by crooks. Instead of providing healthcare for everyone, the NHI will provide billions in cash for a few. Typical.

It is disheartening to see the ANC turning to populist measures when they struggle to explain to their voters why they deserve to govern again. Instead of improving the state hospitals and clinics, they rather want to bring the private sector down. It is possible to improve the public health system, just look at the Western Cape, which is run by the official opposition, the DA.

How the new National Health Insurance (NHI) proposal for South Africa is based on the wrong assumptions, with likely dreadful consequences.

The arguments for the NHI are wide and varied. The Gauteng MEC for health, Brandile Masuku said that the quality of private healthcare is a myth, ignoring the fact that whoever has the means, will spend a lot of money to opt for private healthcare instead of public healthcare. He also said that the new NHI would also service migrants. That would surely lead to a massive influx of medical migrants from dysfunctional states, Zimbabwe and the DRC are coming to mind. Judging by the hostility of locals towards foreign spaza shop owners, and the regular looting and violence because of it, it is hard to imagine that they will be any friendlier towards thousands of patients who would que up to get health care in South Africa. Besides these non-sensical rhetoric, there are more fundamental problems.

Before we analyze those, we would need to see what South Africa currently has. As per the constitution, every citizen must be able to access healthcare, rightly so. The state runs about 400 health care facilities which include clinics and hospitals. Even though they are mostly free, they are poorly managed, understaffed and under-supplied. Specialists are far and few. They often opt to work in the private environment, where they can work in a better managed environment and charge much higher prices. This seems to be a particular thorn in governments view. They complain that in prevents poor patients to have access to them. Because the health care system is in such shambles, the private health care industry seems to be thriving. Wealthier citizens take out relative expensive private healthcare insurance to be able to cover the cost of any potential emergency.

One of the main arguments government sites is that 4.5% of GDP is spent on private healthcare servicing only 16% of the population, while only 4.2% of GDP is spent on public healthcare servicing 84% of the population. In in other words, R139bl is spent every year on private healthcare, while R130bl is spent on public healthcare. Simple math’s (also in short supply these days) dictate that to bring the public healthcare up to the private standard would cost R868bl annually, or 47% of the governments current budget, an increase of almost 400%.

This obviously assumes that the government performs as good as the private sector in implementing the roll out of better health services. Their track record of managing their SOE’s and institutions don’t suggest that. Looking at the cost overrun experienced at Eskom, and assuming that they have learned from their mistakes, one must still assume that the cost of the NHI would be north of R1 trillion per year.

So how would the government fund it? There is no clear answer yet. Those who came up with this idea probably assumed that private individuals, who currently have a private medical health insurance must contribute their premiums to the NHI fund. The NHI would in future be the sole “purchaser” of medical procedures. (Warning lights would go off now with anyone who has studied Porters 5 forces). This assumption is flawed and has some dangerous consequences.

Firstly, the NHI by itself would not make the medical services provided to the 84% of the population any better. They get a poor service because the government is not paying enough to attract professionals into the public healthcare industry.

This leads us to the second problem. If, as the sole purchaser of health care procedures, the NHI assumes that they can reduce the fees they pay to doctors, nurses and specialists, they would simply emigrate. The world is in an unprecedented development phase, where skilled professionals are in desperate short supply. Doctors who can’t earn a decent salary here would simply emigrate. There are enough opportunities elsewhere. So what? We have already a massive shortage of skills, and we are no where near at producing enough doctors to fill the gap.

Hence the third prediction. If there is a bigger shortage of doctors, those remaining will demand a higher pay. It would be outside of the NHI, maybe another industry will emerge or they will simply just accept cash. But this is then viewed as just another informal Tax for the ability to live in South Africa. Surely more of the population that can afford to emigrate, will do so. And those are the Taxpayers South Africa so desperately needs to pay the government bills.

Besides the skills implosion, there are other problems with the NHI, like mismanagement and corruption.

The main drawback though is that the NHI doesn’t tackle the problem it is set out to archive. It will not make a better healthcare system available to the 84% currently under-serviced. The reason is simple. The best preforming hospitals are mostly in the main metro-pole areas, like Cape Town, PE, Johannesburg and Durban. Farmers in the Eastern Cape for example don’t necessarily have the means and the ability to travel thousands of kilometers to one of the good hospitals. But they do have a nearby clinic, which is likely to be understaffed and under supplied. Surely it is better to improve the performance of the 400 state facilities than threatening to tear down private healthcare. Would it not be better for the farmer to be able to go to his nearby clinic and see a qualified doctor, and get his medicine right there?

Maybe the government should be looking at working with the private sector to improve their facilities. One could imagine a scenario where in order of getting a license to build/operate one private hospital, the company needs to manage one or two public hospitals as well. The performance of those public hospitals will determine if the license to run a private hospital gets renewed on a 5-year cycle.

The South African government need to learn to harness the efficiency and expertise of the private sector to contribute to the public sector. Don’t target successful private companies because of your own failures.