Expectations relating to National Health Insurance in the 2012 Budget

By Ashleigh Theophanides, Director and healthcare actuary - Deloitte

Johannesburg, 25 January 2012 - The National Health Insurance (NHI) Policy Paper released by the South African government in August 2011 defines National Health Insurance as an innovative system of healthcare financing with far reaching consequences on the health of South Africans. NHI is intended to bring about reform that will improve service provision and healthcare delivery. It will promote equity and efficiency so as to ensure that all South Africans have access to affordable, quality healthcare services regardless of their socio-economic status.

The current national health system has a myriad of challenges, among these being the worsening quadruple burden of disease and shortage of key human resources. In addition, the two-tiered health system – public and private, is considered to be inequitable and inaccessible to a large proportion of the population with the public sector burdened by underperforming institutions that have been attributed to poor management, underfunding, and deteriorating infrastructure. In many areas access has increased, but the quality of healthcare services has deteriorated or remained poor. On the other side of the spectrum, the private sector has its own set of problems, concerns raised mainly related to the costs of services which is a result of pricing and utilisation of services.

The above challenges form the foundation behind the need for the revitalisation and restructuring of the South-African healthcare environment and the possible need for a re-engineered healthcare system. This has spurred on the development of a National Health Policy (NHI) by the ruling party with the implementation of National Health Insurance to be carried out in a phased and systematic manner at both the national and sub-national levels. The migration period is scheduled to occur in three phases over the fourteen years of implementation. Based on the Green Paper issued, steps will be taken to open nursing colleges, refurbish large public hospitals, develop a real human resources strategy including the training of more health workers and building the capacity of districts. All of these practical strategies will strengthen the public sector and will assist in the preparation for National Health Insurance.

We anticipate that as outlined in the Medium Term budget policy statement there will be budget allocations for infrastructure spend on health.

Over the past three years health expenditure has grown, increasing from R77.3 billion in 2008/09 to R113.2 billion in 2011/12. It is expected to increase to R140 billion over the next three years. However, the 2012 best estimate budget for healthcare is R121.5 billion, which is marginally lower than the R125 billion estimated as per the Green Paper, demonstrating to what seems to be an under provision for health. In addition, the Green Paper estimates that NHI will cost R255 billion by 2025, and superficially this appears to be a considerable increase compared to the current healthcare spend. However, real term considerations indicate that, based on current trends, healthcare spend would have reached approximately R180 billion by 2025. This indicates that there is a need to generate additional resources and that the precise combination of these resources is unknown which is proving to be a contentious issue.

Based on international healthcare funding mechanisms, there are three main possible types of taxation that may be used to finance NHI:

• an additional charge on income tax, which is an employee tax for all who earn an income
• a company tax which could be a payroll tax or a surcharge on profit; or
• an increase in VAT
  

Each approach has its own advantages and pitfalls. The Green Paper is silent on the form of taxation that will be used. It appears that significant disagreement, even within government, may exist with regards to how NHI should be funded.

A main point of discussion in the recent past is the removal of tax incentives for medical schemes.
Currently, medical expenses are deductible within certain parameters where medical aid contributions are deductible up to the capped amounts and other qualifying out-of-pocket medical expenditure. In addition, medical scheme contributions in excess of the caps can be claimed as a deduction to the extent that the aggregate exceeds 7.5 per cent of taxable income. Under this system there is a significant tax deduction for high-end scheme membership and out-of-pocket expenses and in light of this it has been announced that a the medical tax credit will come into effect as at 01 March 2012. This implies that the medical aid capped deduction amount will fall away and will be replaced by a medical scheme fees tax credit applicable to all taxpayers other than those aged 65 which addresses the above concern. While the NHI Green Paper states that medical aid scheme contributions will no longer be tax deductible, there is no time frame for when this will be implemented.

In light of the current healthcare system and the challenges it faces particularly from a service delivery, availability of resources as well as a cost perspective and allowing for the obvious disparities between the public and private sector, NHI is an interesting and progressive approach to improve the social welfare of the South African population. However, there are a number of challenges and uncertainty surrounding NHI particularly around sources of funding, the defined benefit package and its implication on the various stakeholders.

We also anticipate that a special Conditional Grant will be provided in the budget to help fund the pilot projects.

To this extent, we encourage the key players involved in the development and establishment of the framework of NHI to engage with the various stakeholders to ensure that a thorough comprehension is obtained regarding the impact of NHI from both an economic as well as a socio-economic perspective.

Contact:

Lana-Jane Pike
External Communication
Deloitte & Touche
+27 (0)11 209-6214
lpike@deloitte.co.za

Kerri Lurie
Magna Carta (PR)
+27(0) 11 784-2598
kerri@magna-carta.co.za