Costing the NHI

In a few years, South Africa is going to have a greater number of older people as a proportion of the total population. This means that there will be a much higher instance of chronic diseases such as diabetes and cancer. If government proceeds with the proposed National Health Insurance (NHI), the cost of these medical bills will fall on the shoulders of SA’s taxpayers. With the high number of HIV/AIDS cases, TB and other communicable diseases, which, frequently, are only manageable as opposed to curable, the cost on SA’s healthcare sector of treating chronic disease is already a heavy burden.

According to statistics compiled by the US Census Bureau for SA, in 2000 the majority of SA’s population fell into the lower age cohorts, typical of developing nations. Indeed, more than one-third of the population was younger than 15 and less than 7 per cent was older than 60. They project that by 2025, the percentage of the population younger than 15 will decline from 33.8 per cent to approximately 26 per cent and the percentage of the population older than 60 will increase to 12 per cent. This means that approximately 24 per cent of the population will be in the 45 to 60 year age bracket. By 2050, the percentage of the population younger than 15 will drop to less than 23 per cent, the percentage older than 60 will increase to 16 per cent and the proportion of 45 to 60 year olds to more than one-third.

This projected ageing population trend has dramatic and far-reaching implications for the way in which SA plans to implement its healthcare strategies. Healthcare costs as a proportion of GDP (and compared to the rate of inflation) have been rising and will continue to rise in the future. In general terms, the average monthly medical costs for an 80-84 year old are about nine times those of a 45-49 year old. In contrast, a 5-9 year old has a cost of about 3 per cent of the total costs of a 45-49 year old.

According to Econex, “South Africa’s burden of disease is also on average four times larger than that of developed countries, and in most instances almost double that of developing countries”. This is not surprising when one considers that SA has the highest number of people living with HIV/AIDS (5.7 million) and the fourth highest HIV/AIDS prevalence rate in the world.

No official documents pertaining to the actual functioning of the NHI have been released. This is a massive problem because government has raised the expectation of “free care for all”. It is impossible to do an exact calculation of what the NHI will cost, however, we have done some back of the matchbook calculations so to speak. If we assume a modest R400 per person per month (R4,800 per annum), with a population of about 49 million people, we estimate that an NHI will cost about R235 billion per year.

This estimate is not that different from those speculated by Professors Heather McLeod and her colleague Servaas van der Berg who estimate that it will cost R251 billion to provide a basic benefit package, which includes the current Prescribed Minimum Benefits that all medical schemes are compelled to provide plus some basic primary level health care. However, their high-end estimate shoots to about R334 billion to provide a fully comprehensive benefit package. When one considers that total income from tax collections amounts to only R206 billion, we get some idea of the futility of this ambitious proposal. The professors also estimate that in order to fund the NHI through income tax it would require tax rates to increase by 85 per cent across the board - the top marginal tax rate of 40 per cent would have to rise to 74 per cent.

The proposed NHI, by increasing government’s role in health care, will make the health system less flexible and innovative – the opposite of what is needed to adapt to future changes in demographics and epidemiological occurrences. It will not be today’s typical voter that will have to endure such a system, but rather their children and grandchildren. The goal of healthcare reform should be to create conditions for the private sector to expand and give more and more people access to better health care from vigorously competing medical schemes and healthcare providers.

Author: Jasson Urbach is an economist and a director of the Health Policy Unit. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 24 November 2009

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