NHI is a politically motivated straw man

According to the ANC health sub-committee chairman Zweli Mkhize, the ANC wants to implement a National Health Insurance (NHI) scheme from 2012 at a cost R128 billion a year in the beginning, increasing to R267bn by 2020 and R376bn by 2025. Shortly after this announcement, SAMA chairman Norman Mabasa said, “While the National Health Insurance (NHI) document…created good debate, it was littered with flaws and was not the position of the ministerial advisory committee or that of the government” Moreover, Mabasa said, “It (the document) makes for interesting debate. I must say that we think that the 14 years is reasonable and we are happy that nobody feels that the NHI can be done over five years anymore".

These statements are a political straw man. They shrewdly shift the focus from the question of “whether or not we should be introducing an NHI style system” to one that asks “over what period”?

The ANC promises to provide “free health care for all”. Of course, everyone likes getting something for free but, in reality, nothing is free. Considering SA’s aging population, high disease burden and small tax base, it is impossible to imagine how government plans to provide free health care for all. And, if it ignores the resource constraints that are quite apparent, what quality of health care are South Africans going to receive?

History has demonstrated that, with the best will in the world, governments cannot raise enough funds to provide unlimited care to all of their citizens. One only has to look at the increasing woes of the Canadian and British systems and now, more recently, the US system to see that socialised medical care does not work. These are first world countries and have much higher incomes per capita but still their medical care models cost their citizens dearly – affecting both their wallets and their access to medical facilities. Government systems impose price controls that limit and thus ration the supply of medicines, access to treatment, the procedures that can be carried out, the number of hospitals that can be run, and even the number of beds in those hospitals. Patients are placed on waiting lists and once those waiting lists are filled, waiting lists for waiting lists are drawn up.

But it is not only medical care that suffers – other areas of society that compete for scare resources, such as housing and education, also suffer. Taxpayers do not have an unlimited amount of money on which government can draw. Government expenditure in one area necessarily comes at the expense of another – think of our crumbling road, water and electricity infrastructure which requires massive investment just to maintain existing services – never mind increasing capacity to meet future demand. Establishing priorities in allocating budgetary resources is exceedingly difficult, and SA’s welfare burden on taxpayers is already heavy. Imposing additional taxes to pay for health care will imperil investment, production and future employment opportunities.

If, as the ANC has said, the NHI will cost R128bn in its first year rising to R376bn by 2025, on an annualised basis, this equates to an increase of roughly 8.6% – more than twice the current rate of inflation of 3.7%. In contrast the Council for Medical Schemes has instructed medical schemes to justify any contribution increases that are above (the somewhat arbitrarily defined) CPI plus three percentage points. Who is going to monitor government increases for the NHI – especially considering that disgruntled consumers will not be allowed to opt out of the system!

The ANC proposes to fund the scheme out of general taxes, a dedicated payroll tax and an increase in the VAT rate. But higher tax rates reduce the incentives for entrepreneurs to risk their capital, time and energy to earn higher incomes. Higher tax rates result in lower after-tax incomes for workers. Less disposable income means less saving which is critical for investment. Investment, especially in fixed assets such as buildings, machinery, equipment etc, commonly referred to as gross fixed capital formation, is essential for increasing wealth and job opportunities in the future.

Instituting a dedicated payroll tax will make employers shy away from hiring more people because the cost of labour will increase, which will exacerbate SA’s chronic unemployment problem. For the employees, it will mean less after-tax income and less disposable income to spend on food, household goods and services, let alone savings. Employees who already contribute to medical schemes, will pay three times for medical care if they continue their membership – through general taxes, the proposed payroll taxes and through medical scheme contributions. Like government, increased spending by private individuals on medical care will necessarily come at the expense of expenditure on other essential items such as clothing, furniture, appliances etc.

Recently Olive Shisana, chairwoman of the ministerial advisory committee on NHI said, “Private hospitals could choose to remain private if they wanted to. However, they would then forfeit the right to be funded from the State”. But if private hospitals are allowed to opt out of the system, why not private individuals? For example, if I choose not to use any of the services provided by the state through the NHI system, why should I be forced to pay for it?

If government is concerned about having to provide medical care in cases of catastrophic events, then it could require the population to privately and individually purchase low cost medical insurance to cover such events. If it is the provision of medical care for the poor that concerns it, government, instead of undertaking the management of taxpayer-provided funds intended for this, it should put the task out to tender. This would provide publicly funded patients a multiplicity of insurance and medical schemes to choose from. Public hospitals and clinics would compete with each other and with private facilities to win business from taxpayer-funded public health insurance beneficiaries.

The government’s motivations to provide medical care to all South Africans are laudable. But empowering individuals to choose their medical care options for themselves and encouraging private sector competition is the best way to achieve this outcome. The state can play a role and pick up part of the bill – but it needs to allow medical care providers to compete to drive down prices and provide the poor with quality medical care, in the same way as has been done with transport, food, clothing and myriad other products and services.

Author: Jasson Urbach is a director of the Health Policy Unit (a division of the Free Market Foundation and of Africa Fighting Malaria. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s.

The article was first published in The Star on 5 October 2010.

HPU Feature Article/ 7 October 2010

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