No logic in interfering with folk who can afford health care

In the budget speech, former Finance Minister Malusi Gigaba cut tax credits that taxpayers receive for their medical scheme contributions to raise an extra R4.2bn for National Health Insurance (NHI). The resulting damage caused by the reduction in tax credits to the private healthcare sector, however, far outweigh any potential benefits that may accrue to the public sector. And, in the absence of a dedicated NHI Fund, there is no guarantee that the money will go towards healthcare. It could well be diverted to bailing-out failing state-owned entities such as SAA and Eskom.

We estimate that NHI will cost R461bn (in 2017 terms), so the R4.2bn that has been squeezed out of taxpayers to fund NHI amounts to less than 1% of the total amount required. More importantly, considering that total revenue from personal income tax collections – South Africa’s main source of tax revenue and the main vehicle for financing NHI – amounted to only R447bn in 2017, we get some idea of the futility of this ambitious proposal.

The country not only lacks the financial resources to fund NHI but the quality of care in the public sector is so abysmal that very few facilities would qualify to provide services under NHI. According to inspection records published by the Office of Health Standards Compliance (a government agency), hospitals and clinics in the government’s flagship NHI pilot programme are failing to improve any faster than those in the rest of the country. Among the 1,427 facilities inspected, only 89 scored a pass mark of 70% or more. Facilities fell short on matters ranging from the availability of medicines to infection control.

Medical scheme tax credits were introduced to encourage people to pay more towards their own medical expenses and rely less on publicly provided medical care. By reducing these credits, it will make medical scheme membership less affordable and when it becomes more expensive, no new members will join and those at the margin will drop-out and forced to use an already over-stretched public healthcare service. Taxpayers could fund healthcare for the poor via the general taxes they pay but where is the logic in interfering in the arrangements of those who can afford to pay for their own healthcare?

To compound matters, when the NHI is fully introduced, there will be mandatory payments into the (yet to be established) central NHI Fund. It has been proposed that NHI will be funded through an increase in general taxes, or a dedicated payroll tax, or an increase in VAT, or a combination of these three measures. These mandatory payments will further exacerbate the crowding-out of the private medical scheme market. Cash-strapped individuals will no longer be able to afford to pay their voluntary private insurance premiums on top of the mandatory NHI payments. Once again, those at the margin will be forced to drop-out of the private medical scheme market which will increase the burden on the state. Government is then likely to use the dwindling number of people on private medical as an added justification for the NHI.

Government has a clear and calculated path. By destroying the private financing mechanism, the main vehicle for accessing the provision of private healthcare, the private medical sector in South Africa will collapse and government’s NHI scheme will no longer be faced with any competition.

The proposed NHI scheme concentrates power in the hands of government which is acting as both a player and referee, leaving no room for the private sector to operate. Under NHI, whether directly or indirectly, government will control the availability, financing and delivery of healthcare from the cradle to the grave and South Africans will no longer have any choice.

Government’s role should be to finance healthcare for the poor. By leaving the private market alone to provide for those able to fund their own healthcare, government will be able to concentrate scarce taxpayer resources on the truly destitute, whilst the private sector can grow, innovate and expand. Such a scenario would not only be good for South Africa’s financial health but would also lead to better health outcomes for the poor who would otherwise be forced into government’s failing healthcare system.

Author Jasson Urbach is a director at the Free Market Foundation.

This article was first published in The Star Newspaper on 13 March 2018

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