BLSA CEO's weekly - 3 May

BLSA CEO Letter – 10 July 2023

POSTED ON: July 9, 2023 IN by Admin
BLSA CEO's weekly - 3 May BLSA CEO's weekly - 3 May

By Busisiwe Mavuso

Discovery has calculated that a modest NHI would cost R200bn, which would require personal taxes to go up by a third or VAT to rise to 21.5%, or a mix of the two.

The National Health Insurance charade continues despite its absurdity. I can assure you that it will end up in no improvements to healthcare quality in South Africa, in fact the risk is precisely the opposite. As I have written in a previous letter, if government is serious about delivering an improvement in healthcare, there are far better ways to do it, involving partnerships with the private sector that have been demonstrated to work.

Instead, we continue with this make-believe in which the apparent upsides of the NHI – access to quality health care for all – can be talked about without ever having to discuss the practicalities. That way the vote-earning fantasy can be sold to the public without any of the vote-destroying realities of it, particularly how it will be funded and the devastation to be dealt to the private healthcare industry.

Last week a “fact sheet” was distributed about NHI, purported to have been written by the Department of Health. It had many positive things to say about the upsides of an NHI but little about the practical implementation of it.

The 27-page document has precisely 198 words in the section for how it will be funded. It refers to a payroll tax on employers and employees and makes the astounding statement that this “must not create an increased burden on households compared to the current system”.

It contains no analysis at all on what the proposed system will actually cost, referring only to the fact that South Africa currently spends 8.5% of GDP on healthcare. It has pages and pages on what kind of health services South Africans can expect, but no calculation of what these will cost.

It makes no reference to the fact that the pilot projects for the scheme failed dismally, nor to the fact that the existing healthcare system has been deemed woefully inadequate. The previous health ombudsman, Professor Malegapuru Makgoba, described the Gauteng health department as has having “no leadership, no capacity, no vision” and the Eastern Cape Health Department as “really dysfunctional” and “embarrassing”. Yet from these ashes an NHI must somehow emerge by closing down private health insurance and forcing its members into a national scheme.

The biggest farce in this charade is the funding story. While the fact sheet declares the current mixed system to be “inefficient” it seems to believe that removing the private element of it is the key to creating wider efficiency. That is impossible unless huge funding is allocated to it, the kind of funding that the private system currently enjoys. And this is the other fabulous element to the story – that payroll taxes will somehow do this.

The current system sees half of health expenditure from the private sector, which also employs 79% of doctors. But only 16% of the population is covered by medical schemes allowing access to the private sector. If we were to expand health insurance as it exists to the rest of the population, we would need to increase the amount spent by about six-fold. That would imply that the current 4.3% of GDP spent on the private sector would need to become about 26% of GDP. That is obviously impossible, but perhaps a slimmed down form of insurance cover is more feasible. Discovery has calculated that a modest NHI would cost R200bn, which would require personal taxes to go up by a third or VAT to rise to 21.5%, or a mix of the two.

The NHI fact sheet makes many claims that the national scheme would be more efficient than the status quo, but what evidence do we have for that? I can only see the reality of a very inefficient state sector, and a private sector that has many checks and balances including patient choice over providers and a balance between healthcare funders and providers.

The idea that somehow NHI can emerge without a serious imposition of additional taxes is simply untenable. Payroll taxes are not as straightforward as government may hope. With every increase, fewer people pay them, either through avoidance or emigration. There are just 50,000 people who earn more than R2m and therefore pay tax at the top 45% income tax bracket (which starts at over R1.7m). That is out of a total of about 5.5-million taxpayers, yet the scheme envisages that all 60-million South Africans will be covered. These same taxpayers, of course, also have the most to lose from a degradation of the existing private healthcare system, so the incentives to leave will be multiple.

Already the number of taxpayers assessed in 2021 was about 13% fewer than in 2012. Corporate income tax has also been suggested by some as being able to fund it, but there is a direct relationship between corporate profits and investments. When they are taxed, companies have less capital to use for expansion so the consequence is straightforwardly less economic growth and employment. As it is, profits of South African business have never recovered from the post-2008 recession and were devastated again by the Covid lockdowns.

More careful analysts have pointed out that the only tax that can be increased reliably without significant exit from the system is VAT. The existing 15% level would need to rise considerably. It currently provides a quarter of the total tax collected, or roughly 6% of GDP.

Health minister Joe Phaahla has accused those who criticise NHI of being heartless about those who do not have access to quality care. That is, as the Financial Mail put it well last week, a “straw man” argument. In fact, business would be strongly in favour of universal healthcare that is practical and affordable. I would argue that it is the charade of an NHI with no prospect of successful implementation that is truly heartless. A cynical attempt to win votes without the hard work of creating a real workable plan.

BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

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