SA's NHI: The ‘Eskom’ of healthcare

South Africa’s proposed National Health Insurance (NHI) system promises free healthcare for all.

By Johan Biermann, Author*

The promise

South Africa’s proposed National Health Insurance (NHI) system promises free healthcare for all.

An NHI fund, controlled by the Office of the Minister of Health, will pay for care. Funding will come from the government’s annual healthcare budget and a new NHI tax.

The NHI tax will replace premiums members pay to private medical aid funds. It will be illegal for medical aid funds to pay for care and medicines covered by NHI.

The healthcare problem

South Africa’s healthcare problem is the public health system. It does not provide proper care to the millions of poor and unemployed. Hospitals, clinics, and diagnostic equipment are old. There is a shortage of doctors, nurses, and medicines, and staff lack training. Millions of people in rural areas travel miles to see doctors.

The government needs money to fix the public health system. It also wants to equalise per capita health spending between public and private care. It will use NHI to pool the premiums paid to medical aid schemes with the government’s health budget in an NHI fund. The result of this will be that government will control almost all health spending.

The seen and the unseen

Citizens that pay for private care also pay, through their taxes, for all the healthcare in the public health system.

While NHI promises free healthcare, that care is never free; taxpayers will pay for it and the cost of the government health bureaucracies administering NHI in each province.

Around the world, "free healthcare" also means no healthcare. Not visible is the healthcare not provided because of the government’s health budget limitations. Even worse, ‘free’ healthcare is expensive: some patients pay with their lives because the care needed is not on the approved treatment list.

Waiting for care

Today, most countries have a form of NHI. There are different models. Some governments fund and provide all healthcare. Under single-payer health systems, the government pays all or most public and private healthcare costs. Many countries have a mix of private and public funding and healthcare provision.

Despite their popularity, all national health systems battle endlessly with escalating costs: budget constraints limit the number of procedures undertaken annually; and shortages of doctors and nurses are common. Their outstanding characteristic is thousands of patients wait months for routine care and even years for specialised medical treatments.

In 2020, Canadian patients waited for 1 224 198 medical procedures. That was before the Covid-19 pandemic. Wait time was 5.4 weeks for CT scans, 11.1 weeks for MRI scans, and 3.5 weeks for an ultrasound. (Fraser Institute, Waiting Your Turn: Wait Times for Health Care in Canada, 2020 Report.)

In January 2020, 4.43 million patients waited for care in the British National Health Service (NHS). Over 730 267 Britons, or one in six, waited longer than 18 weeks for routine treatment.

The Australian public hospital system performs

What works better

better. The average wait time was 39 days in 2019/2020. Waiting excludes the wait time between seeing a GP and a specialist, which can be months. The shorter wait times are likely because 53% of Australians have private insurance. They receive treatment in private hospitals. Despite this, public wait times were up to 277 days to fix a deviated nasal septum, and 223 days for knee replacements. Patients waited 214 days to repair a hole in an eardrum, and up to 120 days for hip replacements.

Shortages of and overworked doctors and nurses are common in all government (taxpayer) funded health systems. Because a government’s health budget restricts the extent of care it can provide, restrictions or quotas on medical procedures increase waiting times. Patients receive only the treatments and medications approved by the government’s health regulator.

Around the world, countries differ in their mix of public and private funding and providers. The differences in types and levels of care, and funding and insurance models, make it difficult to determine what arrangements work better.

In search of an answer, the Euro Health Consumer Index 2018 asked patients how happy they were with the care they got. The Index then ranked 35 national European healthcare systems by measuring their "consumer friendliness”.

The happiest patients live in Switzerland, the Netherlands, and Norway, which have a range of insurance organisations not linked to healthcare providers. The insurers do not discriminate between healthcare providers. Patients can choose from different insurers and among for-profit, non-profit, and public providers.

Single-payer health systems, as proposed for South Africa, ranked the lowest. In them, which include the UK, the government, through taxes, funds healthcare. The lowest-ranked countries, Poland, Hungary, Romania, Bulgaria, and Albania, all have single-payer systems.

Patient satisfaction is higher in countries with private health insurance and private care.

But private care is expensive! Opponents of private healthcare cry out that private healthcare is expensive. Even worse, private doctors and hospitals profit from human misfortune. Their favourite example is the USA, which has the most expensive healthcare and the world's highest per capita health expenditure. Rarely mentioned is that it also offers the most advanced care.

The high cost of US healthcare has less to do with it being private and more with complicated incentives, cross-subsidies, provider and insurer agreements, and regulatory intervention. These differ between states. It has a range of insurance companies, hospital groups, and independent healthcare providers. While private businesses own most healthcare facilities, of all hospitals in the country, 58% of community hospitals are non-profit, 21% are for profit, and 21% are government owned.

Public funding accounts for about half of US healthcare spending. The Peterson Centre on Healthcare and the Kaiser Family Foundation Health System Tracker notes that in 1987 public sector spending accounted for just under a third (32%) of total US health spending. By 2020, public health spending, which includes insurance programmes such as Medicare and Medicaid, accounted for 51% of all spending.

Each US state has its own hospital licensing and certificate of need requirements. Like everywhere in the world, complicated and time-consuming application regulations, instead of enabling healthcare provision, limit, delay and make it more expensive. These impact the number of hospitals and beds and the types of medical services and technologies provided. Complex funding and insurance agreements between providers and insurers increase the cost of healthcare.

Independent health providers that opt out of funding agreements with insurers offer surgical care at a far lower cost than the hospital networks. A leading example is the Surgical Centre of Oklahoma (SCO), which uses a direct-pay surgical model that cuts administrative waste and even allows higher physician reimbursement. SCO lists the prices for medical procedures on its website.

Can NHI succeed in South Africa?

The citizens that pay for private health insurance also pay the taxes that fund the public health system. The proposed NHI tax will take the money they spend on their private health insurance to pay for the NHI system, reducing funding and care in the private health system. It will spell the end of private healthcare, and more doctors, nurses, and citizens will emigrate.

Redirecting funds from the private to the public system will not guarantee quality healthcare for those that cannot afford it. Billions of Rands are required to repair public health system infrastructure, including rebuilding and refurbishing hospitals and clinics and for new medical technologies and diagnostic devices.

Imagine then a healthcare system run like Eskom. Eskom has no competition yet cannot supply the country with reliable electricity. Will NHI become the ‘Eskom of Healthcare’? Will it add health shedding to the list of government failures?

NHI will reduce private care but provides no guarantee that public healthcare will improve.

The alternative path

South Africa will receive better healthcare if it organises healthcare in the same way as all other successful economic activities.

South Africa’s private health system, which delivers care equal to the best in the world, offers the path to providing healthcare for all.

The arguments against private healthcare are that it is expensive, that private providers profit from human misfortune, and because people’s lives are at stake, healthcare is too important to leave to the private sector.

The same arguments apply to food, essential to our survival, yet nobody calls for a national foodinsurance system. No government bureaucracy plans and produces clothes, shoes, cars, computers, flat-screen televisions, bicycles, cell phones, windowpanes, clothes, and millions of other products in the marketplace. Yet, shortages are rare.

In a private healthcare system, doctors and healthcare companies respond to the health needs of the population by setting up practices and building hospitals in areas where there will be enough patients to enable them to run an economically viable practice, clinic, or hospital.

Unlike the government, budget constraints do not limit the care offered by private healthcare providers. If they offer affordable care, patients will buy care from them, enabling them to expand health services as required. The best way to provide healthcare to all is to build on that which works: the private health system: get rid of what doesn’t work: the public health system.

Healthcare for the poor

The best way to provide healthcare for people who cannot afford it is to buy it from private doctors. It will relieve the government from building, maintaining, and staffing hospitals and clinics. It can then use its health budget to fund the needy via smartcards or contributions on their behalf to medical aid funds.

The government must apply the existing laws against fraud and regulations that ensure safe treatments and medications and protect the poor from exploitation by unscrupulous doctors.

Expanding healthcare

Buying care for the poor from the private sector will increase the demand for care. Instead of obstructing it, healthcare policy must encourage provision to meet demand.

Most people don’t know that government regulations and licensing requirements delay or even prevent the construction and expansion of hospitals and clinics. Everything is subject to complicated and time-consuming application processes, which limit the number of doctors, nurses, medical schools, hospitals, and hospital beds in the country.

The certificate of need requirements in the National Health Act will introduce even more obstacles to providing care. Instead, the government must scrap regulations that delay or limit healthcare. It must focus on the maintenance of health standards and patient safety.

The production of medicines and medical devices is subject to lengthy approval processes to ensure they are safe. These processes delay their availability and raise costs. Instead, the government must grant automatic approval of medicines and medical technologies already approved in countries with high pharmaceutical standards. These include the USA, Canada, United Kingdom, Germany, Switzerland, and Australia.

The exploitation of patients via taxes must end. The government can lower the cost of healthcare overnight by scrapping import taxes and duties on medicines and medical technologies. It must scrap VAT on medical products and services.

The government must introduce tax concessions for private providers that provide care to the needy. It must sell or transfer public hospitals and clinics that are viable to private healthcare providers.

The benefits of reform

Purchasing care from the private sector will relieve the government of providing healthcare, building and maintaining hospitals, and training and paying doctors and nurses. It can then use its budget more effectively by purchasing care for the needy from private providers.

Patients will benefit from a growing private health sector in which the latest medical treatments, services and technologies will be available to everyone.

Healthcare for all

Millions of South Africans are unemployed, depending on welfare grants for survival. Healthcare for all requires a growing economy that creates jobs which enable people to pay for housing, food, and healthcare. The government must eliminate laws, regulations and taxes which restrict economic activity, job creation and the production of goods and services. Only this can fulfil the promise of quality healthcare for all. 

*Johan Biermann is the author of The promise of South Africa’s Health Care Under Threat and Undermining Mineral Rights – An International Comparison, both published by the Free Market Foundation.