PUBLICATION OF NHI BILL TO PARLIAMENT
Since the release of the NHI Bill on Thursday last week, the extent of negative sentiment from press, investment markets and other stakeholders has been substantial. Discovery continues to study the Bill and to engage with numerous stakeholders, and our views will evolve over time. In the interim, we feel it is important to share our current views with our broker community. The NHI is a huge, complex and multi-decade initiative and a considerable amount of debate and effort will be required to make it workable. Discovery’s overall position on NHI is unequivocal: we are supportive of an NHI that assists in strengthening and improving the healthcare system for all South Africans – little is more important. You will know that we have consistently expressed our support and made our capabilities available for its development. We are committed to assisting where we can in building it, and making it workable and sustainable.
Of course, debates about its timing, affordability, execution and more will no doubt be complex. A central issue that we are close to and upon which we must comment is the future role of private healthcare and medical schemes – what it means for medical schemes to provide “complementary cover ” to the NHI and when this will take effect. Our strong view is that substantially limiting the role of medical schemes would be counterproductive to the NHI because there are simply insufficient resources to meet the needs of all South Africans – this is an unavoidable reality.
Limiting people from purchasing the medical scheme coverage they seek will seriously curtail the healthcare they expect and demand. This will erode sentiment, denude the country of skills and impact the economy. Crucially, by preventing those who can afford it from using their medical scheme cover, and forcing them into the NHI system, this approach will also have the effect of increasing the burden on the NHI and will drain the very resources that must be used for people in most need. This would be detrimental to all South Africans, and would undermine the objectives of the NHI as we understand it. While this is our strong view, the Bill needs clarification since it makes the point that the “complementary role” for medical schemes will only apply once the NHI is “fully implemented”. It defines “referral pathways” to which it will apply, indicating that where patients choose not to follow the referral pathways, the NHI will not reimburse their care, and that they can then claim from private health insurance. The Bill clearly gives rise to different interpretations – we will engage actively and constructively on this issue to ensure that the important role of medical schemes and private healthcare remains part of the healthcare system, together with the NHI. We provide more technical detail on the role of medical schemes within the proposed NHI below. Having said this, we remain deeply confident that the resulting environment will be rational and workable.
Our plans for Discovery Health and for the Discovery Health Medical Scheme remain the same. If anything, the future will be more complex and the need to invest in capabilities and technology are likely to increase substantially. That is what we plan to do. Discovery is committed to playing its role in building a positive future – for our members, South Africa’s doctors and healthcare professionals, and for all South Africans.
Technical issues arising from the NHI Bill
The role of medical schemes as envisaged in the NHI Bill
The Bill contains only one paragraph (Section 33) referencing the role of medical schemes. This paragraph indicates that “once National Health Insurance has been fully implemented as determined by the Minister through regulations in the Gazette, medical schemes may only offer complementary cover to services not reimbursable by the Fund”. While it appears as if the intention of the Bill is to prevent schemes from covering services provided by the NHI, we believe that in reality, medical schemes should and will continue to cover all of the healthcare services which they currently cover for the foreseeable future. We believe this to be the case for the following reasons:
-There is no clear definition of services to be covered by the NHI, and it appears that this definition will be expanded on an incremental benefit and geographic basis, with an initial focus only on primary and maternity care and other high priority services for vulnerable populations.
-Even for the limited initial definition of NHI benefits, we expect the actual implementation of universal coverage to be considered and deliberate, as there are extensive financial, legislative and administrative challenges to be overcome, as the Minister and other policy makers have acknowledged.
-There is uncertainty as to when the NHI will be considered “fully implemented”. In our view, given the constraints, it is likely that this point is most likely to be quite far in the future.
-The specific language of the Bill is open to interpretation. The Bill states that medical schemes cannot cover services “reimbursable” by the NHI. At the same time, the Bill clearly states that to obtain reimbursement, patients will have to follow the ‘referral pathway’ dictated to them by the NHI’s contracted providers. If patients decline to follow these referral pathways, their care will not be reimbursable by the NHI. When read together, the Bill appears to accommodate medical schemes being able to fund any services that are not reimbursable by the NHI due to patients choosing not to use NHI pathways. This would ensure that medical schemes are “complementary” and continue to absorb the current costs which they carry.
-We believe that the limitation of the rights of citizens to purchase additional health insurance, even after they have contributed to the NHI, would be globally unprecedented and inappropriate. As noted above, we believe that this approach will actually harm the NHI by draining resources from those most in need.
-In virtually every other country with some form of NHI or equivalent nationally funded healthcare system, citizens are fully entitled to purchase additional private health insurance cover, including cover that overlaps with services covered by the national system. A restriction on choice of medical scheme cover is not dissimilar to limiting the rights of citizens to purchase private education for their children or private security, on the basis that the public system already provides state schooling and security services.
-We will of course engage actively with the policy makers directly, and via the Health Funders Association, and BUSA, with the aim of addressing these specific issues and are optimistic about a positive outcome to these engagements.
The financing of the NHI system The Bill makes no reference to the likely costs of the NHI once fully implemented but senior Department of Health officials have been quoted as estimating a total cost of approximately R245 billion in 2019 terms. This presumably refers to the incremental cost of the NHI over and above the current R223bn national budget for healthcare. Over 85% of the current budget is allocated to the 9 provinces and funds the current public healthcare system. Any fundamental change that improves quality and access and that is able to contract private providers will therefore require substantial additional funding. We understand that National Treasury will soon be publishing a costing document, and that this is likely to be based on an incremental approach to providing NHI benefits. In our view, the government faces significant challenges in securing the funding required to implement the envisaged NHI, including the current and likely future fiscal constraints facing government. The Bill specifies that payroll taxes and a surcharge on personal income tax could be considered as sources.
Such taxes would need to be determined by National Treasury. At the presentation of the Bill, the Minister of Health indicated that no tax changes are envisaged over the 3 year period of the current Medium Term Expenditure Framework. The Bill also refers to a redirection of the current medical scheme tax credit, which would effectively increase personal income tax revenue to the fiscus by approximately R17bn. The Provisional Report of the Health Market Inquiry argued for a restructure of the tax credit to create a greater income cross subsidy. We do not expect an immediate abolition of the medical scheme tax credit, but do expect National Treasury to continue to cap the nominal Rand value of the tax credit each year, as has been the case for the past two years. Department of Health officials have also suggested that government could fund the NHI by removing the current medical scheme subsidy provided to government employees, which is worth approximately R30bn. This is obviously possible but would be a material change to the employment conditions of public sector employees and their trade unions. In summary, there are material challenges to raising new revenues to supplement the current government budget for healthcare, and this is unlikely to change in the foreseeable future.
This in turn implies that the rollout of the NHI as envisaged will be constrained unless there is a substantial improvement in the country’s economic prospects.
The role of private hospitals and health professionals
The Bill envisages that the NHI Fund will contract on a voluntary basis with private hospitals and professionals and other services to supplement the current public sector delivery system. The NHI Bill provides limited detail on how the procurement of services from private providers will be carried out. The lack of substantial additional funding noted above will constrain the ability of the NHI to procure extensively from private providers. Overall, for the foreseeable future we expect that the NHI will contract with some GPs to supplement its public primary care services, and also that it will contract for certain high priority services to address specific gaps in public sector provision. If this is achieved, it will already be a significant step forward. Beyond that, we expect that the vast majority of NHI services will continue to be delivered by public sector clinics and hospitals, and that private hospitals, specialists and other providers will continue to be funded by medical schemes.
It is our strong view that we have a brilliantly committed, highly skilled and world-class healthcare professional community in South Africa. These professionals work hard, provide excellent care and are committed to our country. We will work hard to defend their rights to fair remuneration, to an optimal working environment that promotes sustainability and ideal patient care, and to retaining and supporting them within our broader healthcare system.
The NHI Bill Process
The NHI Bill will now be tabled in Parliament, implying that a Portfolio Committee process will commence, allowing for public consultation. Discovery will participate actively in the parliamentary process through BUSA and BLSA, as well as the Health Funders Association and on its own account. It is also expected that there will be a parallel process within NEDLAC, which will create further opportunities for engagement and influence over the final content of the Bill.
It also appears that the Minister intends engaging actively with stakeholders and this will create opportunities to engage on these vital issues. There are good indications that the current Minister is open to the potential for public private partnerships, and we welcome the opportunity to partner in delivering on the vision for a stronger and more accessible healthcare system for all South Africans. Following the Portfolio Committee process, the Bill will be debated in the National Chamber of Provinces and the National Assembly. We thus do not expect the Bill to be promulgated until early 2020 at the earliest, and are optimistic that we can work with the policy makers to secure a positive result in the final NHI Bill and for the implementation of the NHI itself.
August 22, 2019
The Wealth Room