NHI – What’s Wrong With This Debate?

by Aug 16, 2009All Articles

Health-e (Cape Town)
Alex van den Heever
9 June 2009
Fifteen years of failing to address the systemic challenges facing the health of the country lends itself to over compensation in the form of the grand gesture.

The seductive quality of the grand gesture, however, is matched in equal measure by the inevitability of its ultimate failure as policy. Proposals to change the health system to some form of National Health Insurance (NHI) could be falling into this trap, with substantial implications for the future of the country.

Most people can be excused for not really knowing what NHI means. It has become the proverbial content-less black box. It can be applied to a description of a health system (or to a form of any universal health insurance funding. Use of the term “insurance” when applied to a health system does however have some connotations, as the ordinary use of the term suggests something other than the conventional approach to government planning and budgeting.

Insurance, as a funding mechanism, is not how governments fund schools, police services, clinics, and hospitals. They are funded by general taxes, not a premium, with services receiving budgets based on planned provision to meet planned need within available resources. An insurance approach implies an indirect relationship between the insurer (funder) and the health service provider. An insurer insures the individual against medical expenses, with the service provider seen as legally distinct from the funder.

The institutional consequences of an insurance approach are substantial, however, as the systems requirements are very different. A medical scheme operates very differently to a provincial health department. Insurance funding approaches cost significantly more than conventional public sector budgeting and planning approaches, with a reduced capacity for needs-based planning. For these reasons, within countries with severe resource constraints, social insurance approaches are generally avoided unless they focus on income earners who want more freedom of choice and can afford the increased expense.

Some might argue that NHI is defined by the existence of a “single purchaser” of health services. However, all public systems are by definition single purchasers, with the existing South African system no exception. Whether the purchaser is the public sector in South Africa, Medicare in the United States, or the National Health Service in the United Kingdom, they all have the ability to either directly provide or contract for services in equal measure. The very poor performance of South Africa’s “single purchaser” is indicative of the fact that this is very far from being a sufficient condition for efficiencies and service quality.

It is sometimes presumed that the mere attachment of an earmarked tax to a public funding model defines a NHI. However, although an earmarked tax may resemble an insurance premium, a tax is not a premium. When funding an entire health system, an earmarked tax invariably forms part of the general tax system and is determined in relation to all the priorities of government, which always includes the macroeconomic considerations.

Given the extremely redistributive nature of public health systems, their funding is without exception always by way of the system of taxes.

The only characteristic, therefore, that could conceivably classify a national system as “insurance” centres around the indirect nature of how services are funded, and not the explicitness of any tax or the existence of a single-payer.

If NHI is considered for South Africa, there needs to be some evident benefit to an insurance-based funding approach over conventional public sector budgeting and planning. And given the scale of the implied institutional change, this benefit would need to be large and quantifiable. No research has ever been produced in South Africa which has identified the need for an insurance funding approach for the public health sector as the central systemic problem requiring correction. By contrast there is a substantial body of literature identifying correctable systemic failures of the public system, none of which involve changing the funding approach to that of insurance.

Now it might be argued that proposals to introduce NHI mainly focus on improving the effectiveness of the public health system. However, a proposal emanating from an ANC discussion paper, recommends that the public sector be entirely replaced with an insurance-based approach. It recommends the establishment of a vast rambling national public entity, separate from the various departments of health, through which all the finances of the public health system will flow. It is proposed that this structure duplicate or replace provincial health departments.

The report further recommends the implementation of a substantial progressive earmarked tax, sufficient to raise an additional R100-billion per annum immediately. In an unusual departure from standard public finance principles, the report proposes that the entity would have the authority to raise whatever funding it requires without the formal approval of Cabinet and parliament.

To the extent that it can be interpreted from the report, the proposal involves an earmarked tax that would need to raise additional funds equivalent to 9% of current gross household remuneration, which will be raised primarily from high-income groups.

Even were this windfall to arise, it will still not be possible to fund a benefit equivalent to what medical scheme members currently purchase from their own income. Consequently, the additional tax will generate no offset in the demand for private services and will amount to a substantial increase in the tax burden and to the perceived general cost of labour (the earmarked tax will be applied to all income earners in addition to existing taxes, medical scheme or other health insurance contributions). Other improbabilities aside, the capacity of the proposed system to absorb such an increase in budget is clearly questionable.

The recommendations brush over the significant contingent financial risks for government and the country. This arises from the need to contract with all private providers, when the capacity to enter into coherent contracts without substantial fraud and inefficiency is unlikely to exist.

The proposed earmarked tax will have severe implications for the cost of labour, is completely unnecessary, and has not been thought through. If government were to implement improvements to the public health budget, it could do so through increases in general taxes. If there were a need to improve the progressivity of general taxes, this could be achieved more simply through changes in general taxes.

The insurance-based approach appears, illogically, to be motivated on the grounds of enhancing equity. However, insurance-based approaches are not superior to conventional public sector planning and budgeting in achieving equitable outcomes.

The report appears in part to motivate its changes on the improbable grounds that it can improve on private sector inefficiencies. However, there is no examination of the real risk that the proposals could deepen the service delivery crisis in the public system. Quite aside from the real possibility that attempting to implement this plan would deflect attention away from much needed real reforms, the proposals would squander budget increases on paying public sector staff at private sector earnings levels.

A very unusual proposal is to require that medical scheme members pay 85% of their contributions into the NHI, for which they will receive only public cover in return. If the public sector services are inadequate, no-one will be permitted to insure themselves for any benefits covered by the NHI. Consequently, if the public arrangement cannot afford adequate dialysis, heart transplants, cancer treatment or emergency care, no-one will be permitted to purchase them privately. This particular recommendation is without precedent, and, given the context, absurd. In conjunction with the punitive tax levels, this comes across as little more than an ideologically motivated attack on income earners.

Aside from the punitive tax and benefit provisions, there is no certainty that the actual authority will operate efficiently. The governance model, which has a direct bearing on its likely performance, bears little relation to international benchmarks on social security institutions. Typically they are independent entities with representative boards. Internationally, the board and not the minister appoints the CEO. Direct political appointments tend to reduce efficiency as factors other than performance tend to determine the tenure of the executive.

Remarkably, the task group recognised the possibility that health professionals will flee the country rather than be subjected to this process. To mitigate this inevitable consequence they envisage again resorting to the importation of Cuban doctors. It is however not clear that the fleeing engineers, accountants, lawyers, and actuaries will also be replaced by Cuba.

Although social and national insurance approaches are possible for South Africa, this particular proposal has conceivably not been designed with the best interests of the country at heart. In substance it comes across merely as an attack on income earners and businesses. It has been conceived within a questionable process designed to avoid the standard reality checks associated with complex policy development. If such proposals are permitted to proceed unchecked the implications for the country, well beyond health provision, will be severe and permanent.

To avoid further mistakes concerning health systems reform, it is essential that discussions on NHI occur in public, with proper consultation and stringent technical review. As they stand, these proposals fall far short of the adequacy required for proper government consideration and require substantial revision.

Alex van den Heever is a specialist economist in public policy, health and social security. He was a member of the Taylor Committee of Inquiry into Comprehensive Social Security and advises inter alia the Council for Medical Schemes and numerous government departments. This article is written in his personal capacity.

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