SOUTH Africa's healthcare landscape finds itself at a critical juncture. NHI causes uncertainty as the nation has deferred essential health financing reforms for nearly two decades. They were anticipating that the ambitious National Health Insurance (NHI) would eventually bridge the gaps.
However, with the NHI's future shrouded in uncertainty due to impending legal challenges and significant budgetary constraints, the underlying weaknesses of the current medical aid system are becoming increasingly apparent. A viable alternative remains elusive. This is largely because the prolonged debate shows that NHI causes uncertainty.
Funding Hurdles and Public Resistance Stall NHI Progress
The path to realising the NHI is fraught with obstacles. Planners envision it as a single, government-administered health insurance fund and have slated it for full implementation by 2029.
The fierce debate surrounding the 2025 national budget has laid bare the public's resistance to increased taxation. This has cast doubt on the feasibility of funding such an extensive undertaking through tax-based contributions directed towards a public fund.
Consequently, the state struggles to adequately finance existing social programmes, making generating new funds for the NHI even more challenging.
Knock-On Effect: Medical Schemes Feel the Strain of Delayed Reforms
Against this backdrop of uncertainty, the medical scheme environment is showing signs of strain. The postponement of crucial reforms is one factor. In addition, limited risk-sharing mechanisms among schemes, low employment rates, and sluggish economic growth have contributed to an ageing membership base. They have also resulted in escalating costs. These pressures are fueling urgent calls for regulatory intervention to stabilise the sector.
The NHI's proposed structure entails dismantling existing medical schemes upon full rollout. This would also eliminate the country's primary mechanisms for health risk pooling.
This has prompted alternative proposals, such as a business collective suggesting that the NHI Fund, once established, should compete with medical schemes to provide coverage for formally employed individuals. This would offer employers a choice between the NHI Fund and existing schemes.
A Forgotten Alternative: The Social Health Insurance Model
Interestingly, South Africa was actively preparing for a social health insurance model before the African National Congress (ANC) adopted the NHI at its 2007 Polokwane conference. This approach envisioned a gradual expansion of health insurance coverage. It would start with the approximately 8.9 million medical scheme members and extend to all 11.7 million formally employed individuals.
The social health insurance plan proposed mandatory coverage for all employed individuals. This would be jointly subsidised by employers before extending coverage to the rest of the population.
Building a Viable Alternative: Risk Sharing and Affordable Benefits
Given the growing improbability of implementing the NHI as outlined in the 2024 NHI Act, revisiting a phased social health insurance approach may be prudent. This would necessitate the implementation of a risk-sharing or risk equalisation fund (REF) among medical schemes.
Such a fund would allow schemes with a higher proportion of sicker and lower-income members to receive financial support. The support would come from schemes with healthier and younger members.
The medical schemes sector had previously conducted mock REF exercises until 2011/12. However, these efforts were discontinued when the focus shifted to the NHI. Reviving this preparatory work could prove invaluable.
Offering a less comprehensive guaranteed package of minimum prescribed benefits might be necessary. This would address affordability challenges for lower-income workers compared with the current legislated requirements.
Fortunately, significant work has been undertaken over the past decade in designing low-cost benefit options within existing medical schemes, known as the low-income medical schemes (LIMS) process. This work warrants renewed attention.
Overlooking the "Missing Middle": A Gap in Healthcare Coverage
Furthermore, policymakers have largely overlooked a substantial uncovered middle-market population, estimated at 3 million. This group earns too much to qualify for public hospital means-tested care but cannot afford traditional medical schemes.
Many initiatives aimed at improving coverage for this segment, such as LIMS, were put on hold. This pause happened because the single-minded focus on a complete overhaul means the NHI causes uncertainty for any interim solutions.
While some limited private health insurance products have emerged to serve this market, their potential to attract younger, healthier individuals away from medical schemes may have inadvertently undermined the overall growth and stability of the sector.
Implementing the Health Market Inquiry's Findings
The recommendations from the Competition Commission’s 2019 Health Market Inquiry (HMI) must also be fully implemented. This implementation is necessary to prevent further deterioration of the healthcare financing infrastructure. These recommendations include:
- Establishing a multilateral negotiation forum to facilitate price negotiations within the private healthcare sector.
- Introducing a mandatory package of basic benefits for all medical schemes, covering at least preventive care, if not hospitalisation.
- Creating an independent regulatory body to oversee pricing, licensing, and provider behaviour to curb excessive costs and inefficiencies. The Department of Health recently announced plans to establish an internal healthcare capacity planning division to address some of these functions.
- Mandating membership for all formally employed individuals, funded through joint employer and employee contributions.
Another crucial reform, though not explicitly recommended by the HMI, would be the adoption of income cross-subsidies or income rating. This would involve aligning medical scheme contributions with the income level of the primary member. Thus, higher earners would contribute more.
Implementing these comprehensive reforms would establish a robust foundation for systematically expanding risk-pooled health coverage to the broader population while fostering social solidarity.
The Urgent Need for Decisive Action
South Africa's health financing infrastructure shows significant wear and tear due to the prolonged deferral of necessary system maintenance. Without decisive and stabilising reforms, there is a growing risk that individuals reliant on the private sector will become an increasing burden on the state.
Time is running out. With the existing system displaying apparent vulnerabilities and the fact that the NHI causes uncertainty about a viable alternative, it is imperative to urgently revisit and act upon previously considered proposals and innovative ideas.
- Dr Smith is a senior researcher in the economics department at Stellenbosch University, and Bisseker is an economics writer and researcher at the Bureau for Economic Research.