Since President Cyril Ramaphosa signed the National Health Insurance (NHI) Act into law last week, the spectre of exorbitant tax hikes – along with assurances that NHI will take many years to implement – has haunted the public. How is NHI likely to shake-up the public and private healthcare landscape and how might it affect access to quality healthcare?
Moonstone posed these questions to Anja Smith, senior researcher at the Economics Department of Stellenbosch University and senior economist at DNA Economics.
Having a single purchaser rather than multiple purchasers
A significant change, Smith says, is the shift to a single-purchaser model for procuring health services and products, replacing the current system of multiple purchasers in the private sector. No purchaser-provider split is present at the public sector because the government is both the purchaser and the provider of health services.
A document titled “National Health Insurance: All you need to know” published on the government’s news website answers “a few frequently asked questions (FAQ) about NHI. To the question, “How will the NHI Fund procure health products”, the response reads:
“Suppliers of health products will remain private companies. The NHI Fund will determine the range of products (medicines, devices, etc) that are required to deliver the benefits that the fund is paying for at any point in time and will set prices for those products that any contracted provider will pay to the suppliers. The large volumes create certainty for suppliers and help to reduce prices.”
Although private healthcare providers will continue to operate privately under the NHI dispensation, they will not be allowed to set their own fees for NHI-funded benefits. The Fund will set the fees that it will pay to private doctors, hospitals, and others on patients’ behalf.
Private general practitioners will be part of multi-disciplinary networks in their communities and will be paid by the NHI Fund.
Smith explains that the NHI Act relies on the idea of a single-purchaser approach to universal health coverage (UHC). It also introduces a clear purchaser-provider split.
“In our current medical scheme context, medical schemes act (though not sufficiently so) as purchasers of health services for their members. We will be losing the potential bottom-up accountability mechanism of having multiple purchasers compete on a service level when purchasing services for their populations/member groups,” she says.
This, she says, means that all those covered by NHI will be locked into whatever quality of service is provided by the Fund.
Relegation of medical schemes to playing a complementary role
Much of the conflict between the government and the private healthcare sector over NHI centres on a single sentence (section 33) in the Act: “Once National Health Insurance has been fully implemented as determined by the Minister [of Health] through regulations in the [Government] Gazette, medical schemes may only offer complementary cover to services not reimbursable by the [NHI] Fund.”
Smith says section 33 relegates the role of medical insurers to one of complementary cover – they will only be able to provide cover for services not covered by the NHI’s package of basic benefits.
So, what will that look like?
According to the government’s FAQ, medical schemes will remain a voluntary arrangement for those who choose to contribute to them, but they will cover patients only for any additional benefits for which the NHI Fund does not pay. The government believes that for this reason, “they should be significantly cheaper”.
It further predicts that private funders and administrators’ business models will change over time.
“Once the NHI Fund covers a benefit, the medical schemes may not cover the same benefits. This means that their membership fees must be reduced, and some will be too small to survive so they will consolidate with others to maintain a viable risk pool for the benefits that they may still cover. Administrators of medical schemes will no longer manage over 250 options, meaning the complexity of their services will be greatly reduced.”
The government has stated that NHI will not take the accumulated reserves of medical schemes because they belong to the members and not the schemes.
Discovery, the largest private-sector medical scheme in the country, has consistently advocated for section 33 to be “freed up”, saying NHI will be unworkable without private-sector collaboration. However, thus far their pleas have fallen on deaf ears.
Read: Financial services group highlights the role of the private sector for NHI to work
With the signing of the Bill, Discovery again said that although it supports the establishment of the NHI Fund as part of an integrated model towards achieving UHC, “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”.
Discovery has expressed significant concerns about the potential risks and harms of limiting the role of medical schemes.
“We are of the view that an integrated health financing model, which will build on the current (but transformed) health system, would facilitate achievement of UHC for South Africa faster and in a less risky manner to the economy and the national health system in general,” the company states.
Implementation of alternative payment approaches
According to Smith, most service providers in the primary healthcare sector bill on a fee-for-service basis. The Act proposes alternative payment approaches, such as paying GPs on a capitation basis – for example, paying a provider a fixed amount per member of the population for a fixed package of services over a specified period.
The diagnosis-related group (DRG) payment approach is a system used in the healthcare industry to classify hospital cases into groups that are expected to have similar hospital resource use. The main objective of the DRG system is to provide a standardised way of determining how much to pay hospitals for each patient they treat, based on the patient’s diagnosis and the procedures performed.
While DRGs are present in private-sector hospitals, they have not been used in the public sector.
Smith points out that the Act states the following about payment approaches at the hospital level: “In the case of hospital and specialist services, payments must be all-inclusive and based on the performance of the healthcare service provider, health establishment, or supplier of health goods, as the case may be.”
She says although DRGs are not explicitly mentioned, this payment approach is implied. “There is also clear leeway provided to the Fund to experiment with alternative payment approaches,” Smith adds.
However, healthcare providers will only be able to access payment via NHI once they have met certain accreditation requirements and are contracted to the Fund. Once contracted, a primary healthcare provider will be assigned a designated population that will be under its care and will be paid on a capitation basis.
“The details are being developed and will include a performance-based portion,” the government states.
Although the government says private healthcare providers will not be forced to contract with the NHI Fund, they may have little choice but to do so if they want to access a pool of clients who can afford their services.
The government states that patients who consult with providers who are not contracted with the Fund will have to pay out-of-pocket for the providers’ services. They will only be able to use their medical schemes (private risk pooling) to pay for benefits not covered by the Fund with non-NHI contracted providers.
Will South Africans be paying more for less?
According to an article published in Business Day, Mark Blecher, National Treasury’s chief director of health and social development, believes it will take three decades to implement NHI completely.
Medical schemes, too, were quick to respond following the signing of the Act, saying members should not panic but continue with their current healthcare arrangements.
Read: Medical schemes assure members that NHI is a long way off
The NHI Act makes no reference to the likely costs of NHI once it is fully implemented. It does state that NHI will be funded through a mandatory pre-payment system and “other forms of taxes” collected by the South African Revenue Service and allocated to the Fund by Parliament.
“Based on the NHI Bill, NHI will be predominantly funded through general revenue allocations, supplemented by a payroll tax payable by employers and employees and a surcharge on individuals’ taxable income,” the FAQ document reads.
It is understood that National Treasury will soon be publishing a costing document, and this is likely to be based on an incremental approach to providing NHI benefits.
In the meantime, an analysis by Discovery showed that NHI funding of R200 billion a year will require massive changes to tax policy, for example:
- Collecting R200bn from VAT will require an increase in VAT from 15% to 21.5%.
- Collecting R200bn from personal income tax means that tax rates will need to increase by 31% across the board – each taxpayer will need to pay almost one-third more than their current tax payments, which is a massive erosion of take-home pay.
- Collecting R200bn as a payroll tax will require about R1 072 per employee per month. This increases to about R1 565 per employee per month for only those employed in the formal sector.
Amid this uncertainty, concerns have arisen about the long-term sustainability of private healthcare providers, including doctors and nurses. There are also questions about whether the public will have to pay more to maintain their current level of healthcare access.
Smith believes it will depend on how the basic benefit package is conceptualised.
“There is a misconception that the Act ‘bans’ the private sector. We will always have a need for a private health sector. However, the Act limits the risk-pooling ability of medical schemes for services covered under the basic benefit package of the NHI Fund – that is, it limits medical schemes to complementary cover only,” she says.
Smith adds that the concerns of the private sector can be examined in terms of both supply-side and demand-side lenses.
“In terms of the supply side, how medical practitioners are contracted and paid will change, and this is what is causing the concern among medical practitioners.”
First, at least at the primary-care level, it is likely to entail a move away from fee-for-service payment to capitation.
“There is a fear that this will encroach on the income of these providers and will require a fundamental re-organisation of how they run their practices, as well as income uncertainty, at least initially.”
Smith says the private sector will also need to service different client groups within the larger population and move beyond its current mainly high-income patient groups.
In addition, she says, there is uncertainty about how quickly the invoices of medical providers will be settled, “given how long the South African government has often taken to pay suppliers in the past”.
On the demand side, individuals may have less funding available for their complementary medical scheme cover once they have paid their compulsory payroll tax.
Smith says this is a major concern and possibly the primary one for the private sector. The overall flow of funds to the private sector may be constrained.
“All of the above implies a major change or even curtailment in how the private health sector has approached healthcare provision in the past. This is both a good thing that will help to reduce wasteful expenditure, but it also brings risks to the stability and size of our private health sector,” says Smith.
