Fact or fiction? National Health Insurance (NHI) could increase costs for employers.
Fact, according to Fazlin Swanepoel, the head of Health at Alexforbes.
“It’s going to potentially be funded through payroll tax and possibly a surcharge on personal income. National Treasury has warned this could raise the cost of employment for employers, and lower take-home pay for workers,” she said.
Swanepoel discussed NHI and its potential impact on employers and employees at Alexforbes’s annual Hot Topics event in Cape Town this week.
Swanepoel said the funding of NHI is likely to mirror the Unemployment Insurance Fund, with both employers and employees potentially contributing. She said the payroll tax will be uniformly applied across the entire formal employee sector.
The NHI Act provides for the reallocation of the Medical Scheme Fees Tax Credit (MTC) to the NHI Fund.
The MTC is a non-refundable rebate designed to lower the tax liability of individuals. It applies to fees paid to a registered medical scheme (or similar fund abroad) for a taxpayer and his or her dependants. For the 2024/25 tax year (1 March 2024 to 28 February 2025), the tax credits are R367 a month for the principal member, R367 a month for the first dependant, and R246 a month for each additional dependant.
The MTC costs the fiscus about R30 billion a year, she said.
“This is in all likelihood the first sort of tax that will happen. In fact, it was anticipated that it would happen this tax year, but they seem to have moved that out.”
Swanepoel said if the MTC is removed, taxpayers will feel the pinch, particularly employers who are subsidising medical scheme contributions.
“There’s going to be that consideration that you might have to make about what you do to ensure that people’s take-home [pay] is the same and how do you bring them back to exactly what it is that you had intended to provide them with in terms of benefits.”
Ethical dilemma
Currently, 84% of the population relies on state-provided healthcare, while 16% access private healthcare. Despite similar spending – R265bn by the state and R235bn by the private sector – the distribution of resources is vastly different. On average, public healthcare spending is about R5 200 per person, compared to R27 000 per person in private healthcare – a significant disparity in healthcare access.
Additionally, R42bn is spent by those who opt to cover healthcare out of their own pockets.
The NHI Act aims to achieve equitable universal health coverage (UHC) for all citizens, permanent residents, and refugees. To facilitate this, a centralised NHI Fund will be established. This fund will be responsible for purchasing and delivering health services. The fund will not own any healthcare infrastructure.
Swanepoel said the goal of UHC should be supported, but “the model of NHI as we know it, in its current form, cannot work”. This is particularly because private healthcare costs are expected to double in the next seven years.
“What we need to do is get actively involved and not hide our heads in the sand and pretend this thing is going to go away or hope for every other stakeholder other than corporate South Africa to get involved and drive this conversation. We have to help shape reform. It is going to be something that is going to happen or it’s going to happen to you,” she said.
Paying the piper
In its 2017 White Paper on NHI and the NHI Bill, the Department of Health stated that an additional R200bn a year would be required to fund NHI. And that did not include the estimated R255bn to repair public healthcare infrastructure.
A report by FTI Consulting, commissioned by organised business, noted that no details are available about the NHI benefits package, its total cost, or how the funds will be raised. It used the R200bn figure as an illustrative value and proposed three potential tax increases to generate the funds:
- Increasing VAT from 15% to 21.5%.
- Raising personal income tax rates by 31% across the board.
- Imposing a payroll tax of about R1 565 a month on employees in the formal, non-agricultural sector.
The report also suggested that if all workers, both formal and informal, contributed, the payroll tax would be about R1 072 a month.
Read: How much tax you may have to pay to fund NHI
Swanepoel said, according to some commentators, NHI will be funded by a combination of different taxes: VAT increases, a surcharge, and mandatory pre-payments.
“And should you wish to cover the shortfalls that NHI doesn’t cover, some individuals will have to consider the possibility of paying for complementary cover (yet to be defined),” she said.
Read: How the NHI shake-up may impact South African healthcare
Information about the exact thresholds or rates at which these taxes will be implemented has not been provided.
“However, depending on the amount, these contributions could be less than current employee contributions to medical schemes,” Swanepoel said.
You will not, however, be expected to pay both the additional tax and your private healthcare costs once NHI is implemented, she said.
A long time coming
Do not expect NHI to be implemented any time soon.
The NHI timeline is divided into three phases: 2023 to 2026, 2026 to 2028, and post-2028.
Phase 1 includes the appointment of an NHI board, a chief executive, and related committees; strengthening the health system; establishing institutions, registering the NHI fund as an autonomous public entity, as contained in Schedule 3A to the Public Finance Management Act; and purchasing health services for “the vulnerable”.
Phase 2 will focus on establishing and operationalising the fund as a purchaser of healthcare services, including selective contracting from private providers; setting primary care as a priority; and implementing a biometric identification system.
The funds allocated to NHI in the 2024 Budget will be directed towards phases 1 and 2, spanning from 2026 to 2028.
“Currently, there are nine pilots that are happening in a particular province, testing various mechanisms around the NHI, so it’s not that the government is just going into this blindly … And that is to test a lot of governance elements: how it should work, what should we look for, all the pitfalls,” Swanepoel said.
Contracting and engaging with providers – talking to them about quality standards – is only set to begin after 2028.
Swanepoel said the focus will be on public sector hospitals: the actions that must be taken to revitalise them and ensure they can deliver effectively.
Expect delays and then some
According to the timeline, financial integration is scheduled for after 2032/33. However, delays are expected, making it likely that the timeline will be extended.
Media reports suggest potential constitutional challenges to NHI.
Read: Solidarity and BHF file court papers challenging NHI
Then there’s the pressing issue of funding.
“Removing tax rebates is considered a potential funding source, but it is insufficient given the tight budget. Additional funding methods, like new taxes and their impact on the economy and households, could complicate the process further,” Swanepoel said.
Also, the Minister of Health does not have the authority to raise taxes. Raising taxes requires a Money Bill, which is the domain of the Minister of Finance and National Treasury, which will have to take account of fiscal constraints, including the pressure to fund other social security projects.
Another significant issue is infrastructure.
“This will require the upgrade of public facilities and the development of new financial and accounting systems, along with the centralisation of budgets and the implementation of governance oversight structures,” she said.
In the meantime, members of medical schemes are advised to sit tight and not cancel their medical scheme plans.
“The timescales for the implementation of the NHI are still uncertain. At this stage, it will probably take us about eight to 10 years, some people are saying 10 to 15 years. The fact of the matter is that it is still several years away. And the NHI is very clear around the fact that you can only access services once the NHI is fully implemented, and even that hasn’t been clearly defined,” Swanepoel said.
