Payroll tax, surcharge on income tax will be considered to fund NHI

A payroll tax and a surcharge on personal income tax will be considered as additional sources of funding for National Health Insurance (NHI) once the necessary reforms “are ready”, the Department of Health’s deputy director-general for NHI, Dr Nicholas Crisp, told MPs this week. The reforms include the accreditation of sufficient public and private healthcare providers and defining the benefits that NHI will cover.

Health Minister Dr Joseph Phaahla and members of the department briefed the Portfolio Committee on Health on the department’s response to the submissions on the NHI Bill.

Regarding the Bill’s contentious section 33, which will see medical schemes relegated to providing only complementary cover once NHI “has been fully implemented”, Dr Crisp said the department “strongly believed” this section “should not be tampered with”.

He said allowing medical schemes to cover the same benefits as NHI would negate the purpose of having a universal healthcare funding system.

Dr Crisp emphasised that medical schemes will be able to provide only complementary, non-essential healthcare benefits that are not reimbursable by the NHI Fund.

Responding to criticism that the Bill left it to the Minister of Health to determine when NHI has been “fully implemented”, Dr Crisp said this could be dealt with in regulations where the minister is required to gazette the requirements for the determination of full implementation and the process for evaluating “where we are at” in attaining full implementation. He said it would probably create “a bigger problem” if the Bill tried to spell out these details.

He said the NHI Bill was designed as enabling legislation, and it was not appropriate to put “too much detail” in a primary Act. Regulations and other supporting documents would provide the specifics of how NHI would function as different needs evolved.

Dr Crisp made this point frequently during his presentation when responding to criticisms of different aspects of the Bill, such as the absence of details on what the NHI package of benefits will contain.

He said there was “a long road to travel” to achieve universal health care, and NHI will evolve “systematically and progressively”.

The department also rejected submissions that existing healthcare legislation must be amended or repealed before NHI could be implemented. Dr Crisp said these amendments and repeals should be dealt with while NHI was being implemented, to prevent unintended consequences.

‘Most of the funding is already there’

Turning to section 49 of Bill, which sets out how NHI will be funded, Dr Crisp said the department believed that most of the finances required to run NHI “are already in the system”.

NHI would derive most of its funding from general tax revenue. He said the collective health allocation to the national and provincial health departments this year was R256 billion.

Dr Crisp said a further R34bn could be reallocated to NHI from direct medical scheme tax credits (R27bn in 2019/20) and tax credits for out-of-pocket medical expenses (R7bn).

A third potential source of income was a payroll tax on employees and employers. In this regard, he said the state already contributed more than R50bn to public service employees who belong to one scheme (GEMS).

Dr Crisp the possible introduction of a surcharge on personal income tax would “just be a way to find the additional money that is currently spent […] on a voluntary basis through medical schemes”.

He said the funds required to run NHI would still be appropriated by Parliament.

“Once appropriated (by Parliament), the revenue allocated to the fund must be paid through a budget vote to the fund as determined by agreement between the fund and the minister and subject to the provisions of the Constitution and the Public Finance Management Act,” he said.

NHI will progressively cover essential health care, “as the reforms are rolled out”, making the private financing of healthcare expenditure through medical schemes unnecessary. For this reason, the department believes it will be affordable to shift funding to NHI through a dedicated payroll tax, for example, Dr Crisp said.

South Africa spends 8.4% of GDP on public and private health care, which was high compared with its peers.

The country needed to reform its healthcare system so that it spends no more than 8.4% of GDP – ideally, less – and still achieve a health system that ensures that everyone has access to health services “when they need them, where they need them, and without financial hardship”.

There were many inefficiencies in the public and private healthcare sectors, not the least of which was fraud and corruption and medico-legal claims that result from “badly organised and duplicate systems”.

The current fragmented healthcare system resulted in duplication and waste, he told MPs.

‘Medical schemes must consolidate their options’

The department and the Council for Medical Schemes did not agree with recommendations by the Health Market Inquiry that sought to maintain the current multiple funding system, Dr Crisp said.

These recommendations include a risk equalisation mechanism to balance national, provincial and district health-based risks and a reinsurance mechanism to protect small risk pools and remove barriers to entering the healthcare market.

He said the department’s point of departure was that health is public good and not a tradeable commodity.

In the initial phases of implementing NHI, medical schemes would have to consolidate their options from more than 300 plans across 75 schemes to one, Dr Crisp said.