Economists explain how the NHI can work in South Africa

Economists have highlighted how the National Health Insurance (NHI) scheme could work in South Africa, but the government will struggle to raise the necessary funds for it in its current form.

Dr Anja Smith and Claire Bisseker from the Bureau for Economic Research (BER) said that the outlook for the NHI is deeply uncertain.

Aside from lengthy legal challenges, the recent reversal of a VAT hike in the 2025 Budget shows society’s deep aversion to tax hikes to fund further government spending.

With the government facing intense scrutiny over raising VAT by just half a percentage point, it remains doubtful that it will be able to finance the ambitious plans for the NHI.

The problems with the NHI arise as necessary reforms are postponed in the medical scheme environment, which is already under extreme strain.

“A lack of risk-sharing mechanisms between schemes, combined with low employment and economic growth, has contributed to an ageing membership base and rising costs,” said the economists.

Although the medical scheme environment is screaming for urgent regulatory reform, the NHI would dismantle medical schemes and, thus, the country’s main health risk-pooling
Mechanisms.

Private sector participants gave an alternative proposal, arguing that the NHI should compete with medical schemes in providing and expanding coverage to all formally employed individuals.

Employers would then have the option to purchase workers’ coverage from the NHI Fund or existing medical schemes.

Roughly 26% of employed South Africans, excluding their dependents, have medical aid via their employer, but this cover is not mandatory.

As per the social health insurance plan, coverage would be extended to the rest of the population only once all the employed had mandatory coverage.

What should be done

If the NHI scheme were to work, the BER’s experts said a phased social health insurance approach should be considered.

This would primarily require the implementation of a risk-sharing or risk equalisation fund (REF) between medical schemes.

The system would see the transfer of funds to sicker, poorer members from healthier, younger members.

The medical schemes sector ran mock versions of the REF until 2011/2022 but abandoned them once the focus switched to the NHI. Hopefully, this preparatory work could be revisited.

The Smith and Bisseker added that an uncovered middle-market population of at least 3 million has been largely overlooked.

This group is too rich for public hospitals but unable to afford medical schemes. Many of the plans for this group were also put on hold due to the NHI.

“While some limited private health insurance products have emerged to cater to this group, their existence (by potentially attracting younger households away from medical schemes) may have undermined the growth and stability of the sector as a whole.”

The Competition Commission’s 2019 Health Market Inquiry (HMI), if implemented in full, could also help prevent cracks via the following:

• The establishment of a multilateral negotiation forum to facilitate price negotiations in the private sector.
• Introducing a mandatory package of basic benefits for all medical schemes that covers at least preventative care, if not hospitalisation.
• Establishing an independent regulatory body to oversee pricing, licensing, and provider behaviour to prevent excessive costs and inefficiencies.
  • In March, the Department of Health announced it would establish an internal healthcare capacity planning division to deal with some of these functions.
• Compulsory membership for all formally employed individuals is funded through joint employer and employee contributions.

Another key reform would be to move to income cross subsidies or income rating, which would entail aligning medical scheme contributions to the income level of the primary member.

This would mean that higher-earning members would pay higher contributions.

The economists said that if all of these reforms were implemented, it would give a solid base from which to roll out risk-pooled health cover to the rest of the population.

“We have postponed critical health financing reforms for almost 20 years, and now our health financing infrastructure is crumbling as the necessary system maintenance has not occurred.”

“Without stabilising reforms, we risk those currently reliant on the private sector becoming a larger burden to the state.”