How Will The Health System Cope Over The Next Four Years?

This is the fourth of a four brief series on health expenditure in the public and private sectors. The first brief deals with commonly ignored components of health expenditure: provision in workplaces, and medical expenditure on health financed from the Compensation Fund and the Road Accident Fund. The second considers the impact of local government on health. The third brief sets out information on the pattern of health expenditure from 1 April 2019 to the 31 March 2020. This forms the baseline for examining the implications of the 2021 Budget for health expenditure over the medium term, the topic of this brief.

Introduction

Given the fiscally constrained medium term projections in the 2021 Budget, this brief explores the financing of health care expenditure and its implication for service delivery up until the 2023/24 financial year. The assumptions and projections in the Budget are used throughout the table below. Once the baseline projection has been presented, a brief discussion follows of what might happen if the assumptions are violated.

The analysis

The analysis proceeds by means of a row by row discussion of the table. All values are in current prices, unless otherwise stated.

Panel A

Rows 1 to 5 present successive estimates and projections from the 2019 to the 2021 Budgets, including the 2019 and 2020 Medium Term Budget Policy statements. Row 6 extracts current estimates and projections. Row 7 adds local government expenditure from own revenue. Rows 8 and 9 add in medical expenditure financed by the Compensation Fund and Row 10 presents aggregate expenditure in the public sector. Row 11 converts Row 10 into an index.

Panel B

Panel B presents an economic and demographic framework for what follows. Row 12 presents the GDP deflator, which permits conversion of GDP in current prices to GDP in constant prices. Row 13 presents GDP itself in billions of rand and Row 14 presents compensation of government employees in billions of rand and Row 15 converts Row 14 into an index. Row 16 presents United Nations estimates of the South African population[1] in thousands and Row 17 converts Row 16 into an index.

Panel C

Panel C calculates per capita expenditure on health in the public sector. Row 18 calculates average aggregate health expenditure per capita in current prices. Row 19 presents the consumer price index and Row 20 calculates aggregate health expenditure in constant 2020/21 prices. Row 21 converts Row 20 into an index. It indicates that the quantity of health services per capita will drop by 14.2% between 2020/21 and 2023/24.

Panel D

Row 21 presents too pessimistic an indicator of the quantity of health services provided in the public sector, because the intention of the 2021 Budget is to hold employee compensation costs to below inflation. So a unit cost index is computed in Row 22, assuming employee costs will evolve according to the compensation index in Row 15 and other costs according to the GDP deflator in Row 12. Row 23 rebases Row 22 from 2018/19=100 to 2020/21=100. Row 24 then calculates a quantity index, based on per capita expenditure in current prices from Row 18 and the unit cost index in Row 23. This indicates that the quantity of health services per capita will drop by 9.6% between 2020/21 and 2023/24.

Panel E

Panel E takes the analysis forward by considering the gap between the financing needed to keep the quantity index in Row 24 constant and the projected financing. Row 25 calculates the gap. Row 26 calculates the impact on the gap associated with spreading resources more thinly by not allowing expenditure to rise with population. This is bound to happen on projection assumptions, as the system battles to continue to afford the resources it currently has. This by itself does not close the gap, as Row 27 indicates. The only other source of savings would be to squeeze some of the rent out of the costs of procurement by the public health system, no easy task as spending on COVID-19 attests. A saving of 4% in non-employee costs (see Rows 28 and 29) would close the gap in 2021/22, but would still leave a gap in 2023/24, as Rows 25, 30 and 31 show.

Panel F

Panel F presents estimates and projections of household consumption expenditure. The index in Row 32 is taken from the 2021 Budget projection and Row 33 calculates household consumption expenditure itself.

Panel G

Panel G presents estimates and projections of the components of private health expenditure (Rows 34 to 38), all projected to grow at the same rate as household consumption expenditure. Row 39 presents total private health expenditure and Row 40 displays the percentage of total health expenditure provided by the private sector. By 2022/23, the percentage recovers to its 2019/20 level of 51.3% and in 2023/24 it rises further to 52.4%.

Panel H

Panel H presents estimates and projections of health expenditures across beneficiaries: all (Row 41) for expenditures benefiting the entire population, medical aid beneficiaries (Row 42), the medically insured (Row 43), and those who are neither medical aid beneficiaries nor medically insured (Row 44). Row 45 presents aggregate health expenditure for the system as a whole. Row 46 presents aggregate health expenditure as a percentage of GDP. It rises from 9.0% in 2019/20 to 9.9% in 2020/21 (because of the contraction in the denominator) and then declines again to 9.0% in 2023/24.

General interpretation

Given the projection assumptions, the health system will be under increased strain. In the public sector, it will not be possible to increase the size of the provision to compensate for a rising population, and if value for money in procurement in not improved, services will have to be cut. In the private sector, continuing rises in medical aid premiums above the inflation rate will press against modest rises in household consumption expenditure, prompting some to trade down between options provided by medical aid, or even to cancel it altogether.

What happens if the projection assumptions are violated?

The principal risk is that the unions manage to punch a hole in the government’s wage restraint policy. If this happens, the unit cost index will rise. It may be that the government will accommodate the change in employee compensation costs fully in future medium term expenditure projections, increasing health expenditure projections accordingly. With such accommodation, there would be no change in the quantity index. With less than full accommodation, the strain on public health provision would increase.

The second risk is that economic growth comes in below or above the projection in the 2021 Budget. We must hope that the latter is the case. If the former happens, the health sector is in for a very difficult time.

Conclusion

Introduction of National Health Insurance requires substantial modernization of the public health system. Finding money for the improvements up until March 2024 is going to be very difficult.

Charles Simkins
Head of Research
charles@hsf.org.za

Panel

 

Row

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

     

R billion

                 

A

Government health expenditure

             
 

2019 Budget

1

208.8

222.6

238.8

255.5

   
 

2019 MTBPS

2

209.7

222.7

238.5

257.2

272.9

 
 

2020 Main Budget

3

 

222.0

229.7

244.0

257.6

 
 

2020 MTBPS

4

 

219.1

226.2

235.3

242.0

246.3

 

2021 Budget

5

   

247.0

248.8

245.9

245.0

 

Best estimate/projection

6

209.7

219.1

247.0

248.8

245.9

245.0

 

Local government (own sources)

7

3.7

3.9

4.4

4.4

4.4

4.4

 

Compensation Fund

8

2.5

2.7

3.0

3.5

3.9

4.3

 

Road Accident Fund

9

3.6

3.4

3.8

4.4

4.9

5.5

 

Best projection with CF and RAF

10

219.5

229.1

258.3

261.0

259.0

259.2

 

Best projection Index (2018/19=100)

11

100.0

104.4

117.6

118.9

118.0

118.1

B

Prices and population

             
 

GDP deflator

12

100.0

104.0

108.5

112.7

117.4

122.5

 

GDP current prices

13

4924.0

5152.3

4995.7

5350.2

5671.8

6021.8

 

Budget: compensation of employees

14

584.4

623.8

637.0

650.4

656.0

659.3

 

Compensation of employees index

15

100.0

106.7

109.0

111.3

112.3

112.8

 

Population ('000s)

16

57793

58558

59309

60042

60756

61453

 

Population index (2018/19=100)

17

100.0

101.3

102.6

103.9

105.1

106.3

C

Per capita expenditure - public sector

             
 

Current prices (Rand)

18

3799

3912

4355

4348

4264

4217

 

Consumer price index (2018/19=100)

19

100.0

104.1

107.5

111.7

116.4

121.5

 

Constant 2020/21 prices (Rand)

20

4121

4082

4355

4186

3940

3735

 

Constant price index (2020/21=100)

21

   

100.0

96.1

90.5

85.8

D

Unit costs - public sector

             
 

Unit cost index (2018/19=100)

22

100.0

104.1

107.9

110.9

113.3

115.6

 

Unit cost Index (2020/21=100)

23

92.7

96.5

100.0

102.8

105.0

107.1

 

Revised quantity index (2020/21=100)

24

   

100.0

97.1

93.2

90.4

 

Panel

 

Row

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

     

R billion

                 

E

Gap analysis - public sector

             
 

Gap (R billion)

25

     

7.7

18.8

27.5

 

Spread more thinly

26

     

3.3

6.2

9.0

 

Remaining gap

27

     

4.5

12.6

18.5

 

Limit on non-compensation costs cut

28

     

4.0%

4.0%

4.0%

 

Per cent cut in non-compensation costs

29

     

4.0%

4.0%

4.0%

 

Cut in non-compensation costs

30

     

4.1

4.1

4.1

 

Remaining gap

31

     

0.4

8.6

14.4

F

Household consumption expenditure

             
 

HCE index (2020=100)

32

   

100.0

102.9

105.4

107.5

 

HCE R billion

33

3958.3

4129.9

4100.8

4383.1

4675.4

4976.1

G

Private health expenditure

             
 

Medical aid expenditure

34

172.2

185.9

184.6

197.3

210.5

224.0

 

Medical aid out of pocket

35

16.3

17.0

16.9

18.0

19.2

20.5

 

Medical insurance

36

9.4

9.4

9.3

10.0

10.6

11.3

 

Other private expenditure

37

23.8

23.8

23.6

25.3

26.9

28.7

 

Workplace expenditure

38

0.9

0.9

0.9

1.0

1.0

1.1

 

Total

39

222.6

237.0

235.3

251.5

268.3

285.6

 

Share of privately provided

40

50.3%

50.8%

47.7%

49.1%

50.9%

52.4%

H

Health expenditure by category

             
 

All

41

8.0

8.3

9.4

9.5

9.4

9.4

 

Medical aid beneficiaries

42

188.5

202.9

201.5

215.3

229.7

244.5

 

Medically insured

43

9.4

9.4

9.3

10.0

10.6

11.3

 

Others

44

236.3

245.5

273.4

277.8

277.6

279.5

 

Total

45

442.1

466.1

493.6

512.6

527.4

544.7

I

Health expenditure as per cent of GDP

46

9.0%

9.0%

9.9%

9.6%

9.3%

9.0%

 

Panel

 

Row

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

     

R billion

                 

E

Gap analysis - public sector

             
 

Gap (R billion)

26

     

7.7

18.8

27.5

 

Spread more thinly

27

     

3.3

6.2

9.0

 

Remaining gap

28

     

4.5

12.6

18.5

 

Limit on non-compensation costs cut

29

     

4.0%

4.0%

4.0%

 

Per cent cut in non-compensation costs

30

     

4.0%

4.0%

4.0%

 

Cut in non-compensation costs

31

     

4.1

4.0

4.1

 

Remaining gap

32

     

0.4

8.6

14.4

F

Household consumption expenditure

             
 

HCE index (2020=100)

33

   

100.0

102.9

105.4

107.5

 

HCE R billion

34

3958.3

4129.9

4100.8

4383.1

4675.4

4976.1

G

Private health expenditure

             
 

Medical aid expenditure

35

172.2

185.9

184.6

197.3

210.5

224.0

 

Medical aid out of pocket

36

16.3

17.0

16.9

18.0

19.2

20.5

 

Medical insurance

37

9.4

9.4

9.3

10.0

10.6

11.3

 

Other private expenditure

38

23.8

23.8

23.6

25.3

26.9

28.7

 

Workplace expenditure

39

0.9

0.9

0.9

1.0

1.0

1.1

 

Total

40

222.6

237.0

235.3

251.5

268.3

285.6

 

Share of privately provided

41

50.4%

50.2%

47.7%

49.1%

50.9%

52.4%

H

Health expenditure by category

             
 

All

42

7.7

8.3

9.1

9.2

9.1

9.1

 

Medical aid beneficiaries

43

188.5

202.9

201.5

215.3

229.7

244.5

 

Medically insured

44

9.4

9.4

9.3

10.0

10.6

11.3

 

Others

45

236.4

251.6

273.6

277.9

277.8

279.7

 

Total

46

442.0

472.2

493.5

512.5

527.2

544.6

I

Health expenditure as per cent of GDP

47

9.0%

9.2%

9.9%

9.6%

9.3%

9.0%


[1] United Nations, World Population Prospects, 2019