The National Health Insurance Bill II: Insufficient detail on crucial aspects of the proposed NHI and its funding

The first brief deals with the current situation in the health sector and how the NHI proposes to change it, this second brief deals with the lack of detail that has been provided on crucial aspects of the proposed NHI and its financing, the third with the State’s ability to manage such a project and the fourth brief contains a summary of our conclusions.

The Bill’s general lack of detail

The Bill provides a legislative skeleton for later regulations of a very substantial nature, to be promulgated by Government (without the accountability involved in the process of passing bills)[1]. As a result, neither the public nor the health sector is afforded any glimpse of what the final product will look like. This will only become clear on the publication of regulations promulgated by the Minister, on a timeline of his/her own choosing and with the content of such regulations to be finalised as he/she thinks fit.

If proposed legislation with such far-reaching consequences, is so devoid of detail which is crucial to understanding its effects, and authorises that missing detail to be promulgated only subsequently through regulations by the Minister (to be done at the latter’s sole discretion), then it amounts to providing the Minister with a blank cheque.

Section 59(1)(a) of the Constitution provides that the National Assembly “must facilitate public involvement in the legislative and other processes of the Assembly and its committees”. In this context, public involvement obviously assumes that for it to be valid, from a constitutional and legal point of view, it has to constitute a process of substance, based on sufficient information being provided to the public. Inadequate information cannot form the foundation of a valid consultation exercise.

Government would need to provide sufficient detail for the public to understand what analysis and planning has been done, how the implementation is envisaged, how the quality of health services will be improved, details of the cost/tax implications and the precise legal and administrative effect the Bill will have on all parties who may be concerned. None of these things has been done. So the inevitable conclusion is that the public consultation process is fundamentally flawed. On this basis alone, it is open to legal challenge.

Lack of clarity on the role which private medical schemes will be able to play

The Bill empowers the Minister to make regulations on a wide variety of aspects.[2] These include the following:

• the legal relationship between the National Health Insurance Fund (“the Fund”) and health care service providers;
• the relationship between public and private health establishments; and
• the relationship between the Fund and private medical schemes. 

In respect of the future role of medical schemes, clause 33 of the Bill provides:

“Once National Health Insurance has been fully implemented as determined by the Minister through regulations in the Gazette, medical schemes may only offer complementary cover to services not reimbursable by the Fund.”

“Complementary cover” is defined as

“third party payment for personal health care service benefits not reimbursed by the Fund, including any top up cover offered by medical schemes registered in terms of the Medical Schemes Act or any other voluntary private health insurance fund.”

The way in which these provisions have been formulated leads to genuine confusion, as is shown by the following questions:

• in the case of persons who decide not to register as users of the NHI (and are therefore not entitled to NHI benefits and whose medical costs are therefore not reimbursable by the Fund), does it therefore mean that private medical schemes remain able to cover them in respect of all medical services? 
• if a health care service provider or health establishment decides not to register with the Fund, are private medical schemes able to cover their services?[3] 
• what will be the effect on the NHI if insufficient private medical practitioners register? Will this mean that the current situation in the private health sector simply continues as a result of a lack of interest in the NHI? 

The answer to all these questions would seem to be in the affirmative, but they cannot be answered with any degree of confidence from the manner in which the Bill’s provisions have been formulated. It is therefore not surprising that the Bill is causing a large measure of uncertainty and confusion not only amongst health practitioners, but amongst the broader public, and especially current members of medical schemes.

As far as the current degree of cover by private medical schemes is concerned, the details are provided in the findings of the 2018 General Household Survey.[4] These show that out of a total of 9 380 000 persons who benefit from private medical aid cover, 48.65% are Black, 9.15% are Coloured, 7.84% are Indian/Asian and 34.38% are White. Expressed in absolute numbers, and contrary to assertions that are made from time to time in public by Government representatives, more black people are therefore covered by private medical aid than white people.

However, expressed as a percentage of persons within each individual population group who are members of private medical schemes, a larger percentage of the white population group are members of private medical schemes than is the case with other population groups.

The two statistical comparisons set out above should not be confused.

A specific point needs to be emphasised: the Bill and the accompanying memorandum offer no explanation at all as to why an attempt is being made to exclude private medical schemes from continuing to provide cover. This is in itself evidence of irrational conduct on the part of Government. A much more sensible approach would be to allow private medical schemes to continue to operate. If, as announced by Government, the NHI offers quality services at no cost to the patient, demand for private medical insurance will rapidly decrease. However, Government does not seem willing to follow this approach. We find this attitude unjustifiably coercive and difficult to understand.

The NHI’s financial implications are not adequately dealt with and complicated by a misconceived “pooling” concept

The Preamble to the Bill states that

“in terms of section 27(2) of the Constitution the State must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of the right of access to health care services;”

However, the Memorandum which accompanies the Bill,[5] offers no estimate of the overall cost of the NHI (apart from some expenses of an initial nature). Section 27(2) of the Constitution makes it clear that the obligation of the State to provide health care services is subject to its available resources. If we do not know what NHI will cost, how can we know whether it will be accommodated by the State’s available resources? If it cannot be accommodated within its available resources, then the State has no constitutional obligation in this regard. In fact, it has a constitutional duty not to spend beyond its means. The financial implications of the Bill are not answered in an adequate manner in its accompanying memorandum.

The fact that the State has no estimate of the overall costs, is confirmed by recent statements, some of them of a surprisingly flippant nature. Dr Nicholas Crisp, a consultant to the Ministry of Health, has said the following: 

“how long is this going to take? The answer is a long time. ….. We don’t know all the details of what it will look like in the end. What we do know is we are going to have to be flexible. What is it going to cost? It’s going to cost as much as we can afford.”[6]

Other comments include those by Dr Olive Shisana, special advisor on social policy to the President, who has stated that

“The demand that the NHI Bill should indicate costs is unfair because costs change over time.”[7]

It is not rational to proceed with a project of these dimensions in the absence of cost estimates which are based on a comprehensive project analysis. The cavalier way in which the cost of the NHI is dealt with in public, seems to have its roots in the conceptual confusion caused by the concept of the “pooling” of funds to finance the NHI. This relates to the idea that public health expenditure (funded by Government) and private health expenditure (funded by private medical schemes) can be “pooled” to fund the NHI. This concept appears in the 2017 White Paper and often appears elsewhere in published Government material and in Government statements. However, what the Bill envisages is something quite different: the NHI is to be funded by Government from increased tax revenue - since there is no way in which private medical aid premiums can simply be appropriated by the State and redirected as it wishes. 

The way in which the concept of the “pooling” of financial resources has been presented, implies that Government is of the opinion that any moneys outside of the “pooled” resources cannot be used as premium payments for private medical aid. This assumes that taxpayers who pay increased tax to fund the NHI, are not allowed to use their after-tax income to pay for private medical aid premiums. If this thinking forms the basis of Government’s theory on the NHI, then it is illogical in the extreme. The absurdity of this logic becomes even more acute when one asks the question whether patients are permitted to pay for services from their own pockets - this seems to be allowed, but not as payment for premiums to belong to private medical aids that offer comprehensive cover. 

Government is therefore intending to prevent taxpayers who pay increased taxes as their contribution to fund the NHI, from exercising their freedom to choose whether to insure themselves independently from the NHI. It is attempting to force tax-compliant individuals to make use of the NHI by legislatively prohibiting any insurance-financed alternatives. No justification for such a prohibition has been provided. There is also no logical connection between the prohibition on privately funded medical aid schemes and the implementation of an NHI which is funded by taxpayers. This proposed legislation can therefore only be regarded as arbitrary and irrational conduct by the State and as such, amounts to an unconstitutional use of its legislative power.[8] 

Questions also arise concerning the concepts of freedom of association and freedom to contract, which the State can only limit in very specific circumstances. No justification is provided in the Bill or the associated documentation for limiting the ability of private medical schemes to provide cover to their members.

Absence of a feasibility study

It is clear from the Bill that the NHI constitutes a project of massive proportions, to be managed by an organisation which is to be established from scratch. In the case of start-up ventures of this magnitude and complexity, it is standard practice for a feasibility study to be conducted, including a detailed financial analysis and forecast. It is inconceivable that projects of such dimensions would even be considered in the private sector without a comprehensive feasibility study. The purpose of such a feasibility study is to plan and facilitate the start-up process by highlighting issues that may require special attention, by emphasising specific risks and by ensuring that the required financial resources are available. 

Feasibility studies would include various financial scenarios, to illustrate the consequences of specific policies or decisions. In order to obtain a better understanding of the financial implications of the NHI, a feasibility study should ideally assume several scenarios, depending on the level of cover to be provided. One could therefore see what the cost would be for various levels of cover, whether of a minimum, intermediate or maximum nature - and plan according to what is financially feasible. This has not been done.

In the specific circumstances of the NHI, one of the important roles which a feasibility study could play, is to determine how the private and public sectors can effectively operate within a single payment or funding structure to be provided by the State. Inadequate details have been provided on how this effective consolidation of the private and public sectors is to work in practice.

The 2017 White Paper on the NHI refers to the first phase of the NHI (2012 to 2017), but apart from a few general comments, makes no mention of what was actually achieved in that initial phase. In this context, the Minister has confirmed in Parliament[9] that certain pilot projects (which were often referred to as NHI pilot projects) were not NHI pilots but projects intended to improve the public health system. In that same reply, he stated that “the NHI policy was finalised after widespread research and consultation with local and international experts prior to its finalisation”. However, no details are available of the research and consultation to which he was referring. 

Concluding remarks

In the final analysis, it is irresponsible in the extreme to try to launch a project of this magnitude and complexity without an extensive feasibility study and an associated costing exercise. Otherwise, the State is effectively flying blind - as reflected by Dr Nicholas Crisp’s comment which is quoted above. It hardly needs mentioning that if it is not at all clear what the NHI will cost, how can it be estimated by how much tax revenue will have to increase in order to fund it? Is it feasible or realistic to increase taxes (personal or otherwise) to the levels that may be required? As a result of the lack of estimates on the cost of the NHI, nobody knows. 

Three months after the publication of the Bill, on the occasion of the Minister of Finance’s Medium Term Budget Policy Statement in Parliament on 30 October 2019, National Treasury’s comment on the financing of the NHI, reads as follows:

“…. given the macroeconomic and fiscal outlook, the estimates to roll out NHI that were published in the NHI Green Paper in 2011 and White Paper in 2017 are no longer affordable.”[10] (emphasis added)

It is surprising that neither the Minister of Health nor his Department have as yet commented on this statement by National Treasury. What is proposed in the Bill has evidently been done without including National Treasury’s opinion on its affordability (or even consciously disregarding it) - given the lack of analysis and planning for its implementation and operation, coupled with a refusal to accept National Treasury’s view that it cannot be funded, can only lead to one conclusion: it cannot constitute a rational project.

Anton van Dalsen
Legal Counsellor
anton@hsf.org.za