As the National Health Insurance (NHI) Bill advances towards potential enactment in South Africa, it signifies an important milestone in the nation's endeavour to ensure equitable healthcare access for all citizens. Having been passed by the National Assembly in June of last year and subsequently endorsed by the National Council of Provinces in December, the bill now awaits Presidential approval. However, this process could still extend over several months. The bill is shrouded in controversy given concerns surrounding its lack of clarity on certain key elements, execution, and funding.
In 2022, South Africa's total healthcare expenditure amounted to R542 billion, with 43% attributed to medical schemes, 49% spent by the government, and the remainder funded from out of pocket (Chart 1).
The disproportionate allocation of healthcare funds, highlighted by the fact that around 15% of the population utilises private healthcare services, underscores the prevailing inequalities within South Africa's healthcare system (Chart 2). The NHI Bill proposes a single fund to procure healthcare services from providers on behalf of all citizens, aiming to address the gap between public and private healthcare sectors.
The NHI Bill endeavours to achieve universal coverage, ensuring that all South Africans have access to essential medical services, irrespective of their socio-economic standing. Few would contest the nobility of such an objective; the disparities it seeks to rectify are difficult to overlook. Nonetheless, challenges arise when considering the practical implementation and financial sourcing required to realise this goal.
Chief among the concerns is the issue of funding. The bill outlines that funding will be derived from contributions from general tax revenue, medical scheme tax credits, payroll taxes, and surcharges on personal income tax. However, the precise modalities and sustainability of these funding mechanisms remain ambiguous. South Africans are already burdened with taxation, prompting the question of how to secure additional taxes to support the NHI. Chart 3 below presents a simple calculation comparing current medical contributions to the tax burden under NHI for existing taxpayers. Clearly, it becomes evident that taxpayers face even greater strain under NHI.
Recent setbacks experienced by state-affiliated entities like Eskom and Transnet have understandably cast doubt on the government's ability to manage substantial funds effectively and efficiently. With projections indicating that the single fund will oversee more than R500 billion upon full implementation of the bill, apprehensions regarding its sheer magnitude are warranted.
The potential ramifications of the NHI Bill on existing medical aid schemes have garnered widespread attention. While the bill assures the continuation of these schemes alongside the NHI, it states that once fully implemented, medical schemes may only offer complementary cover to services not reimbursable by the fund. Accordingly, questions linger concerning their future role and the scope of services they will offer beyond those covered.
Private hospital operators could stand to benefit from the bill's potential to increase occupancy rates in their facilities. However, the bill states that the NHI fund must negotiate the lowest possible price for goods and healthcare services, which could mean that hospital operators may have to offer their services at significantly lower rates. This situation may lead to rates that fall below what is necessary to meet their operating costs.
As South Africa approaches forthcoming elections, the NHI Bill will likely emerge as a prominent facet of the ruling party’s campaign. The party is poised to position itself as a proponent of healthcare reform. This could potentially exert political pressure on the President to sign the bill prior to the elections.
Nevertheless, concerns persist regarding potential legal challenges that the bill may encounter, prompting speculation about the possibility of only a portion of the bill being signed or its return to parliament by the President. The journey towards implementation is expected to be lengthy, with some commentators even saying it could take decades. The topic will clearly maintain significant public interest for years to come.
The "noise" likely to surround the NHI Bill could continue to negatively impact investor sentiment and business confidence in the private healthcare sector. This is reflected in the derating of Netcare shares (Chart 4). Given the numerous shortcomings of the NHI Bill, some of which have been discussed above, we do not see an imminent full implementation and accordingly do not see an impact on earnings for companies operating in the sector. During times of uncertainty, there is often an opportunity to buy attractive stocks at interesting valuations. This could very well be one of those opportunities.
