||Patrick Bond & Sidney Kgara The Mercury (Eye on Civil Society column) 1 October 2009
Managing the health of the nation A national health insurance system is achievable, and the benefits it would bring would substantially offset its costs
CIVIL society is increasingly insistent that national health insurance
(NHI) be adopted. Cosatu, the Treatment Action Campaign and independent
health workers expect the ANC to keep its most substantive campaign
promise, overcoming objections mainly from the private insurance
industry, but also from those worried that the state cannot perform such
an important function.
In fact, the SA Revenue Service shows that collecting finances in a
fair, transparent and efficient way is not beyond the state's capacity,
and there is no reason a similar system to centralise our health-care
finances cannot be established, similar to Canada's single-payer system.
But how much would it cost to make decent health care universal? Two
anti-NHI researchers, Servaas van der Berg and Heather McLeod, recently
claimed in Business Day that the NHI will fail to meet the expectations
of the poor, will leave medical scheme members (including the working
poor) worse off, will be massively expensive or even completely fiscally
unaffordable and will require far more doctors and nurses than are
Only the last point is valid today, but a major inflow of new patients
previously denied care, plus the availability of NHI funding, should be
met by a growing stable of health workers at all levels. The University
of the Western Cape Public Health School did research for organised
labour on this point, and made recommendations aimed at increased
preventative human resources capacity that will be released next month.
So when Van der Berg and McLeod observe that most poor people seeking
treatment currently see a nurse, while the wealthier see doctors, they
articulate a widespread concern that the current system is expensive and
over-serviced at the high end, especially due to excessive use of
specialists. A properly functioning district health system would rely
more on community health workers and nurses.
Concerns about unaffordability are debatable, however. Above and beyond
existing health-care spending, up to R50 billion (in 2006 rands) would
be required once NHI has been phased in.
This is important because a wildly implausible comparison was made in
Business Day last month by a University of Pretoria economics professor,
Steve Koch. He said that to provide coverage for 47 million uninsured US
residents would require $122bn (R909bn) in their bloated system (with
its 16 percent health/GDP bill). Koch later explained that he had wanted
to generate a wow factor with the comparison. This is not an ethical
approach to a serious debate, especially when the Congressional budget
office has repeatedly found that universal coverage through an NHI
scheme would lower overall US health-care costs.
Similarly, we've seen published estimates of 20.1 percent health/GDP
under an NHI scheme (more than three times what we calculate) from
Discovery's deputy chief executive Johnny Broomberg, and even 50 percent
of GDP from consultant Alex van den Heever. We hope these commentators
soon move beyond the wow factor and rooi gevaar politics so we can
crunch these numbers soberly.
So let us join the debate by attempting to calculate NHI costs to the
overall health-care system bearing in mind several political desirables.
A model we have developed with Johns Hopkins University Bloomberg School
of Public Health researchers is the most sophisticated yet constructed
to answer the cost question.
First, the NHI contribution should be less than what members and their
employers currently pay to medical schemes - a perfectly reasonable
request given the raised rates, rip-offs and denials-of-care we now
suffer from private insurers.
Our model suggests we can simultaneously lower premiums by 15 percent,
end co-payments and expand coverage to all while permitting private
health-care suppliers to continue operating at present rates, without
private insurers' mark-ups. Assume, as well, that the state will be slow
to get up to the delivery speed required, since it depends upon funding
that was in short supply during the Mbeki-era health-care drought. Hence
our model assumes that the existing mix of public and private services
will remain roughly the same in the short term.
Moreover, unlike Van der Berg and McLeod, let's assume for the sake of
modelling that, as a result of increased short-term demand, NHI will not
immediately get private hospitals and general practitioners to provide
services at lower costs, although that is obviously a future public
policy goal, given that medical aid payments to specialists increased in
real terms by 53 percent and to hospitals by 74 percent from 1997 to 2005.
A telling example is South Africa's epidemic of Caesarean section
births, costing vast amounts, mainly to suit the private sector's
assembly-line orientation and aversion to weekend deliveries.
Although the private healthcare sector's finances are not adequately
disclosed at present, Van der Berg and McLeod note that some preliminary
NHI annual cost calculations we did for Cosatu ranged up to R231bn. But
the figures they cite do not include anticipated savings and benefits
that NHI will provide society.
Indeed, most NHI-sceptics refuse to contemplate the huge administrative
savings, bulk buying and differential health needs of the population,
which will lower NHI per capita costs. That failure is the main reason
why hyped-up health-care cost/GDP figures are being tossed around.
Further, an increase in overall health spending of slightly less than 50
percent within five years, as our figures suggest is feasible once these
savings are factored in, can be justified in part by the socio-economic
benefits we would all receive. Labour productivity improvements, a
Keynesian multiplier of nearly 5 percent and much lower
morbidity/mortality rates are reasonably anticipated from NHI.
Together, these factors mean that Van der Berg and McLeod have reached
their conclusion prematurely: The current proposal is beyond what the
country can afford.
To be sure, the government's proposal needs fleshing out, but even with
the conservative assumptions noted above, the savings and benefits go a
long way to meeting the added costs of NHI.
What is missing in this debate is not technical information. It's the
voice of those presently unserved by an apart- heid-style health-care
financing system that the government has promised will change. That
promise will only be kept by civil society watchdogs who in coming weeks
should become as loud as the insurers, consultants and other vested
# Bond directs the University of KwaZulu-Natal Centre for Civil Society.
Kgara is head of the policy development unit for the National Education,
Health and Allied Workers Union.
‘NHI denialists’ distort costs of National Health Insurance
(It’s actually not much – R50 billion/year after a phase-in - if you add
benefits and consider savings – but a huge cost to big capital if you
subtract profiteering and factor in class-power shifts)
By Patrick Bond and Sidney Kgara
Amandla!, September 2009
Very few have articulated our healthcare crisis as well as visiting
Australian health economist Gavin Mooney: ‘the public sector is grossly
underfunded and overworked; the private sector is grossly inefficient
and inequitable. This is a disastrous combination for health and for
But there are some who profit from this system and don’t want it to
change in any fundamental way. They are whipping up hysteria, claiming
the proposed NHI plan will cost the earth.
For at least one economist, this strategy represents professional
malpractice – the equivalent of a medical doctor turning AIDS-denialist.
NHI denialists are not as dangerous, to be sure, but their recent
fibbing proves how useful a state ‘single-payer’ insurer could be for
the working class and poor, as well as the lower-middle and probably
also the middle-classes, in all likelihood.
Further opposition can be expected from for-profit insurers like
Discovery, huge employers who use medical aid perks as bargaining
weapons in the class struggle, and ideological watchdogs like Business
Day and the Financial Mail, whose coverage of the issue is severely biased.
All will lose power and wealth as the NHI is implemented. So what are
they and their favourite economists telling us?
The main technique of NHI-denialism is to call the baby vastly
overweight, in danger of consuming a fifth or more of our Gross Domestic
Product (GDP) when fully-grown.
In June, deputy chief executive of Discovery Johnny Broomberg claimed,
‘If the NHI were to provide the current package of benefits obtained by
the average member of a medical scheme to the entire population, this
would cost about R497 billion, equivalent to 20.1 percent of gross
In August, MoneyWeb quoted Alex van den Heever saying NHI proponents
want to spend ‘half of GDP’ on health care and ‘they have lost the
plot’. At the same time, University of Pretoria economist Steven Koch
wrote in a Business Day column: ‘A universal plan would need to cover
about 41-million South Africans, in addition to the 7-million already
covered. Researchers in the US have estimated that the cost of covering
an additional 47-million people could exceed $122bn a year.’
Asked how he could make such a comparison, Koch answered, ‘I admit that
using the US as a comparison was partly for “wow factor”, given the size
of estimates there, but it was also done, due to the similarity in
current circumstances - the US is trying to get a plan enacted.’
Similar? The US spends more than 15 percent of GDP on healthcare – due
mainly to the huge administrative costs in the private-centred system –
and has a much larger GDP per person, while the health/GDP ratio in SA
is less than 9 percent.
Even using the same public-private mix as at present, the additional 41
million people to be covered here would cost nowhere near $100 billion
(or R780 billion) as implied. In our estimates, the additional NHI
health financing required is less than R50 billion, even after giving
existing medical aid beneficiaries a break from copayments and cutting
monthly premiums by 15 percent.
And even if SA GDP growth is half the rate it was in the late 2000s,
the cost of the NHI and all other public healthcare spending as a
percentage of GDP in 2015 should fall below 7 percent (less than R170
billion in 2006 rand), not rise to 20 percent, as Broomberg wildly
How much, exactly, would a working NHI cost SA society? A team comprised
of Cosatu and affiliates’ officials plus international academic experts
recently considered the most recent reliable data for all the variables
What we found was that more than half the society’s resources are today
directed to just 15 percent of the population (Table 1). Although
medical aid scheme membership grew dramatically during the 1980s-90s, it
has stagnated since, with no strategies designed to draw in larger
numbers of lower-income people, especially those suffering from ill health.
Table 1. Health Care Costs, 2006
Category Public Medical Aids AidsSchemes Total
Total Expenditure R57.3 bn R59.6 bn R116.9 bn
Total Population 40 263 686 7 127 343 47 391 029
Per person R1 423 R8 361 R2 467
If we assume that an NHI suffers no duplicate coverage by private
insurers, what savings can be expected in equalising coverage?
For hospitals, the percentage of revenue spend on administration is
assumed to be 26 percent, with savings of 22 percent from centralised
administration (based on studies comparing the US and Canada).
For physicians, the percent of revenue due to administration is assumed
to be 30 percent, with savings of 36 percent.
Overall administration of the NHI is assumed to be 3 percent of the
total cost, similar to other countries with NHI.
In addition to administrative savings, NHI would allow a reorganisation
of health care delivery to reduce costs and improve quality of care. For
example, 16 percent additional savings when procuring medical supplies
are anticipated from bulk buying power, especially against Big Pharma.
Health consumers can be divided, roughly, into four clusters of
patients with very different cost structures. The difference between
high-end and low-end users is 33 percent, because of variations in
disease rates, provider choice and demographic factors, and hence there
are savings due to more low-end users within an NHI, of 12 percent.
With additional public sector resources (needed in the wake of the
Mbeki government’s systematic underfunding), we anticipate the entire
system will shift towards primary health care, prevention and health
promotion, as have Thailand and Brazil so effectively.
But add two more costs to our model: at present, 14 percent of total
health care expenditures are out-of-pocket payments by individuals,
which NHI should cover; and moreover, our NHI model assumes that medical
aid scheme members will receive a 15 percent discount on current payments.
For the sake of argument, assume that an NHI would keep the current
public-private mix of health services provision: 83 percent of
hospitalisations, 65 percent of dentist visits, and 16 percent of
primary doctor visits are in the public sector, the rest in the private
Of course, NHI would immediately increase funding for public services
and hence improve the quality of services, which would retain patients
and attract others. Still, to be conservative, the existing
public-private mix is retained in our model.
If we include all these factors, the annual cost of NHI – in the fifth
year of phase-in, at 2006 prices - is estimated at R154 billion. That
sum includes a savings adjustment of 33 percent on existing costs,
escalated for full universal coverage, so everyone should get a basic
package of healthcare services.
But there are other health care costs to consider: roughly R12 billion
for HIV and AIDS, facilities infrastructure, Emergency Medical Services,
nutrition and similar programmes. The total then would be just over R165
billion, or about R3500 per South African served.
Benefits of NHI
What of the NHI’s many benefits? Our team also calculated three sources
of broad-based socio-economic gains: macroeconomic multiplier benefits;
labour productivity gains; and lower rates of illness (morbidity) and
First, increased demand for health care has spillover effects by
stimulating growth for the economy, via the impact of investments in
stimulating demand on economic growth. The ‘Keynesian multiplier’ can be
calculated as a 5 percent increase in overall economic activity
associated with an additional investment in health care.
Second, the health system affects the productivity of labour in the
production process, with a 20 percent improvement estimated. Third, a
well-coordinated NHI could potentially achieve 184 000 fewer deaths and
20 percent fewer sick days per year.
Now is the time for NHI
The global capitalist crisis is poisoning healthcare in several ways,
for which NHI is an antidote:
dramatic declines in the formal labour force shrink the number of
workers with medical aid;
unemployment and illness are closely linked, and without medical aid,
the state’s health system is coming under further stress;
financial assets held in reserve by private medical aid schemes suffered
huge losses (typically 25-40 percent) during 2008, which reduced their
ability to cope with increased disease burdens from the economic
employer cost-cutting during a time of declining profits typically
includes cuts in employee health benefits.
NHI benefits include the mitigation of these problems. Moreover, a much
larger health workforce thanks to NHI translates into greater tax
returns for the state. South Africa hires only about a fifth of the
relative numbers of health workers as comparable countries,
notwithstanding much lower-priced health care labour.
New spending – from where?
In sum, to get these benefits, we need roughly an extra R50 billion/year
(in 2006 rands) beyond the current spending of around R120 billion.
There are two main sources: extension of payroll deductions to all
current full-time workers who are presently not in medical aids, and
higher general tax revenues using a higher rate for wealthier South
But the R50 billion more in annual healthcare financing will be
manageable thanks in part to higher tax revenues that will enter the
system. In return for increased spending, the society will see potential
improvements in health status that can easily be shown to have an
economic multiplier impact, productivity merits (both for workers and
broader society) and much lower morbidity/mortality rates.
We know won’t convince those suffering rooi-gevaar hysteria or
dishonestly seeking a ‘wow factor’, but if we put the Broombergs, Van
den Heevers and Kochs in context, it’s clear NHI is a reasonable,
affordable and indeed desperately needed addition to post-apartheid
Bond directs the UKZN Centre for Civil Society and formerly taught
health policy at the Johns Hopkins School of Public Health; Kgara is
Nehawu policy officer.