South Africa’s National Health Insurance Plan Unworkable

Thursday, October 09, 2008

By Eustace Davie

EustaceAccording to press statements, the government is being urged to adopt a radical form of national health insurance (NHI) that makes medical insurance compulsory, outlaws private medical schemes, and places the management of all health insurance under the control of a single public administration. The plan in the form in which it is being put forward, if adopted and implemented by government, is doomed to fail.

The consequences of the NHI proposal are entirely predictable. It would reduce the quantity and quality of South African health care provision, drive more healthcare professionals out of the country, create a bureaucracy that would be entirely incapable of efficiently handling the huge volume of claims, and impose an unnecessary and intolerable burden on government. The resultant lack of quality health care will increase the "brain drain" as citizens move to countries where they and their children have a better chance of surviving serious illness.

Evidence that NHI will fail in South Africa can be found in a new Canadian study, The Hidden Costs of Single Payer Health Insurance: A comparison of the United States and Canada, released by the Fraser Institute on 30 September. The study compares some of the key aspects of the health care systems of Canada and the United States, including the supply of medical resources, access to technology and effective health insurance coverage.

"Advocates of single-payer health care systems tend to promote the allegedly lower monetary costs, but they ignore the lack of access to medical resources," said Brett Skinner, Fraser Institute Director of Health, Pharmaceutical and Insurance Policy Research and lead author of the study. "The point of the comparison is to show that all the costs of a single-payer health care system are not as obvious as the dollars spent," said Skinner.

In the provision of health care in any country there are two critical aspects. The first is the relative wealth or poverty of the nation, the second is the institutional structure within which health funding and provision occurs.

Americans and Canadians are four and five times wealthier than South Africans, even on a purchasing power parity (PPP) basis. The comparative GDP per capita (PPP adjusted) in US dollars is America $45,800, Canada $35,800 and SA $9,800. Obviously, average per capita spending on health care in SA cannot compare with that in the US and Canada. The NHI advocates are eyeing the money that the top South African earners, and those who forego spending on other things to purchase quality health care for their families, with the idea that they can appropriate (steal) these funds to spend on the health care of others. They speak of the "healthcare spend" and the inequity in spending on health care, always failing to mention that they are referring to people who are spending their own money on their own health care. Presumably if they are successful in appropriating people’s "healthcare spend" they will move on to appropriating their "food spend", their "clothing spend" and so on, until their victims have fled the country and there is nothing more left to appropriate.

Advocates of appropriating the 60 per cent of total "healthcare spend" of people who are purchasing health care for their families, from private providers through medical schemes or out of pocket, are inclined to forget another important factor in the health care equation: the same people provide out of taxes for the greater part of the 40 per cent spent on health care by government. So the same group of citizens, who are supposedly inequitably advantaged in health care, are paying for most of the country’s "health care spend".

The institutional environments in the US and Canada differ markedly. America places reliance on voluntary self-provision, as we do in SA, supported by taxpayer-backed assistance to people with low incomes, while Canada has a single-payer system, paid for out of taxes, which is tantamount to NHI, except that the apportionment of cost may differ. The US does not promise "free health care for all" while Canada does.

Canada’s problem is that, despite its relative wealth, it cannot deliver on its promise of "free health care for all". Canadian government data, according to the study, shows that an estimated 1.7 million Canadians (aged 12 and older) were unable to access a regular family physician in 2007. The percentage of the population that was "effectively" uninsured for non-emergency, necessary medical services at any given time was 6 per cent, which was not very different to the 7.9 per cent in the US. Of course, there is no such thing as "free health care" – if you are not paying for your own health care, somebody else is. Because Canada is unable to meet its "free" health care promises it has to resort to denying people health care, placing them on months-long waiting lists for physicians, specialist consultations, MRI scans, CT scans, surgical procedures, a host of services that in the US are immediately available.

Even in SA’s public health services, waiting times are shorter than those often experienced by Canadians. SA’s per capita public healthcare spending is similar to that of Chile, Brazil, Argentina and Russia. All it needs is improved quality, which does not depend on money alone. The introduction of the NHI scheme would destroy a health delivery process that, while beset with problems, provides a remarkable level of access to health care, including to the poor, despite SA’s lack of monetary resources.

The best option for SA is for government to remove all barriers to entry into private health care provision and funding, such as the Certificate of Need that is preventing the erection of new hospitals and clinics; the suffocating legislation and regulation that is preventing the development of new medical schemes and insurance products for the financing of health care, and the price controls and bureaucracy that are interfering with the delivery of medicines. Allow the private health sector to grow as rapidly as possible so that it can provide services to an increasing percentage of the population as they become capable of covering their own health care costs.

Government, for its part, should concentrate its attention on improving the quality and efficiency of the delivery of health care to the low-income members of the population. Where it is unable to deliver it should contract out delivery to private sector providers. Government medicine purchases have for many years been purchased from pharmaceutical manufacturers at very low prices, made possible by higher prices paid by private patients. Policy makers should build on the high quality of services that are already available in SA, aiming at ensuring that, over time, all health care provision attempts to emulate the best available. Given the Canadian experience and SA’s relative poverty it is clear that the NHI notion, especially if this aims to exclude private health insurance, would be unworkable and destructive.

Eustace Davie is the director of the Health Policy Unit (a division of the Free Market Foundation).