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President Ramaphosa speaking at a State Of The Nation Address (SONA) at Parliament

National Health Insurance – Six talking points

Osagyefo Mazwai

Osagyefo Mazwai | Investment strategist, Investec Wealth & Investment

The NHI Bill has been signed into law. We look at the main talking points about the new legislation.


The National Health Insurance (NHI) Bill, now signed into law by President Cyril Ramaphosa, was first announced by former President Jacob Zuma in 2014, and has been controversial given its overall impact on the structure of the healthcare industry in South Africa. It is our view that the Bill will be challenged in court. There are multiple concerns including the quality of the legislation, the constitutionality of the Bill and the processes followed during the adoption of the Bill.

There is similarly a range of interests that will be affected by the legislation, and as a result, we can expect it to be challenged. For example, Business Unity South Africa – which represents around 69 organisations and is the formally recognised representative of business at the National Economic Development and Labour Council (NEDLAC) – has already issued a press statement announcing its intention to challenge this in court.

At this point, the market seems to estimate that the signing of the NHI Bill is an “industry-specific risk” (pricing in of higher policy uncertainty regarding the longevity of private medical schemes in South Africa) and not a risk for the entire economy.

1. The timeline for implementation of NHI

The initial timeline set out for the full implementation of the NHI Bill by the Department of Health in 2012, according to then-health minister Dr Aaron Motsoaledi, was around 15 years for three phases.

As mentioned above, it is our view that the Bill will be challenged in court, and questions around the constitutionality of the Bill imply that it could go as far as the Constitutional Court. Other legal matters will also be dealt with by the courts.

This suggests that the legislation may be held up in court for years. However, even under the assumption that the legislation is not challenged in court, it is unlikely to be rolled out soon. In an interview in 2022, Dr Nicholas Crisp, deputy director general at the Department of Health said “anything between 14 and 20 years would be a good time”.

Our view is that it will probably take longer. Dr Crisp similarly mentioned in his interview that Japan took 34 years to implement its equivalent, while other countries took even longer. Even if SA can learn from the rollout in other countries and accelerate progress, implementation will likely not happen anytime soon.

 

Listen: Bridging the gap - SA’s healthcare conundrum

South Africa’s ailing healthcare system has significant implications for the population and the economy. What needs to be done to change the course of healthcare in SA? In the latest episode of the No Ordinary Wednesday podcast, Health Activist Dr Aslam Dasoo and Investec Healthcare Equity Analyst Letlotlo Lenake discuss the NHI and the future of healthcare in the country.

 

2. Investor sentiment

Investec recently hosted a healthcare industry conference, and one of the key messages from the panel discussion on NHI legislation was that it would be negative for overall investor sentiment. The NHI Bill inherently raises questions about property rights and analysis by Webber Wentzel in 2023 raises the question of constitutionality of the Bill when it comes to “the property rights of medical schemes and their administrators”. The law firm states that the key question to answer is what the role of medical schemes will be going forward, and whether these schemes will continue to exist.

Another constitutional issue raised was the right to the freedom of choice and a citizen’s right to healthcare and choice related to the healthcare provision. Discovery Health mentions the limitation of this right being similar to a limitation on South Africans’ choice to “purchase additional security or private schooling” under the premise that security and schooling are already covered in the national system.

When President Ramaphosa was in Davos for the World Economic Forum, the most prominent question posed to him was on the issue of NHI - Why would business invest when the NHI Bill sends a message that the government doesn’t want to work with the private sector?

Given the questions on investor sentiment and the overall constitutionality of the Bill, we would expect marginal short-term volatility for the rand and SA Inc. assets (as a sort of knee-jerk reaction) but in the likely event that there will be court challenges we can expect a potentially long, drawn-out legal battle with little direct impact on the healthcare industry (aside from morale perhaps affecting the willingness of healthcare professionals to stay in SA) until a final determination is made by the courts.

3. The processes followed

Another view expressed at the healthcare conference was the flouting of processes by the National Council of Provinces in terms of the approval of the legislation. The view shared indicated that at least three provinces expressed issues with the Bill. Minutes of the National Council of Provinces meeting on 6 December 2023 indicate that eight provinces supported the bill with one (Western Cape) opposing. The private sector has similarly made various submissions to both Parliament and the Presidency challenging the legislation as flawed and impractical.

The question about the processes followed will potentially form part of the submissions to the courts in terms of challenging the NHI in its current form. The private sector believes that it has made more pragmatic submissions to the President and Parliament.

4. Capacity of the state

State incapacity will also likely form part of the submissions to the courts. Various stakeholders expressed the view that the current public healthcare system is ineffective, and the state has already shown an inability to provide constitutionally protected healthcare to South Africans.

Opposition to the NHI is not typically related to the overarching objective of the NHI, which is to provide universal healthcare in South Africa as a means of guaranteeing constitutionally enshrined healthcare access but rather the mechanism sought and its practicality. This forms part of a line of argument that greater operational efficiencies in the public healthcare system would be the first route of action in ensuring access to quality healthcare.

5. Funding

The legislation provides for mandatory pre-payment for NHI, which could be challenged.  The state intends to introduce a mandatory general tax, with contributions for persons earning above a set amount and monthly contributions made by employees and employers.

Another challenge for the overall funding of NHI would be South Africa’s growth trajectory. South Africa is expected to grow at around 1% on average over the next three years, which will already put pressure on employment, corporate profitability and tax collection. National Treasury expressed a view in the February 2024 budget that SA taxes are already elevated, and bracket creep would be the main mechanism for increasing tax collection.

Analysis by Moonstone and Discovery has concluded that the funding for NHI stands at approximately R200bn a year, which is the equivalent of just under 10% of the state's tax revenues (R2.155 trillion in 2023/2024). Additional analysis by Moonstone notes that the unintended consequence of raising tax rates could be less tax collected.

6. Market and economic impact

So far there has been limited impact on markets, presumably because of how long it will take to implement and the uncertainty around whether it will be sent back by the courts. The next step is to look out for is how it will be financed. The Medium-Term Budget Policy Statement is typically delivered in October, and we believe that it is probably too soon for Treasury to provide firm guidance. More information on the funding elements will likely be available in February next year when the Budget is presented. Therefore, the earliest that we will be able to gauge how it will affect markets over the medium term will be at the time of the Budget, but even then it might be too early to say.

The benign reaction of the rand dollar exchange rate and the JSE All Share suggest that the market views the signing of the Bill as an “industry-specific” risk, and does not view it as a country risk at this point.

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