Will NHI and new medical aid bills fly?

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Aaron Motsoaledi, a medical doctor and one of the few cabinet ministers to have survived the Zuma years, is clearly under immense pressure.

As the man tasked with delivering the ANC’s promise of universal health care, he struck a discernibly populist tone last week when, with much fanfare, he published draft legislation which paves the way for National Health Insurance (NHI).

"It will not be an exaggeration to say that the NHI is the ‘land question’ of health," he told politicians two days before releasing the bills. "Every citizen‚ to reach their potential in all other aspects of their life‚ needs good-quality‚ equitable health care‚ regardless of who they are. To achieve this‚ equitable and fair financing of health is [necessary]."

The NHI, he vowed, would usher in a "new order" in which a person’s access to health would no longer be contingent on their income. As part of this, sweeping changes were also in the offing to provide much-needed financial relief for medical scheme members.

It was a brave call — not least because he implies that the disaster that is the public health-care system is entirely due to a lack of funding, rather than incompetent and unaccountable leadership. Considering the holes in the two bills he released last week, it’s not immediately clear that Motsoaledi has much of a handle on finance either.

In brief, the NHI Bill proposes setting up a central fund to buy health-care services for SA’s entire population, while the Medical Schemes Amendment Bill contains swathes of reforms, most of which have no direct relationship to NHI.

In answering why Motsoaledi released this half-baked legislation, it is helpful to consider the political context. To some extent, he had his back against the wall. As far back as 2007, at the ANC’s policy conference in Polokwane shortly before Jacob Zuma swept to power, the party committed itself to the NHI. But those were different times: GDP for 2006 had hit 5%, and the fighting talk was of it hitting 6%.

Then came 2008. And Zuma.

So Motsoaledi’s task last week was to convince critics that his reforms would improve the nation’s health — without breaking the bank.

He did neither.

While he tried to reassure the media that the NHI heralded a more equitable system in which the rich would subsidise the poor, when pressed to explain how these changes would ensure patients are no longer let down by the state, he fudged the issue.

He was equally disingenuous about the contents of the Medical Schemes Amendment Bill, claiming it contained consumer-friendly measures that are not actually in it.

Despite the minister’s fighting talk, there is nothing in either bill that spells out how he plans to achieve his main goals

—  What it means

And he brushed off questions about what the NHI would cost, saying it was "impossible" to calculate. "It is as difficult as asking Codesa how much democracy will cost the country," he said.

Does that mean the ANC’s original projection in its 2011 Green Paper, which said the annual cost of NHI in 2025 would be R256bn in 2010 prices, was fictional? Those cost projections assumed the economy would grow at 3.5% a year, a far cry from the current Reserve Bank predictions for GDP growth of 1.7% for 2018.

Or is the truth that Motsoaledi, who has talked up the NHI since 2009, is now gambling that the policy must be implemented for political reasons, whatever the cost?

Nearly a decade ago, the NHI was just one of the 10 key issues he promised to tackle, and he was at pains to assure sceptics that improving the quality of public health care was a vital prerequisite for implementing universal health care. He vowed to: improve public hospitals by getting rid of unqualified managers; revamp dilapidated infrastructure; improve primary health care; and put a proper human resources plan in place.

Little of that came to pass. Now the NHI is apparently being hailed as the cure-all for all that ails the public sector.

Last week’s NHI Bill is only the first piece of enabling legislation for this grand vision.

But it is terminally vague.

For example, it contains provisions to establish a central NHI fund, financed by yet-to-be determined mandatory payments from those who can afford to pay. Apparently, it will bypass provincial health departments to buy services from accredited public and private sector providers, at rates set by a ministerial advisory committee. Similar committees will decide on the benefits, medicines and technology bought by the fund.

Motsoaledi explained it thus: the NHI fund will buy services for the entire population from public and private sector hospitals, doctors, and other professionals who meet the quality threshold set by the office of health standards compliance. Everyone will be registered with the fund, and no-one who is a citizen or permanent resident will pay at the point of care. Patients will have to follow correct "referral pathways" — they can’t go directly to a specialist, but will have to be referred by a primary provider, such as a GP.

But critical elements of the plan — who will pay, and how much — are unclear.

In the past, treasury said it was considering various options to finance the NHI — including hiking payroll taxes or a new surcharge on personal income tax. In other words, taxes on the people who government thinks can afford to subsidise the poor.

While Motsoaledi has consistently said scrapping medical scheme tax credits would generate billions of rands for the NHI, treasury has adopted a cautious tone, arguing that tax credits play a vital role in ensuring medical scheme cover remains affordable.

Of course, government’s desire to implement universal health care is hard to fault. Barely 16% of the population (8.9m people) belong to a medical scheme, which allows them to access world-class care in the private sector. The other 84% of the population are sentenced to interminable queues and shoddy treatment at the hands of the state unless they can pay for private health care.

The NHI’s goal is to ensure everyone has access to affordable and decent health care. The aim, like universal health-care programmes globally, is to finance it in a way that compels the rich to subsidise the poor, the young to subsidise the old, and the healthy to subsidise the sick.

President Cyril Ramaphosa said as much last week, implying that the NHI would be implemented, whether people like it or not.

"Our job as the governing alliance, as the ANC, is to make sure all South Africans have access to the best health care.

"Right now our hospitals are burdened and our health care is in crisis, and we believe the only way to [correct] this is to pool all resources and everyone makes a contribution," he said.

A recent article in The Economist argued that universal health-care coverage was achieved by some countries when they were relatively poor — including Britain, which introduced the National Health Service in 1948. It points out that several developing countries, including Thailand, have since then implemented universal health care despite their relatively low GDP per capita.

The challenge facing SA is how best to use limited financial resources to do so.

This is the crux of the issue: many South Africans have lost faith in government’s capacity to deliver services, so convincing them to pay more tax to a system they do not trust is going to be a tall order. Just ask the architects of e-tolls.

The glaring flaw in Ramaphosa’s argument is that the NHI isn’t designed to fix a health-care system that has already collapsed under government stewardship. Public health care is bedevilled by poor leadership of the sort that led to 144 people dying in the Life Esidimeni scandal. But the NHI Bill doesn’t even try to address this.

One reason why Motsoaledi may have rushed through a bill so short on detail is that, politically, he is under fire from all sides.

The chorus from health lobbyists, trade union federation Cosatu, and recently a group of veteran health activists is growing, louder all the time, questioning whether he has what it takes to fix public health.

This month, Cosatu asked Ramaphosa to sack Motsoaledi, saying he had "sold out" and "outsourced the NHI to private interests" — a claim it has made for years.

Equally, a sharply worded letter from a group of veteran health activists, convened by Fazel Randera and Billy Ramokgopa, has called for a review of the NHI policy, and intervention from Ramaphosa to fix what they describe as a "perfect storm of ineffectual leadership, poor management and entrenched corruption".

They have a point. Despite his success in driving what is now the world’s biggest HIV treatment programme, Motsoaledi presides over a chaotic system that lurches from one crisis to the next. KwaZulu-Natal’s desperate shortage of oncologists, and the Life Esidimeni scandal in Gauteng, are just two of the tragic examples that have made headlines. But there are many more silent calamities.

In Limpopo, recent parliamentary hearings revealed, cancer patients at public hospitals wait, on average, for a year before they can get vital radiation therapy. In the Eastern Cape health department, medical negligence claims now exceed, by R600m, its entire R23.7bn budget for the 2018-2019 fiscal year. Even the relatively well-managed Western Cape is struggling to find the money to fix slowly decaying state hospitals.

"While the NHI is important, we cannot for a moment allow it to distract us from the very pressing question about the collapse of parts of the health-care system," says Mark Heywood, executive director of lobby group Section 27, in an interview with the FM.

"The idea that [NHI] is some sort of panacea for all the pathologies of crisis in the public and private sector just does not stand up [to scrutiny]," he says.

Part of the trouble, he says, is that NHI is a long-term project (set for full implementation in 2025) that diverts attention from issues that must be dealt with now.

"There are things that could be done immediately that would lead to drastic improvements. We don’t accept Motsoaledi’s argument that one of his biggest problems is a legal one," says Heywood, referring to the fact that the constitution says health is a concurrent power, with the different spheres of government sharing responsibility.

Motsoaledi’s argument is that his national department sets policy, which the provinces then implement — and he has no authority to intervene when things unravel.

Heywood sees it differently. "We are not a federal state. The minister has to ensure the maintenance of standards, and he has the legal power to step in. He has never done so," he says.

Improving management and leadership in the public sector would go a long way to improving accountability in public health, he says. And contracting with the private sector need not wait for an NHI fund.

Motsoaledi’s sweeping changes to the medical scheme industry, which will affect the 8.9m people in SA who use medical aids to access private health care, are equally problematic.

Last week, when presenting the Medical Scheme Amendment Bill, he took a strong consumer line, characterising it as an intervention to protect vulnerable members from nefarious medical schemes and brokers.

For a start, he promised to ban co-payments (the amount that medical aid members must pay from their own pockets if the scheme covers only part of their bill); abolish brokers, who he said "are actually not needed"; end waiting periods before someone qualifies for medical aid; and stop schemes sitting on excessive reserves — money that, he said, could be better spent on members’ health-care needs.

Tellingly: none of those measures is actually contained in the bill published.

True, the bill says co-payments are prohibited for a yet-to-be defined set of "comprehensive service benefits". But the Medical Schemes Act already prohibits co-payments on prescribed minimum benefits (PMBs), the basic basket of care that schemes are required to provide to all their members.

While patients often do face co-payments for services that aren’t in the PMB basket, they will still do so under Motsoaledi’s new bill for anything not covered by the comprehensive service benefit package.

The bill does not ban brokers. It does, however, tighten the definition of brokers and introduces greater transparency about their fees, saying they must be disclosed and agreed to by members.

Nor does it change the 25% solvency requirement of the Medical Schemes Act, which requires schemes to keep at least three months’ worth of contribution income in reserve to ensure they can pay all claims in the event of unforeseen circumstances. Motsoaledi said medical schemes were collectively sitting on reserves of R60bn — equivalent to an industry-wide holding of 33% — and characterised it as "unnecessary accumulation at the expense of patients".

"We believe these huge reserves were accumulated partly through high premiums, because we know that for the past 15 years medical scheme premiums have increased faster than consumer price inflation," he said.

Again, the argument is flawed. Among the reasons medical costs are rising faster than inflation globally (not just in SA) are that people are living longer, medical technology is more expensive, and the rise in noncommunicable diseases, such as diabetes, is leading to greater spending.

The medical schemes industry itself has been calling for a review of the solvency requirement for years. It argues that a larger scheme with a younger membership profile should be required to hold a lower percentage of its income in reserve than a smaller scheme with older members. The Council for Medical Schemes is reviewing this, but this could still take another two years.

The bill does not scrap waiting periods. It does away with waiting periods for children, but continues to allow schemes to impose a three-month waiting period if someone has not been a member of a medical scheme for the past 90 days.

"The bill is actually much tamer than the minister indicated," says Percept CEO Shivani Ranchod in a discussion with the FM.

"It talks only very marginally to the NHI Bill, and much of its content has been on the Council for Medical Scheme’s wish list for years," she says. This includes a set of provisions that beef up medical scheme governance, with tighter rules about their constitutions and the roles of trustees.

However, industry sources are worried about the financial impact of the bill’s new cross-subsidisation measures. It says contributions for mandatory benefits will be based on income, and people over 30 will pay higher contributions than children and young adult dependants. The risk is that older people, such as pensioners, may end up subsidising younger people and families, which they can ill afford to do.

Mediclinic consultant Roly Buys says it is hard to gauge the financial impact of the Medical Schemes Amendment Bill, as it contains so many variables.

"There are too many moving parts to understand the consequences," he says. "Is the PMB catastrophic cover going to be retained, or not? Will there be an increase in premiums, and a reduction on what people spend in the economy? There are no answers in the bill."

Despite what Motsoaledi has said, the medical scheme bill is also silent on the notion of a "uniform tariff" for health care. When asked, he offered no more detail on how tariffs would be set, or how much flexibility health-care providers would be given to charge above or below these thresholds.

It is this vagueness and lack of specifics that makes it all seem so rushed.

Motsoaledi has also perplexed observers with the timing of the bill.

Many people thought he would wait for the findings of the competition commission’s health market inquiry (HMI), which was set up four years ago to probe barriers to competition and care in private health care. While the inquiry is running behind schedule, it is expected to publish an interim report and recommendations soon.

On this point, the National Education, Health & Allied Workers Union (Nehawu) says: "We are concerned that the minister decided to release the Medical Scheme Amendment Bill before the findings of the HMI, as this inquiry was meant to deal with matters that have a direct bearing ... [on] the current operations of medical schemes and private hospitals."

Nehawu expects the inquiry to make recommendations about the market power of the three big private-hospital providers — Mediclinic, Life Healthcare and Netcare — which the trade union believes is driving the rising costs of private health care. As it stands, annual health-care inflation typically exceeds consumer price inflation by several percentage points, threatening the affordability of medical scheme cover.

Clearly, private hospitals are becoming more expensive. Figures provided by Motsoaledi show that 45% of medical scheme expenditure in 2016 (R56.6bn) was paid to private hospitals. But in 2002 that figure was just 29.5% — or R10.5bn.

In response, private hospitals argue that this escalation is because more people are using their services, rather than because of higher prices. They say their tariff hikes have closely matched inflation.

Trade unions have been curiously quiet about Motsoaledi’s plans to ultimately scrap medical scheme subsidies for state employees. Maybe this is because, despite his fighting talk, there is nothing in either bill that spells out how he plans to do so.

These generous perks are costing government dearly: its medical scheme subsidy bill rose 16% between 2015 and 2018, from R26.8bn to R31bn. Of this, R20.5bn went to members of the Government Employees Medical Scheme (Gems), R2.2bn to civil servants who were not on Gems, and R8.3bn to people working for state-owned enterprises.

Government has earmarked another R26bn in 2018 for medical tax rebates and credits, which provide relief to members both within and outside government.

Motsoaledi has previously said these subsidies and tax rebates are a potential source of NHI funding. But he barely acknowledges the role they play in keeping medical aid affordable for lower-paid workers, particularly unionised civil servants.

It’s a risky gamble because if those benefits are shaved away too quickly, and people fall out of the medical scheme net before NHI can meet their needs, government is likely to set itself on a collision path with its own workforce. The recent Eskom strike illustrates how this can go badly wrong.

Alex van den Heever, chair of social security systems administration and management studies at the University of the Witwatersrand, says the wording in key parts of both bills is ambiguous.

No-one knows if medical schemes will be prohibited from funding services covered by the NHI (and will thus be relegated to a minor complementary role) or whether people will be able to use medical schemes to substitute for NHI offerings.

But as Van den Heever says, this is "likely to be a material issue down the line".

He also warns that the proposed governance structure for the NHI fund will be vulnerable to "state capture" because it vests too much power in the minister. The bill says the NHI fund will be overseen by an independent board accountable to parliament. But the minister has the power to recommend board members to cabinet, and the power to fire them or dissolve the board.

Raymond Parsons, a professor at North-West University, says government needs to apply some reality tests to NHI. "This includes recognising that the economy is in a low-growth trap, accepting that recent commitments to free higher education have taken centre stage in government spending, and acknowledging that SA’s public finances remain highly vulnerable," he says.

Parsons says this doesn’t mean NHI isn’t desirable — but to make it happen, there needs to be tough reprioritising of how government spends its money. "A failure to do so will merely add to long-term risks in the fiscal outlook," he says.

Ramaphosa may have acted quickly to remove key architects of state capture, but he has shown far less willingness to bump heads with the trade unions or rein in those in critical positions within his party. For NHI to be more than pie in the sky, these harder issues will need to be tackled first.