NHI could sicken economy

South Africa's proposed National Health Insurance (NHI) scheme, aimed at curing a broken health system, is shaping up to be the most expensive government programme since the end of apartheid and could push Africa's biggest economy into recession.

Plans to finance NHI will be worked out over the next several months, but one thing economists agree on is that tax payers will be hard squeezed to fund the ambitious programme that comes as jobs are being shed in a stagnant economy.

"If it were to happen under current economic conditions, you would run the risk of tipping the economy into recession as you try to implement the programme," said Kevin Lings, chief economist at Stanlib.

NHI to cost R255 billion by 2025

The government estimates a fully implemented scheme will cost 255 billion rand ($36 billion) by 2025, but the figure could be much higher, given the shortage of skilled staff, dysfunctional facilities and a failing infrastructure.

"The fiscal cost of the scheme is a major concern, especially since many investors doubt the sustainability of South Africa's social spending regime," said Anne Fruhauf, an Africa specialist for the political risk consultancy Eurasia Group.

The NHI is supposed to fix healthcare for the country's poor majority, who have little access to quality care, despite South Africa having per capita health care expenditures that far exceed any other country on the continent.

Budget buster?

When fully implemented, the spending projections for the scheme would be equal to about 25% of state spending, outpacing the largest government expenditure - education.

All South Africans who can afford it will be required to pay NHI fees, as well as employers, many of whom already pay for private health care for their workers.

Funding will also come from the state budget, placing an additional burden on the country's 6 million taxpayers who help pay for welfare programmes that benefit 12 million others.

Funds will be collected by the South African Revenue Services and go into what will be called the NHI Fund, which will be the sole payer of claims and administered by the health minister and parliament.

Money to be diverted from other areas of budget

Economists expect money to be diverted from other areas of the budget into healthcare - slowing potential economic growth. They also see the NHI fees as similar to a new tax that would take more money from salaries.

The government envisions people who pay for private healthcare moving into the public system, but given the appalling conditions at many public hospitals, it seems likely that many workers will pay for two insurance plans and only use the private one.

But tax subsidies for those who stay in private health care plans will be revoked, while those who choose the public option will place even more strain on an already overburdened system.

Since coming to power in 1994 after decades of white minority rule, the African National Congress has made strides in providing decent housing, education and healthcare to the poor.

But it has done little to close one of the biggest gaps in the world between the haves and have-nots. NHI could reduce political pressure on the ANC, which has faced violent protests for not doing enough to improve the plight of the underclass.

But, worries again arise about costs.

"There are too many people dependent on too few. Essentially every taxpayer supports 2.8 other South Africans, if a person had to pay more taxes to finance more people than they are currently paying for, that is not feasible when the dependency ratio is already so high," said Mike Schussler of economists.co.za.

"There are lots of things that government wants to do that end up being a pipe dream, and that's what I think we have in a sense with the NHI." - (Peroshni Govender and Jon Herskovitz/Reuters Health, August 2011)

Read more:
NHI won't increase tax burden

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