Financing a National Health Insurance (NHI) for South Africa

The following article is an excerpt from our December 2017 newsletter:

The large degree of uncertainty and lack of common understanding of how the NHI will be implemented and operate is of concern, given the magnitude of the proposed reform. At this stage a few pertinent observations can be made based on the draft NHI White Paper as well as the potential impact on taxes.

  1. There is currently substantial uncertainty about both the costs (R256 billion pa) and funding shortfall (R72 billion pa) of the NHI.
  2. A combination of tax instruments with as broad a base as possible would be preferable.
  3. Given that the NHI introduces a universal benefit, it is appropriate that its financing base be as broad as possible, in the interests of social solidarity.
  4. Excise taxes on alcohol, tobacco or sugar-based beverages are levied primarily to change behaviors, but high increases tend to lead to illicit trade, resulting in reduced collections, and are unlikely to fund a significant proportion of the NHI funding requirement.
  5. Given the considerable size of projected funding shortfalls, substantial increases in VAT or Personal Income tax and/or the introduction of a new social security tax would be required to fund the NHI.
  6. The magnitudes of the proposed NHI fiscal requirement are so large that they might require trade-offs with other laudable NDP programmes such as expansion of access to post school education or social security reform
  7. The proposed NHI, in its current format, is unlikely to be sustainable unless there is sustained economic growth.

Clearly the proposed implementation of the NHI will have severe repercussions for the fiscus and accordingly requires a substantial review before implementation can be considered.!

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