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The Hype Around National Health Insurance Put In Perspective

Friday, 12 November 2010   (0 Comments)
Posted by: Author: Lesley Isherwood
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The Hype around National Health Insurance Put in Perspective
The National Health Insurance scheme (NHIS) has been mooted for a number of years but details seem to finally be emerging as to the timing of the roll-out and the anticipated costs. With vested interests across the board and emotions running high in some quarters, it is perhaps useful to put some of the information regarding the NHIS, which is available in the public domain, in perspective.

We know that the ANC is targeting implementation in 2012 and that the implementation would be phased in over a period of 14 years with the initial focus of the NHIS being on areas which are currently underserved such as rural areas and townships. We are told that the anticipated costs start at R128 billion in the first year and will increase to R376 billion by 2025. We are assured that the private hospital network, which currently provides healthcare services either exclusively or in conjunction with public healthcare to 36% of the population, will remain in existence. These hospitals will, however, be faced with the choice of becoming accredited to provide the NHIS services or lose the right to any State funding. 

It is proposed that the costs of the NHIS will be funded from a number of sources. The first of these will be general taxation which includes personal income tax, corporate tax, value-added tax as well as various duties and levies. It is not clear, however, how much of Pravin Gordhan’s National Budget will be allocated for this purpose.

In addition to this general pool, a surcharge on taxable income, a payroll tax for employers and employees and an increase in the VAT rate have been mooted. Any taxes levied in this manner would be used solely to fund the NHIS. 

No details have been provided on how the envisaged surcharge on taxable income would work. Firstly it should be asked whether the surcharge would apply to both individual and corporate taxpayers. Where the surcharge is levied on individuals, would the surcharge be applied at a flat rate across all income brackets or be applied on a progressive basis? What is inevitable is that a surcharge on taxable income would mean that the cost of the NHIS will be borne by a relatively small pool of individuals and corporate entities. The number of corporate taxpayers is estimated at around 1.7 million taxpayers. Estimates place the number of individual taxpayers in the region of seven million, compared to an overall estimated population of some 50 million people.
Funding the NHIS via a payroll tax would potentially place the burden on an even smaller number of taxpayers in formal employment relationships. Where these individuals are members of some form of medical aid and have less need for the NHIS, placing the additional tax burden at their feet could be a bitter pill to swallow. 

An increase in the VAT rate may appear to some as the most equitable method of funding the NHIS, as it is borne by a far greater percentage of the population and would result in most end users of the NHIS bearing some element of the cost. Moreover as VAT is essentially a consumption tax, highincome earners who are perhaps better positioned to afford the additional tax will inevitably contribute a proportionally higher share of the overall VAT bill as VAT is directly linked to spending. In addition,the zero-rating of certain basic food items ensures that some measure of VAT relief is provided to the poor. Government has, however, historically been reluctant to increase the VAT rate. Any move by National Treasury on this front is likely to meet with strong opposition from within the ruling party and its allies as an increase in the VAT is seen as the government taxing the poor.

Certainly to the extent that National Treasury goes the route of imposing a surcharge on taxable income, additional payroll charge or increases the VAT, government needs to ensure that the funds are not only ring-fenced and earmarked solely to the implementation and running of the NHIS, but that the funds so raised are in fact expended on this initiative. Perhaps as a first step, government needs to address the current challenges facing the public healthcare system which is ailing under human resource shortages, management capacity constraints and inefficient procurement processes. 

On a more positive note, indications are that the government recognises that there is still some way to go before the goal of a 2012 roll-out can be met. The proposal is currently in the second stage of policy and law making which should see government issuing a green paper or draft discussion document on the proposal and the facilitation of public as well stakeholder participation in debating the policy. Only once this process has been followed, will the government be able to finalise the policy for approval by cabinet and paving the way for the policy to be made into law. 
Source: By Lesley Isherwood (TaxTalk)



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