South Africa’s NHI: Learning from the RAF’s financial struggles

25 Oct 2024, 10:14 by Editor BizNews · BizNews

South Africa’s National Health Insurance Act (NHI) of 2024 aims to establish universal health coverage, akin to the Road Accident Fund (RAF) insurance scheme. However, the RAF’s financial and administrative struggles, including insolvency, raise concerns for the NHI. With projected costs from R527 billion to R2.5 trillion, critics argue the state’s track record in managing such funds is worrying, stressing the need for efficient existing healthcare spending and freedom of choice over a state monopoly.

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By Zakhele Mthembu

The state is in the process of implementing a mandatory health insurance for all citizens through the National Health Insurance Act of 2024 (NHI). The Road Accident Fund (RAF) serves as an example of state insurance, and to grasp what another form of state insurance such as the NHI might entail, we should first familiarise ourselves with the RAF.

The Road Accident Fund Act of 1996 established the current version of the RAF. This fund essentially acts as a state-enforced and operated insurance scheme for motor vehicles in South Africa. The RAF is funded through a levy on every fuel purchase in the country.

The rationale behind creating such a fund was to ensure that no one would be left uninsured. The idea of a shared pool, even before it became known as the RAF, was appealing to South African lawmakers due to the risk of uninsured drivers posing a higher risk of non-compensation in the event of an injury or motor vehicle accident.

The RAF is like the NHI Fund in that they are both state insurance funds; the primary motivation for existing is not entirely economic. Therefore, it meant that the economic consequences of these funds were hardly considered by lawmakers.

The repercussions of neglecting the economic impact of decisions, such as implementing a state-mandated and operated insurance scheme, are most noticeable in the current state of the RAF. From insolvency to administrative chaos there is at least a case to be made that the state is not the best candidate to run insurance.

The RAF is technically insolvent; insolvency means that the fund has more liabilities than it does assets. This is despite the creative accounting the entity has recently tried to implement. The financial sustainability of the RAF has even been questioned by the Standing Committee on Public Accounts.

This threat of financial sustainability is a concern for the NHI too, as it may encounter similar issues as the RAF. A monopoly like the NHI will cost anything from R527,50 billion to R2 500 billion. This is not including extra costs such as medical negligence claims, which cost the Department of Health R125.3 billion in the 2021-2022 financial year.

This is not to suggest that private insurance providers are flawless, but rather that they have the market incentive of losing customers to regulate their behaviour. The state does not have that incentive.

The argument for the NHI revolves around the cost of quality healthcare and the inability of the indigent to access such care due to financial constraints. Public healthcare funding in South Africa is relatively high, with total health expenditure amounting to 8.5% of GDP. Public health is made up of 4%, or rather half, of this 8%, with the other half being for private healthcare. This 4% allocated to public health aims to serve the 84% of the population without private insurance, underscoring the claimed rationale behind the NHI fund.

However, a report released by UNICEF on the budget frameworks and quality outcomes of health in South Africa suggests a different perspective. The report highlights that the funding allocated to public healthcare does not always translate to improved quality outcomes.

Comparing South Africa to countries like Brazil and Mexico, which have better health outcomes despite similar Total Health Expenditure, raises questions about the efficiency of public healthcare spending. Even with increased public funding, primary healthcare facilities in South Africa often do not show corresponding improvements in health outcomes.

While funding is undoubtedly crucial in healthcare, it may be more prudent to maximize the efficiency of existing publicly funded health services before seeking additional funding through private voluntary schemes.

Rather than adopting a state monopoly like the NHI, the current system of public and private healthcare should be enhanced. This system allows the indigent to access healthcare services while affording others the freedom to choose their providers. Choice is essential and should not be constrained.

Improving the management of the public health sector, particularly in financial management, is an imperative. Issues like substantial increases in staff compensation as the most significant and consistent spending increase in health from 2016 to 2021 are concerning. Addressing problems such as the wage bill is crucial in the healthcare sector, and simply increasing funding will not magically resolve these issues.

Public health management, from the executive level down to primary healthcare facilities, must undergo significant improvements. Eliminating the possibility for South Africans to opt-out of subpar healthcare facilities is not the solution.

The administrative and financial challenges faced by the RAF will likely worsen when it comes to the implementation of the NHI. From cost overruns and functional insolvency to administrative chaos in RAF offices across provinces, these issues will be magnified under the NHI.

While the legislative mechanisms and functions of the RAF and the NHI differ, they share the commonality of being state-run insurance businesses. The challenges that plague one entity are likely to affect the other. It is up to us as a country to determine whether we will learn from our past mistakes or continue down this path to serfdom we are surely on.

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*BA Law LLB (Wits) is Policy Officer at the Free Market Foundation

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