South Africa’s Private Health Insurance Industry: A Strategic National Asset under Threat?

South Africa’s Cabinet of Ministers recently approved a White Paper on National Health Insurance aimed at moving the policy of universal health coverage further down the road. A National Health Insurance system would result in an integrated healthcare system founded on the principles of solidarity and redistribution of healthcare resources. The basic idea is that every South African would contribute to funding the National Health Insurance system and in return receive “free” healthcare services when needed.

Much is discussed about the viability of a National Health Insurance in South Africa. Among the issues cited are high unemployment levels in South Africa (that is, a small pool of taxpayers to fund the NHI system), poor public healthcare infrastructure, and limited human resources to deal with the anticipated increase in demand that goes with the introduction of “free” healthcare services. All of this makes for a great conversation on how NHI would be implemented. However, in this conversation are two fundamental and competing ideas.

On the one hand, is the idea that attaining universal health coverage can only be achieved through public financing and public provision of healthcare services. That is, government-run institutions are responsible for the collection and disbursement of funds for the NHI system, AND healthcare services are provided through government-run facilities. On the other hand, is the idea that achieving universal coverage can only be achieved through private sector financing and private sector healthcare provision. The first idea assumes no private sector involvement in the healthcare system while the second idea assumes no public sector involvement. The ideas are extremes, fundamental and pervasive because they influence much of what is thought and said on how NHI would be implemented. For example, News24 reported Aaron Motsoaledi (Minister of Health) as saying:

“When asked whether private medical aid schemes would be absorbed, and if they would be made redundant, Motsoaledi said that all state medical aids would be made redundant, but that the question of private medical aids' future would still need to be answered.”

The issue is whether the private health insurance industry has any role to play in the financing and reimbursement of healthcare services under NHI. This is the unresolved conflict between the first and second idea outlined above. For readers that are not familiar with the health financing landscape in South Africa - there’s a private health sector financed through pooled health insurance contributions and individual out of pocket expenses covering around 9 million individuals in a total population of 55 million. Private health insurance companies provide health coverage for employed, self-employed, and high net-worth individuals. The healthcare needs of the remaining population are covered by government healthcare budgets for the unemployed, poor, and individuals unable to afford private health insurance premiums.

EmergencyIf South Africa’s private health insurance industry covers the economically productive (that is, individuals contributing to the gross domestic product of the economy), then this industry is responsible for individual health and the health of South Africa’s economy. That is, the health of an individual depends in part on the ability of the private health insurance industry to finance primary, secondary and tertiary healthcare services. South Africa’s economy depends on healthy, economically productive individuals.The private health insurance industry is a critical part of the economy, a Strategic National Asset in the same way that South Africa’s defense sector is responsible for maintaining sovereignty and national security. Similarly, the private health insurance industry is comparable to South Africa’s higher education sector, another strategic national asset responsible for supplying skilled labour to strengthen the competitiveness of the domestic economy.

Strategic national assets maintain the health, security, and competitiveness of the national economy. Not only do they contribute to creating jobs, corporate taxes from industry administrators and suppliers, and skills development, but strategic national assets also generate significant positive externalities. That is; a healthy, economically productive individual contributes to national wealth creation, personal income tax, and generate consumption in the economy (vehicles, housing, food items, etc.). Strategic national assets are not easily substitutable. Replacing South Africa’s defense sector and the higher education sector with activities that achieve the same outcomes seems impossible and farfetched; similarly, it appears overly optimistic to replace the private health insurance industry and its direct effects on individual health and the health of the national economy.

However, Strategic National Assets are not beyond reform. Private health insurance in South Africa is increasingly unaffordable and inefficient. Reimbursement policies for basic and advanced treatment and care services vary among health insurance providers. The level of new health technology investment has also stagnated which is not surprising given the uncertainty on the future role of the private health insurance industry under NHI. These factors and others are some of the urgent issues that need improvements in the sector. In the interim, proponents of idea one and idea two will continue to extol the benefits of their positions. Our hope is that the health of individuals and the national economy will not suffer as a consequence of these extreme positions.

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