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Healthcare Report South Africa October 2017

Healthcare Report South Africa October 2017

  • October 2017
  • ID: 4981301


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  • South Africa's healthcare spending, reported at 8.8% of GDP in 2014 by the World Health Organisation (WHO), was on a par with the OECD average and above that of its neighbours. The benefits, however, are very unevenly spread, reflecting wide income and regional disparities. Over the forecast period (2017-21) the government will seek to address shortcomings in the under-resourced public health system, and extend testing and treatment for HIV/AIDS, as well as tuberculosis (TB).
  • A white paper, setting out plans for a universal national health insurance (NHI) system, was approved by the cabinet in June 2017. The government is aiming to promulgate an NHI bill into law by 2019 at the latest, with a view to achieving full NHI implementation by 2025. The paper calls for public health spending to rise from 3.9% of GDP in fiscal year 2017/18 (April-March) to 6.2% of GDP by 2025/26, but left many questions on financing unanswered. The role of private medical schemes is also uncertain. With consultations continuing, implementation of the scheme will be slow.

  • The Economist Intelligence Unit expects total health spending to rise gradually as a proportion of GDP over the forecast period, to 9.2% in 2021. Total healthcare spending in nominal local-currency terms will rise at a compound annual growth rate (CAGR) of 9.4% (with spending per head rising more slowly, reflecting annual average population growth of 1.2%). In US dollar terms, growth will be weaker, averaging 0.7% a year over the forecast period. Pharmaceutical sales will rise at a CAGR of 8.1% in 2017-21, with the slower pace reflecting efforts to contain costs and expand the use of generics.
  • In its 2017/18 budget the government allocated R187.5bn (US$14.4bn) to health spending-9.7% higher than its revised estimate for the previous year. The cost of treatment and prevention for HIV/AIDS is set to rise particularly sharply given that the government has set a goal of treating 90% of those in need by 2020. According to the Health Systems Trust (a non-governmental organisation), the yearly bill could reach as much as R30bn by 2020/21. There is a risk that other health priorities, such as TB (which has overtaken AIDS as South Africa's bigger killer), will receive less attention.

Funding sources

  • South Africa's healthcare system consists of a large, under-resourced and over-used public sector and a much smaller, well-funded and well-equipped private sector. The tax-funded public sector provides free or subsidised healthcare for 84% of the population. However, it accounted for only 48.2% of total healthcare spending in 2014, according to the WHO. Out-of-pocket expenditure accounted for a comparatively low 6.5%, with private insurance covering the remainder.
  • The planned NHI system is designed to ensure that all South Africans have access to healthcare, free at the point of delivery. The government confirmed in June 2017 that once the law is passed, probably in 2019, it will become mandatory for all citizens to be members of the NHI system.
  • According to the white paper, the annual cost of NHI in 2025 will amount to R256bn (in 2010 prices), assuming the economy grows by an average of 3.5% a year (considerably higher than our own forecast of 2.3% in 2017-25). Critics point out that this represents an increase of around 60% compared with current outlays on health, raising major concerns over affordability.
  • The white paper has suggested that funding for the NHI system could come either from higher payroll taxes, a 2% surcharge on taxable income, or an increase in value-added tax (VAT). However, with elections due in South Africa by the end of 2019, the government will be reluctant to commit to fiscal changes that lead to a significant rise in the overall tax burden.
  • The long-term future of private medical schemes remains uncertain-particularly as their favourable tax treatment is going to be withdrawn. According to the health minister, Aaron Motsoaledi, by ending the tax exemptions that are currently available on contributions to private medical schemes, around R20bn a year will be freed up-enabling the savings to be ploughed into the proposed NHI fund.
  • Despite the remaining questions, the authorities are pushing ahead with their plans to introduce the scheme over a 14-year period. The first phase started in April 2012 with a pilot project involving 11 districts. The aim is to extend the pilot to 50% of the country's 52 health districts by 2018/19.

Private health insurance

  • The private sector accounted for 52% of total healthcare spending in 2014, according to the WHO. Of this, 83% came from private prepaid plans and less than 13% from out-of-pocket payments. Despite their relatively large share of healthcare expenditure, private healthcare plans cover just 16% of the population. Private insurance remains unaffordable for the majority of the population unless they happen to be part of a corporate scheme.
  • Owing to spiralling medical costs, many private medical schemes have introduced double-digit premium increases for 2017. A loss of favourable tax treatment-as part of the shake-up accompanying the launch of the NHI system-will negatively affect demand for private medical cover from 2019 onwards. A report by Econex, a research organisation, indicates that 1.9m policyholders may no longer be able to afford private insurance.

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