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National Health Act, 2003 (Act No. 61 of 2003)


National Health Insurance Policy towards Universal Health Coverage

Chapter 7 : Financing of NHI

7.5 Options for public funding of NHI

7.5.5 Tax rate scenarios


239. NHI’s financing requirements are uncertain, and in part depend on public health system improvements and medical scheme regulatory reforms which have not yet been fully articulated. It is nonetheless possible to indicate the broad magnitude of tax changes that might be required. The estimates in this section are based on the projected NHI funding gap in Table 5: Projection of NHI costs adapted from Green Paper where the baseline health budget is assumed to increase by 3.5 per cent. Tax rate changes are illustrated for the three main tax bases identified above (value-added tax, payroll taxes and personal income tax surcharge).


240. It must be stressed that these are not proposed as overall tax increases, but illustrate the tax implications of a shift from private insurance to NHI funding equivalent to about 2.2 percentage points of GDP, thereby raising an additional R71.9 billion in 2010 prices by 2025/26.


241. Table 3 sets out five alternative tax scenarios for funding the NHI shortfall by 2025/26. In scenario A, the financing measures for NHI would include the introduction of a payroll tax, a surcharge on taxable income and increases in the rate of value added tax, in several stages. Alternative tax scenarios could utilise a combination of the surcharge with a payroll tax (scenario B), a surcharge on taxable income with an increase in value added tax (scenario C), a payroll tax with a surcharge on taxable income (scenario D) or a surcharge on taxable income alone (scenario E).


Payroll tax

Surcharge on taxable income

Increase in value-added tax

Scenario A: Surcharge on taxable income, VAT increase and payroll tax




Scenario B: Payroll tax and surcharge on taxable income




Scenario C: Surcharge  on taxable income and VAT increase




Scenario D: Payroll tax and VAT increase




Scenario E: Surcharge on taxable income





242. The most preferred option for revenue generation for NHI will be through Scenario B which is predominantly funded through general revenue allocations, supplemented by: (1) a payroll tax payable by employers and employees, and (2) a surcharge on individuals’ taxable income. The regressive aspects of a value-added tax increase would contradict the principles upon which NHI is based.


243. As the NHI evolves, the tax treatment of medical expenses and medical scheme contributions will be reviewed. It is also expected that there will be a reduction in the need for medical scheme contributions and/or the level of coverage required. The resulting saving in tax expenditure could help to reduce to proposed tax increases. With the implementation of NHI, the role of medical schemes in the health system must change. A key step in leading to this change is that the State will have to identify all the funding for medical scheme contribution subsidies and tax credits paid to various medical schemes (such as the Government Employees Medical Scheme, the Police Medical Scheme, Parliamentary Medical Scheme, Municipal Workers Union Medical Scheme, State entity medical schemes e.g. Transmed as well as various private medical schemes to which State employees belong) and reallocate these funds towards the funding required for NHI.


244. However, it is necessary to take into account the reality that irrespective of how comprehensive the NHI entitlements will be, some personal healthcare services will not be covered. This may be as a result of these health services not fitting into the mainstream of medically necessary and efficacy-proven interventions approved for NHI. Attention will have to be given to the distributional impact of such reforms especially on those with special healthcare needs such as the disabled and the elderly.


245. Furthermore, the component of the Road Accident Fund (RAF) and the Compensation for Occupational Injuries and Diseases (COID) covering provision of healthcare services will be a source of revenue for NHI. In anticipation of broader Comprehensive Social Security Reform, it is important that there is alignment of funding allocated to compensation funds to avoid double dipping and fragmented funding. Once fully implemented, NHI coverage will also include medical benefits currently reimbursed through the Compensation Fund for Occupational Diseases and Injury (COIDA), Compensation Commissioner for Occupational Diseases in Mines and Works Act (ODMWA) and the Roads Accident Fund (RAF). Legislative amendments will accommodate these changes.