Economist: National Health Insurance is Unaffordable

Jasson Urbach

On 19 January 2016, economist Jasson Urbach, who is a director of the Free Market Foundation (FMF) and the head of its Health Policy Unit, held a media briefing at the FMF’s offices in Johannesburg today on the government’s proposed National Health Insurance (NHI) scheme. South African Libertarian attended the briefing.

Urbach on the whole highlighted two points: the government should not be in the business of dictating to free individuals how to go about their own healthcare, and that even if it tries, the NHI scheme would be unaffordable in any case.

The NHI White Paper, released by the government in December 2015, set out various funding options for the scheme, including increasing value-added tax (VAT), and increasing personal income tax and payroll tax. The latter are the government’s preferred avenue of funding given that personal income tax constitutes the bulk of the government’s revenue. Increasing VAT would be disastrous to the poor, according to Urbach. A higher VAT rate (which amounts to an increase in the price of goods) would make out a higher proportion of a poor person’s income. For example, a person who lives on R50 a day will feel a greater burden if he must pay R5 extra on certain products, over a person who has R5,000 at his disposal a day. This not only contributes to absolute poverty but obviously increases inequality.

The White Paper acknowledges that economic activity must increase and the economy in general must grow in order for NHI to be tenable, but in any case proposes that taxes must rise, which logically lead to a decrease in economic activity and saving. The paper also acknowledges that South Africa has a narrow tax base. Urbach says that around 480,000 people pay over half the personal income taxes in South Africa, and that about 3.4 million people contribute more than 90% of the tax. That, taking into account the fact that South Africa’s working-age population at the 2010 census was 34.5 million. More worrying, according to Urbach, is that the White Paper ‘cheekily’ states that South Africans should not worry about how much the NHI will cost, but must instead focus on the goal of the scheme. This kind of reasoning could prove disastrous for South Africa’s economy.


While health insurance makes sense, Urbach says, South Africa’s developing economy cannot hope to afford it, especially considering that nations such as Canada and Britain, world-class developed economies, are having trouble funding their own state healthcare schemes (not to mention massive queues and rationing). Private insurance should be preferred over public insurance for it is not only affordable, but adds to consumer choice and leads to greater health market responsiveness. The government should not lock the people into its own preconceived notion of what is ideal, but allow the consumers to decide for themselves. This should be the case even if the government intends to fund healthcare for the poor: a position the Free Market Foundation has advocated for, similar to private school vouchers.

Urbach also pointed out how needless it was for the government to attempt to destroy the private healthcare industry, whereas it can conceivably implement its program without having to do that. The government states that there are ‘too many’ private health insurance schemes and will consequently ‘rationalize’ them, decreasing the number. This kind of uncompetitive monopolization by government may be unconstitutional, according to Werksmans Attorneys lawyer Neil Kirby.

In conclusion Urbach encouraged South African civil society to engage on the disaster that is NHI: call in to radio shows, have debates, and engage on social media. For more information on, and the ability to engage with the NHI, please visit this website.