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Developments: National Health Insurance and ‘Two-pot’ Retirement System

June 28, 2023

Our team shares developments on National Health Insurance Bill and the proposed ‘Two-pot’ Retirement System in this two-part special edition of X-press.

National Health Insurance

Despite public comments and submissions by various stakeholders on the National Health Insurance (NHI) Bill, South Africa’s National Assembly passed the NHI Bill earlier this month with no substantial changes.

There are many areas of concern that have caused a flurry of media attention. One, in particular, is that the Bill proposes that NHI will be the single funder and provider of Healthcare services. This raises a multitude of questions, given South Africa’s complex dual healthcare system and the difference in service delivery.

Disparity in access to care

The dual healthcare system is tangible evidence of the disparity in access to care, which South Africa’s government hopes to rectify through the introduction of universal healthcare coverage.

In a recent interview, Nicholas Crisp, Deputy Director General- NHI, shared that government currently spends approximately R5200.00 p.a. per person on healthcare services for about 85% of the population who access healthcare through the public sector. The private sector currently services the remainder of the population.

He answered a few questions from citizens; what was apparent is that people with access to care through the public sector are aggrieved by the quality of care they are experiencing. A general theme of wanting the public infrastructure fixed as an immediate need was clear. Dr Phaahla- Minister of Health, estimates this will cost in the region of R200 billion. Dr Phaahla is optimistic that facilities will be brought up to standard.

Making access to care easier?

Proximity seems to be the main driver that will eventually determine which facility people will access for care, regardless of whether this is a public/ private facility (as we know them currently).

Government intends to leverage existing private healthcare sector infrastructure and resources. The main argument for this is that the private sector has the capacity to assist more people, which will help unburden overwhelmed and deteriorating public facilities and give people access to care in a timeous manner.

Medical scheme members are concerned about experiencing lower service levels and the quality of existing infrastructure overall (public and private) being affected. The reality is that although there are pockets of excellence within the public sector, the private sector does provide higher quality care, albeit at a higher price. The private sector and its resources are also densely populated in urbanised areas where the majority of medical scheme members are likely to reside.

What’s next?

As far as the progression of the legislation goes, the next step is for the NHI Bill to be passed by the National Council of Provinces (NCOP).

Section 33 of the NHI Bill, which speaks to the role of medical schemes, expresses that once NHI is fully implemented, medical schemes will continue to exist but may only provide services not reimbursable by the NHI Fund. There is a long way to go before we see a version of a ‘fully implemented’ NHI. The Department of Health estimates a timeline of 10-15 years from when the Act is promulgated. In an interview, Dr Ryan Noach, CEO – Discovery Health Medical Scheme, stated there is ‘no need for panic’.

One consistent comment is that NHI will be implemented in stages. So, for now, and in the near future medical schemes will continue to operate in the manner which we are familiar with, perhaps with the introduction of Low-Cost Benefit Options (LCBOs).

The NHI-linked Certificate of Need has resurfaced. The certificate, which will, in essence, determine where practitioners can operate, will be taken back to court as the ruling issued in June 2022 that declared Sections 36 to 40 of the National Health Act as unconstitutional has been overturned. The Department of Health has been granted 30 days to file a response.

NHI intends to contract with public and private health service providers and private facilities for the provision of services. This will be no easy feat. Currently, well-established medical schemes experience challenges with contracting in the private sector. One element that would no doubt increase confidence across the board would be the improvement of the current public sector facilities in tandem with the proposal of contracting with private sector facilities and resources.

Two-Pot system: Treasury pushes ahead with the 1 March 2024 implementation date

In our latest update on the proposed ‘Two-Pot’ retirement system, we look at the latest proposals, which have been included in National Treasury’s revisions to the Draft Revenue Laws Amendment Bill and Draft Revenue Administration and Pension Laws Amendment Bill, published on 9 June 2023.

The changes are to be implemented in a phased approach, with the first phase to be implemented 1 March 2024.

The main changes in these drafts are:

  • Introduction of the planned implementation date of 1 March 2024.
  • Allow retirement fund members on that date to access “seed capital” in the fund.
    Recognising that many retirement fund members may need emergency access to the funds, Treasury has recommended that they be allowed to transfer funds from their vested pot as “seed capital” into the savings pot, calculated at 10% of the member’s vested value as at 29 February 2024, up to a maximum of R25 000, which would be subject to a member’s normal (marginal rate) tax;
  • Provide for equal treatment of defined benefit (DB) funds. The proposal is to allow DB funds to calculate the one-third contribution to the savings component based on one-third of a member’s pensionable service increase, and the two-thirds contribution to the retirement component based on two-thirds of the member’s pensionable service increase with effect from 1 March 2024. Seed capital for DB funds will be calculated in the same way as for defined contribution funds “and can be accommodated with a past service adjustment”;
  • Exempt legacy retirement annuity (RA) funds from the two-pot system. Legacy RA’s refer to funds with the following features:
    • Pre-universal life policies and/or conventional policies with or without profits;
    • Universal life policies with life and/or lump-sum disability cover: and
    • Reversionary bonus or universal life policies as defined or referenced in the insurance legislation.

What’s next?

The second phase of implementing the two-pot system, the legislation will deal with the potential for withdrawals by members who are retrenched and have no other form of income. The public has until close of business on 15 July 2023 to comment on these proposals.

We will continue to update you with developments on these pieces of legislation.

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