(Updates bond yield in in third last paragraph.)
Sept. 29 (Bloomberg) -- When Shadrack Zitha complained of severe abdominal pain, his brother and his cousin took him to Natalspruit hospital, east of Johannesburg.
Two hours later, he still lay writhing on a wooden bench in the emergency room while his relatives battled to get him admitted. And it was his second visit: he’d been sent away earlier with painkillers and an anti-inflammatory.
“If we’d gone to a private hospital they’d have identified the problem immediately,” said his cousin, Bethuel Zitha.
Shadrack Zitha, 23, is among more than 42 million South Africans forced to rely on an ailing public health system plagued by drug and staff shortages and maintenance backlogs. Their experience is worlds apart from that of the country’s other 8.3 million people. They have medical insurance that pays for private hospitals owned by Mediclinic International Ltd., Netcare Ltd. and Life Healthcare Group Holdings Ltd.
Now the government plans to bridge the divide by introducing compulsory national health insurance over the next 14 years, using contributions paid for the coverage to revamp hospitals and hire more doctors and nurses.
The plan may push government health spending to 6.1 percent of gross domestic product by 2025, versus about 3.9 percent in fiscal 2010, according to calculations using data from Econex, an economic advisory service near Cape Town.
Cutting or Taxing
Funding the so-called NHI will require a choice between the government’s plan to eliminate the budget deficit, forecast at 5.3 percent of gross domestic product in the year through March 2012, and raising taxes, said Dawie Roodt, chief economist of Efficient Group Ltd., a Pretoria research and financial company.
“We can’t double the current health budget and rein in the deficit,” he said. ‘Conservative calculations show that the deficit will increase to 10 percent of GDP by 2018.’’
Only 10 million people, or one-fifth of the population, pay income taxes. Health already accounts for 11.5 percent of state spending and is the third-biggest category after education and welfare grants.
Public and private South African health spending amounted to about 8.3 percent of GDP in 2008, similar to that in the U.K., Norway and Finland. The difference is that only 40 percent of the outlay went toward universally available government services in South Africa, compared with more than 70 percent in most developed European countries, according to a study done on behalf of the Department of Health.
“The government’s plan is great on paper, a utopia, but there are currently some very real problems in the public system,” said Mathew Menezes, a health-care analyst at Avior Research Ltd., an equity-research company in Johannesburg. “It seems an insurmountable task to get health care for all on a level with where the private sector is now.”
South Africa had 55 doctors per 100,000 people in 2008, Econex said in a report released in November last year. That lagged behind Brazil, which had 185, Mexico, with 198, and the U.K., which had 230 doctors per 100,000, Econex said.
When Zitha was carried into Natalspruit on the morning of Sept. 1, about 200 people sat on wooden benches in a waiting area while a group argued over the order of the lines and patients lay on beds in passages waiting to be attended. Toilets stank of urine and had no toilet paper or soap; some wheelchairs were without arm or foot rests.
97 Doctors, 3 Million People
The hospital, which has 735 nurses, 97 full-time doctors and 800 beds, serves 3 million people. It is fed by 30 clinics, according to the provincial health department.
“The reality for millions of South Africans is that they simply don’t get health care,” said Di McIntyre, professor in health economics at the University of Cape Town. “The NHI is intended to address this.”
Natalspruit, which averages 1,500 patients a day, is in one of 10 districts chosen for an NHI pilot program that begins next April. All its beds were full on Sept. 19, when government inspectors visited to check its readiness, said hospital spokesman Selepe Moutloali. Public bathrooms were stocked with toilet paper and had been cleaned.
Complaints have declined every year since 2007, Moutloali said. Most of the 1,600 workers have received training on how to provide improved customer service.
A revamp of the health care system may increase competition for Netcare, Mediclinic and Life Healthcare as the government drives down prices.
Some hospital facilities will remain private and others will probably form partnerships with government, said Jean- Francois Mercier, an economist at Citigroup Inc. in Johannesburg. “Prices at these facilities will be cut,” he said.
By 2017, about 35 billion rand of the NHI budget may be funded by contributions from employed South Africans, accounting for 25 percent of private health-care payments, Bank of America Merrill Lynch analysts including Kate Turner-Smith and Niel Venter wrote in an Aug. 17 note.
Discovery Holdings Ltd., which owns South Africa’s largest health-insurance administrator, would experience a decline of 12 percent in fiscal 2013 profit if it had to lose a quarter of the premiums paid by members, the analysts said.
“If successful health reform provides competition for private health insurance, then this will be a good thing for society,” Discovery Health Chief Executive Officer Jonathan Broomberg said in an e-mailed response to questions. “This will mean we have to up our game and ensure that the products we develop and sell are relevant and provide real value.”
The government may consider extra budget payments, co- payments from patients and private investment to fund the NHI, Finance Minister Pravin Gordhan said on Aug. 11.
The pool of potential contributors is limited. More than 25 percent of the workforce is unemployed and more than 15 million people receive state welfare grants.
To plug the gap, personal income tax rates may have to be raised by 3 percentage points and the value-added tax increased to 17 percent from 14 percent, said Roodt of Efficient Group.
“There is a very small group being relied on to provide money for a large range of social services,” said Lullu Krugel, a senior economist at KPMG International’s Johannesburg unit. “Throwing more money at the system won’t change the problems.”
South Africa’s 13.5 percent bonds due in 2015 have rallied this year, with the yield dropping 44 basis points this year to 6.87 percent by 6:40 p.m. in Johannesburg. Longer-dated local- currency debt weakened, with the yield on the 6.75 percent securities due in 2021 climbing four basis points this year to 8.18 percent.
Zitha paid 150 rand for a week’s stay at Natalspruit, where he had a food blockage cleared. While the hospital has improved since his cousin Bethuel was treated there for a gunshot wound four years ago, it still doesn’t measure up to private care.
“In a public hospital the workers don’t care about serving patients,” Bethuel Zitha said. “They never get fired.”
--With assistance from Sikonathi Mantshantsha in Johannesburg. Editors: Vernon Wessels, Anne Swardson, Karl Maier.
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