Ryan Noach is the CEO of Discovery Health, a company which covers 40% of those South Africans who have private medical insurance. Not surprisingly, he has been analysing and attempting to bring rationality to the National Health Insurance (NHI) Bill since it was first announced in 2007. In an interview today Noach expressed concerns about the NHI Bill that was voted through Parliament this month, particularly Section 33, which proposes the elimination of companies like his once the NHI is fully implemented. For the rational mind, alongside the guarantee that NHI will bankrupt already fragile South Africa, the most worrying part of this discussion is the ANC’s roadblock approach to all counter proposals – particularly scary considering the destructive record of every SA State-run enterprise. On the upside, Noach says even in the State’s best case scenario (ie no Stalingrad legal challenge from the private sector) it will be decades before the proposed NHI would be fully implemented. By which time, Parliament – and voters who put members there – will surely have come to their senses. – Alec Hogg
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Watch here
Relevant timestamps from the interview
00:00 – Introductions
00:25 – Ryan Noach on how long Discovery Health have been keeping tabs on NHI bill
01:04 – Noach on Discovery Health’s plans to oppose NHI bill
02:05 – On Discovery Health’s credentials and client base
03:20 – Breaking down proposed National Health Insurance Bill
06:37 – Noach provides a helpful analogy
07:56 – On other examples of national health cover internationally, and their success or lack thereof
09:56 – Noach responds to Connie Mulder’s comments on the lack of public outcry from private health insurers
13:04 – On the lack of open-mindedness to suggestion from ANC policymakers
13:56 – How the NHI bill would impact taxation in South Africa
17:51 – What next for the NHI Bill and South Africa
20:58 – What next for Discovery Health
21:38 – Concludes
Edited transcript of the interview:
Alec Hogg: Ryan Noach is the Chief Executive of Discovery Health, and something that must be occupying your mind is the National Health Insurance Bill that has now passed through Parliament, Ryan. How long have you been analyzing this and attempting to bring some rationality to the argument?
Ryan Noach: We have been analyzing the National Health Insurance (NHI) since 2007 when it was first announced by then-President Mbeki at the Polokwane conference, the ANC conference in 2007. That conference, as you recall, was where the Zuma-Mbeki showdown took place, and it was there that NHI was introduced as ANC policy.
Alec Hogg: That was 16 years ago. Now, as it has gone through Parliament, we’ve seen solidarity immediately taking the matter to court. What about Discovery? Are you also considering legal action?
Ryan Noach: While we are not naturally inclined to resort to litigation, it is not our initial course of action. Over the past four years, during the parliamentary portfolio committee’s review, we have engaged extensively and submitted comprehensive work, almost like a thesis, to demonstrate what we believe is a viable solution for NHI. The proposal has several strengths, but there are a few aspects that we consider non-starters, making it impractical and unfeasible. We have presented alternative suggestions and a framework that we believe can work alongside the ANC’s NHI proposal.
Alec Hogg: Before we delve into that, let’s establish your credentials. In South Africa, Discovery is the leading private healthcare company. The most recent figure I found indicated over 3 million beneficiaries. Is that correct?
Ryan Noach: I prefer not to use the term “dominant” as it carries certain connotations. So I wouldn’t describe us in that way. Our market share across all medical scheme lives exceeds 40 percent. In other words, we administer just over 40 percent of all medical scheme lives in the country, which amounts to approximately 3.75 million beneficiaries. Each individual is important to us, and we take our responsibility for delivering quality healthcare very seriously. In the open market, medical schemes are categorized as either restricted schemes, linked to specific employer groups, or open schemes that compete commercially for business. The Discovery Health Medical Scheme operates as an open scheme, competing for medical scheme lives in the open market. In this market, our market share in the Discovery Health Medical Scheme is currently around 60%, where we compete for members.
Read more: National assembly adopts the fatally flawed and harmful NHI Bill
Alec Hogg: And the reason why this issue is so important to you is that the National Health Insurance aims to provide equal healthcare for everyone in South Africa.
Ryan Noach: That would be a positive outcome. If we could achieve that, it would be fantastic and beneficial for society. However, the key concern, Alec, at a macro level, is the inequitable access to high-quality healthcare for the majority of South Africans, around 40 to 45 million people, in comparison to the private sector, which offers some of the world’s best healthcare access. As a healthcare practitioner and a doctor who trained in the public healthcare system, it deeply saddens me that if someone in my office were to have an accident and break their leg, they would receive immediate and top-notch healthcare. Yet, just a kilometer away from where I am now, in Alexandria, if someone were to suffer the same injury without healthcare insurance, the care they receive would be inconsistent, patchy, and of uncertain quality. This inequality is unfair and untenable. We are facing an unsustainable and inequitable situation. Therefore, we strongly believe that change is necessary, and it should occur simultaneously in both the private and public sectors. We are not denying the need for change.
The issue we have with the current proposal of the NHI, as it stands today, is Section 33 of the bill, which states that once the NHI is fully implemented, medical schemes will no longer be allowed to provide any cover that is provided by the NHI. Essentially, this renders medical schemes redundant at that point in time. However, in reality, Alec, that is a long way off. The Department of Health itself has indicated that it will take more than 10 years, but we don’t believe it’s even feasible within that timeframe. It’s many decades away. So, there is no immediate cause for panic or concern. But from our standpoint, we want to encourage capital investment in the private healthcare sector and provide long-term assurance. It is crucial for our own investments and for the continued investments of others that there is a sustainable and permanent role for the private sector in healthcare. We want our hospital groups to continue investing capital to maintain modern systems, advanced technology, and the highest quality healthcare that we have today. Requiring the private sector to be squeezed out at some point in the future, even if it is far away, is unacceptable and something we cannot agree to.
Alec Hogg: It’s somewhat akin to asking if a motor manufacturer today would build internal combustion engines when they know that such engines will eventually be phased out due to global warming and the push towards reducing carbon emissions. If you…
Ryan Noach: The difference in that analogy, Alec, is that it relates to innovation cycles and trends. It’s different when the phasing out is mandated by legislation, by law. When they say your combustion engine is not allowed. Some Scandinavian countries are legalizing that, so your analogy would work in that context. Let me provide you with a more fitting analogy here. Food and healthcare are basic human rights, and everyone should have access to them. So, the analogy I would draw is related to food. It would be like saying it’s unfair for people to pay different prices and eat different types of food. Everyone should pay the same price and receive the same food. And now the government plans to take over the entire food supply chain. Once they are ready, when it’s fully implemented, all supermarkets must close down, and only the government can sell food. That’s the analogy. That’s what’s happening here.
Alec Hogg: Thank you for providing clarity on that. From the ANC’s perspective, it seems similar to the idea of Cuba, where the state provides healthcare, which is reportedly good but often overwhelmed based on the research done there. Are there any other parallels you can share?
Ryan Noach: We haven’t found any country in the world that nationalizes healthcare by law and then legislates the elimination of the private sector. The Minister of Health in Parliament mentioned the UK NHS as an example. It’s indeed a great healthcare system, one of the best globally. However, even the UK NHS faces its own challenges, cutbacks, and limitations, as any national system would. In the UK, as you know, we operate a successful private medical insurer, the third largest in the market. Prior to COVID, 12 to 13% of the UK population had private medical insurance. Today, that number has risen to 22% of the UK population. So, the minister used the UK as an example of why we should nationalize healthcare, and it is a good example. However, we believe in a blended model like the UK’s, where people can choose to purchase private cover if they desire a different option.
Read more: Mulder skewers ANC’s political ploy to grab healthcare: “Just fix what we have, dammit”
Alec Hogg: Connie Mulder from Solidarity Research Unit made a few interesting points, and he mentioned not just Discovery but also Liberty, Momentum, and others. He suggested that perhaps there hasn’t been enough public pushback from health insurance companies because they hope to administer the entire scheme.
Ryan Noach: Let me state unequivocally and on the record that is not the case. Firstly, there have been no discussions or considerations regarding administering the scheme. We have no knowledge of their administration plan. Secondly, that is not our strategy. We have never even pursued administering the government employee medical scheme, which is the second-largest scheme in the country after Discovery Health Medical Scheme. It’s not because we have an aversion to government business, but rather because we believe their chosen contracting model doesn’t align with our fully integrated approach to administration and managed care services. They have numerous contracts, around 19 by my last knowledge, for delivering administration and managed care. We don’t believe in that model. While it may work well for GEMS in some cases, it is entirely baseless to suggest that we have such intentions. We have been far from silent on this matter. I have participated in nearly 30 conversations like this one in the past two weeks alone. My position is crystal clear: the current situation is inequitable and requires change. The NHI has strengths, and a significant portion of the bill is commendable and can be worked with. However, it is not feasible to eliminate the private sector and nationalize healthcare in a communist-like manner. Such an approach would face resistance from individuals whose current healthcare spend would drop by over 70% per capita, and it would not be economically viable to raise taxes to compensate for it. Moreover, it’s simply not smart because the private sector in this country provides tremendous support. We have a national asset, and the most sensible approach would be to collaborate with the private sector and utilize its capabilities for the benefit of a larger population. Therefore, we have presented constructive proposals within the framework provided, highlighting its viability but suggesting necessary changes. We believe in fostering a conversation and debate, and we are not alone in this. There were 112 submissions to the Parliamentary Portfolio Committee, comprising tens of thousands of pages from health economists, civil society organizations, non-governmental organizations, and the private sector. However, in the four years following those 112 submissions, no substantive changes were made to the act. So, we simply urge for engagement and collaboration.
Alec Hogg: Why is it that after being involved in this discussion since 2007, there seems to be a lack of open-mindedness?
Ryan Noach: I don’t have an answer to that. The only logical conclusion one can draw is that they had a predetermined model they believed in and were determined to push through. I can’t think of any other rational explanation. It’s difficult to explain why, despite extensive engagement and so-called consultation, not a single substantive change has been made over a four-year parliamentary consultation process. I can’t provide any other rational response.
Alec Hogg: You mentioned the costs. Connie’s viewpoint was that VAT would need to be raised from 15% to 20%, personal income tax rates would need to increase by 20 percentage points, company tax from 28% to 42%, and a payroll tax of 5.5% would be added. These are significant changes to the tax base.
Ryan Noach: I haven’t reviewed his calculations, but we have conducted our own analysis in our health economic unit, led by Prof. Roseanne Harris. Let me share our findings with you. Firstly, the starting point is determining how much funding is required. The only publicly available number, as the treasury hasn’t done the work yet, is 200 billion Rand, which was provided by the Department of Health several years ago. To make it more feasible to fund, let’s assume that lower number for the sake of this conversation. However, in reality, we believe the actual amount needed is double that figure. But for now, let’s hypothetically consider the R200 billion signaled by the Department of Health. To fund it entirely from VAT, the rate would need to be increased from 15% to 21.5%. If funded solely from personal income tax, it would require a 32% increase, which is one-third higher than the current rates. If it were to be funded purely through a payroll tax, employers would need to pay ten times their current UIF contributions. Clearly, these three scenarios are completely unfeasible. It’s evident, even without a deep understanding of the FISCUS, that such tax increases would lead to a tax revolt or simply be unattainable. We also explored combinations of these options. The most viable combination we identified was increasing VAT from 15% to 17% (a 2 percentage point increase), raising income taxes by 10% (not 10 percentage points, but 10% higher than current rates), increasing corporate tax by 10%, and introducing a new payroll tax that is double the current UIF payroll tax. This combination would yield the R200 billion target. However, even with this combination, we believe it is not economically feasible based on our economic studies. It should be noted that the R200 billion target represents only about 50% of the required funding.
Read more: 50 Reasons why the NHI will never work
Alec Hogg: So essentially, you would need to double all those figures. What politicians seem to overlook is that the tax base is already quite small. Increasing the tax burden by 10 percentage points would require bringing in millions of people who are registered but currently not paying taxes. This could potentially lead to a revolt, as you mentioned.
Ryan Noach: The point you raise is crucial and it’s worth noting the nuances. The taxpaying public in South Africa consists of approximately five and a half million people, who are predominantly members of medical schemes. While there may be some differences at the margins, the tax base can be seen as the medical scheme base, comprising five million principal lives and a total of nine million beneficiaries including their families. These individuals are currently funding the public sector healthcare system, contributing approximately 80% of the funding through their disposable after-tax income used to pay for their medical schemes. Now, what you’re essentially proposing is that their taxes will increase significantly while their per capita entitlement to healthcare will decrease by approximately 72%. This simply does not work and is not feasible.
Alec Hogg: In addition to the economic impact, another consequence would be the potential loss of talent leaving the country. Thank you for outlining all of that. So, where do we go from here? What do you see as the best and worst case scenarios?
Ryan Noach: I believe we will be fine. I’m convinced and optimistic that we will overcome these challenges. Firstly, even if nothing changes and the law is passed as it is, we are still decades away from any feasible implementation. So there’s no need to panic. Immediate changes are not imminent. The process of promulgating the Act still has a long way to go. Although it may seem to have been fast-tracked, it still needs to go through the National Council of Provinces, which poses challenges due to Section 32 of the Act. This section requires about 50% of the provincial health budgets to be appropriated or nationalized into the National Fund. Convincing the premiers to sacrifice 50% of their health budgets is a significant hurdle, and many premiers and MECs are unhappy about it. Assuming it passes through the National Council of Provinces, as a section 76 bill requiring a majority vote, it goes back to the National Assembly for further debate and then to the president for signature. It wouldn’t be unprecedented for the president to raise concerns about the constitutionality of the act before signing it. In fact, there is a legal opinion by the parliamentary law advisor stating that the Act has serious constitutional shortcomings. So the president would need to consider these concerns before signing it. Let’s assume, for political reasons, the president wants to fast-track it before the November election next year, and there is a push for expedited progress. Inevitably, the matter would end up in court as several individuals who presented at the Parliamentary Portfolio Committee, not including us, have expressed their intent to challenge it legally. It’s likely that industry associations in the medical scheme industry would also feel compelled to fight it in court at that point. There are multiple constitutional issues raised by this act, and there would be a substantive and valid debate at the constitutional court. Ultimately, if it reaches that stage and is approved, there would still be many years before implementation. However, as it stands, we do not believe it is feasible. Therefore, there is no need to panic today, but it is crucial to take action, foster public conversation, and engage in the process.
Alec Hogg: Despite the uncertainties and the long timeline before practical impact, are you continuing to invest?
Ryan Noach: Absolutely. We are deeply committed to this market and this country. We have a fantastic business here. When we compare ourselves to health insurers around the world, I can confidently say that Discovery Health is one of the leading global health insurers or health insurance administrators. We continue to invest and grow our business, ensuring efficient operations and delivering high-quality service to our members is our priority.
Read also:
‘NHI: a recipe for endemic corruption and further fostering of entrenched ANC patronage’
NHI: a monopoly the SA government cannot possibly manage
National Health Insurance: A revolutionary disaster for South African healthcare – Katzenellenbogen
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