On August 12 2011 the Department of Health published its policy green paper setting out the government's intended implementation of national health insurance (NHI) in the years to come. This constitutes the first step in the legislative process aimed at the ultimate establishment and implementation of the NHI system. This project is anticipated to take 14 years to complete; regardless of whether it is successfully implemented, it will undoubtedly have a significant effect on the medical aid and health insurance landscape in South Africa.

Although neither the green paper nor its accompanying media statement issued by the minister of health on August 11 2011 definitively sets out exactly how NHI will be implemented, and what it will look like in its final form, a number of observations may be distilled from these initial documents. This update highlights those facets of the green paper which may have a future effect on employers and employees – more specifically, in relation to the manner in which NHI is to be funded and contributions collected via the workplace for that purpose.

NHI is primarily designed to finance universal healthcare for all South Africans, as evidenced by the introductory sentence to the green paper, which from the outset characterises NHI as "an innovative system of healthcare financing".

According to the minister's media statement:

"NHI is a financing system that will ensure the provision of essential healthcare to all citizens of South Africa (and legal long-term residents) regardless of their employment status and ability to make a direct monetary contribution to the NHI Fund."

Thus, both employed and unemployed persons will be covered, and will be entitled to the benefits offered, by NHI. The funding system necessary to finance NHI is therefore critical to its future functioning and success.

According to the costing model used in the green paper, an estimated amount of R125 billion would be required to fund the NHI system in 2012, increasing to R214 billion in 2020 and culminating in an estimated total of R255 billion in 2025, if implemented gradually over a 14-year period.

According to the green paper, the "principal funding mechanisms for National Health Insurance" envisage that funding will be obtained "from a combination of sources". In this regard, three sources are specifically named: "the fiscus" (ie, taxpayers), "employers" and "individuals" (which presumably must also refer to taxpayers). At this early stage of the process, it thus appears that employers have been identified as a crucial component of the envisaged funding mechanism for NHI.

The minister's media statement provides that "[i]f you earn above a certain income you will be required by law to make contributions to the NHI Fund". Insofar as individuals are concerned, it thus appears that only employees earning above a certain threshold amount would be required to contribute to the NHI Fund. It would doubtless be unrealistic to expect unemployed persons earning no income to contribute to the NHI Fund – hence the proposal that the country's working population will subsidise the non-working population (and those earning below the relevant threshold).

This linkage between NHI and the concept of employment appears to explain why employers have been identified as one of the principal funding mechanisms for NHI – presumably, in the sense that they will be used to facilitate the collection of contributions in the same way as is currently done in respect of 'pay as you earn', contributions to the Unemployment Insurance Fund and skills development levies. This collection mechanism seems to be supported by the green paper, which provides that "[a]ll revenue collection would be undertaken by the South African Revenue Services (SARS), including the mandatory contribution".

The crucial question – for employers at least – which needs to be determined is whether employers will also be required to contribute separately to the NHI Fund, or will merely be used as an administrative recovery mechanism to collect such contributions from employees. Although the green paper identifies the sources from which contributions to the NHI will be derived, the document provides that the "precise combination of the sources is the subject of continuing technical work and will be further clarified in the next 6 months in parallel to the public consultation". This is a reference to the two-month public consultation period, which commenced on August 12 2011. Accordingly, interested persons have until October 12 2011 to make their submissions to the Department of Health, with a view to influencing the manner in which the NHI system is crafted.

An NHI system that would require employers to contribute additionally to the NHI Fund would be an added obligation to the existing tax and administrative burdens placed on employers, which both directly and indirectly push up the cost of doing business in South Africa and limit the capacity of domestic businesses to compete against global competitors. This in turn affects the capacity of South African businesses to grow and to contribute to meaningful job creation. Even if contributions will be obligatory only for employees, and where employers will be required only to collect such contributions for SARS via deductions from employees' remuneration, this will in itself increase the real cost of labour and will add to the total cost to the employer of such remuneration.

It is thus in the interests of employers (and more specifically, employer organisations and federations) to engage with government by making submissions to the director general of health in an effort to influence the outcome of the legislative process. After this initial consultation, a white paper will be finalised. Thereafter, draft legislation will be developed and published for further public engagement. The legislation will then be finalised and submitted to Parliament for its consideration and approval, and finally presented to the president for his final approval.

The timing of this process for the next six months envisages the launch of the final NHI policy document during December 2011 (presumably after consideration of all initial submissions received by October 12 2011), and the commencement of the legislative process in January 2012.

With this schedule in mind, employers and employer bodies should begin, from the very outset, to engage with government concerning the manner in which NHI is to be funded and implemented, so that their interests are also taken into consideration. Such an approach is preferable to an 'after-the-fact' response once the NHI bill has already been drafted, at which point the policy positions of government will, to some extent, already have been decided.

For further information on this topic please contact Alex Ferreira or Louietta Du Toit at Edward Nathan Sonnenbergs by telephone (+27 11 269 7600), fax (+27 11 269 7899) or email (aferreira@ens.co.za or ldutoit@ens.co.za).