SOCIAL HEALTH INSURANCE POLICY

Presentation to Health Portfolio Committee

7 June 2005

Contents of presentation

Some motivation for SHI policy Objectives of SHI Present proposals Envisaged way forward

Key Strategic Challenges

Constitutional mandate to provide universal access

Inequity in access to health care Ensuring that public health system remains

backbone of SA health system care Private sector cost escalation Limited options for low income people Need to reduce financial risk to individuals at

the time of accessing health care

Policy Context cont.

SA - Health System 2002/2003

Public sector

R33.2 billion

Private sector

R43 billion

Serves 6.9 m

Pcap = R6231.88

Serves 37.9 m

Pcap = R875.98

Number of Medical Scheme Beneficiaries 1974 - 2003

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

Num

ber

of b

enef

icia

ries.

Registered Schemes Exempt / Bargaining Council Schemes

Benefits Paid on Hospitals in Real Terms (2003 Rands), 1990 to 2003

0

1

2

3

4

5

6

7

8

9

10

11

12

13

1419

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Bill

ion

s

Calendar Year

Ben

efit

s p

aid

by

Med

ical

Sch

emes

(20

03 R

and

ter

ms)

. Private Hospitals

Public Hospitals

Proportions of Benefits Paid by Medical Schemes in 2003

Total Private Hospitals33.8%

Specialists, Allied and Support26.6%

Total Public Hospitals0.6%

Medicines out of Hospital22.3%

GPs, Primary Care and Dental14.0%

Other2.6%

Characteristics Of NHI and SHI

Normally employment related, payroll deductions

Contributions from employers and employees

Premiums are income related and benefits are standardized

Creates large risk pool and avoids adverse selection

Social solidarity (healthy cross-subsidise the sick, and wealthy cross-subsidise the poor)

NHI versus SHI

NHI provides cover for both contributors and non-contributors

SHI covers only the contributors and their dependants

However: Most industrialised countries evolved from SHI to NHI

as their economies developed In SA, NHI can be achieved in the long term as the

contributor base increases with improved economic performance

OBJECTIVES OF SHI

1. To ensure affordable universal cover to all citizens and legal residents of South Africa in an equitable manner within a unified health system.

2. To ensure a reasonable and equitable system of cross-subsidies across all income groups applicable to users of both the public and private sectors.

3. To remove unfair access barriers to medical scheme cover for lower-income groups.

Departmental position as at June 2003

In SA context, SHI has three components:

1. Risk-related cross subsidies;2. Income-related cross subsidies;3. Mandatory contributions

Risk Related Cross subsidies

MSA requires all schemes to provide PMB for all scheme members

Scheme have different risk profiles, resulting in different cost structures

Research done by CARE found that there is a 180% price difference between the lowest and highest risk profile scheme, just because of different age profiles

Clearly, schemes have incentive to risk rate in order to reduce their costs

Recommendation on Risk-related cross subsidies

Urgently establish a Risk Equalisation Fund Primary objective of REF is to protect the open

enrolment and community rating environment. Purpose is to prevent competition between

medical schemes from occurring on the basis of risk selection.

Will encourage competition between medical schemes on the basis of cost and quality of healthcare delivery.

ADS AST BCE BMD CHF CMY COP CRF CSD DBIColumn 1 2 3 4 5 6 7 8 9 10 11Under 1 473.48 696.73 852.57 691.04 1,396.00 1,673.88 1,891.72 1,288.96 6,081.17 2,120.00 1,595.351-4 47.81 271.06 426.90 265.37 970.33 1,248.21 1,466.05 863.29 5,655.50 1,694.33 1,169.685-9 19.28 242.53 398.37 236.84 941.80 1,219.68 1,437.52 834.76 5,626.97 1,665.80 1,141.1510-14 18.52 241.77 397.61 236.08 941.04 1,218.92 1,436.76 834.00 5,626.21 1,665.04 1,140.3915-19 25.34 248.59 404.43 242.90 947.86 1,225.74 1,443.58 840.82 5,633.03 1,671.86 1,147.2120-24 42.48 265.73 421.57 260.04 965.00 1,242.88 1,460.72 857.96 5,650.17 1,689.00 1,164.3525-29 59.77 283.02 438.86 277.33 982.29 1,260.17 1,478.01 875.25 5,667.46 1,706.29 1,181.6430-34 68.76 292.01 447.85 286.32 991.28 1,269.16 1,487.00 884.24 5,676.45 1,715.28 1,190.6335-39 81.52 304.77 460.61 299.08 1,004.04 1,281.92 1,499.76 897.00 5,689.21 1,728.04 1,203.3940-44 89.47 312.72 468.56 307.03 1,011.99 1,289.87 1,507.71 904.95 5,697.16 1,735.99 1,211.3445-49 105.85 329.10 484.94 323.41 1,028.37 1,306.25 1,524.09 921.33 5,713.54 1,752.37 1,227.7250-54 135.62 358.87 514.71 353.18 1,058.14 1,336.02 1,553.86 951.10 5,743.31 1,782.14 1,257.4955-59 172.32 395.57 551.41 389.88 1,094.84 1,372.72 1,590.56 987.80 5,780.01 1,818.84 1,294.1960-64 268.44 491.69 647.53 486.00 1,190.96 1,468.84 1,686.68 1,083.92 5,876.13 1,914.96 1,390.3165-69 340.42 563.67 719.51 557.98 1,262.94 1,540.82 1,758.66 1,155.90 5,948.11 1,986.94 1,462.2970-74 427.02 650.27 806.11 644.58 1,349.54 1,627.42 1,845.26 1,242.50 6,034.71 2,073.54 1,548.8975-79 451.46 674.71 830.55 669.02 1,373.98 1,651.86 1,869.70 1,266.94 6,059.15 2,097.98 1,573.3380-84 457.40 680.65 836.49 674.96 1,379.92 1,657.80 1,875.64 1,272.88 6,065.09 2,103.92 1,579.2785+ 392.27 615.52 771.36 609.83 1,314.79 1,592.67 1,810.51 1,207.75 5,999.96 2,038.79 1,514.14

193.90 Per Beneficiary Per Month

Age Bands

No CDL Diseases

NON

REF Contribution Table [Base 2002, Use 2005]Industry REF Community Rate

Chronic Disease List (CDL) Conditions

REF Contribution Table [page 1]

Source: REF Formula Consultative Task Team Report

Poor risksPoor risks

Good risksGood risks

Poor risksPoor risks

Good risksGood risks

Poor risksPoor risks

Good risksGood risks

Poor risksPoor risks

Good risksGood risks

Poor risksPoor risks

Good risksGood risks

Poor risksPoor risks

Good risksGood risksGood risksGood risks

Poor risksPoor risks

Risk Equalization: how does it work?

Risk Equalisation

Fund

Net financial transferNet financial transfer

Levies to, and payments Levies to, and payments from, the REFfrom, the REF

Medical Medical schemesschemes

Impact of Risk Equalisation

Risk equalisation will equalise the risk profile faced by schemes, NOT the outcome of successful risk management or managed care.

Schemes that are successful at reducing the cost of delivery of healthcare retain that benefit for their own members.

All schemes will effectively face the same risk profile. The most successful ones will be those that can best manage that risk and reduce the cost of delivery.

Future competition will be on healthcare delivery, not risk selection.

Income Cross subsidies

Our medical scheme contributions are community rated

Community rating achieves cross subsidies at option level only.

Income related cross subsidies difficult to achieve in current industry structure

Inequity exacerbated by tax expenditure subsidy

Tax Expenditure subsidy

Made up of two components: Tax deductions on medical scheme

contributions by employers Deduction on any medical expense in

excess of 5% on taxable income Employer deduction regressive b/c of link to

contributions Individual deduction more progressive, but

depends on submission of tax return Estimated at 8,2 billion in 2004

Subsidy Framework - existing

low middle high

Tax expendituresubsidy

Current public sector users (not in medical scheme)

Private sector users

In-kind subsidy

Required medical scheme contributions

Per capita expenditure

Income levelLow income groups are forced to co-pay for services without reasonable access to a subsidy or to risk pooling via a medical scheme

Mandates: emerging reform path

Medical scheme membershipMedical scheme membership

Income-Income-based based ContributionsContributions

VoluntaryVoluntary MandatoryMandatory

Not requiredNot required

MandatoryMandatory

Introduce membership mandates as membership Introduce membership mandates as membership improves within the voluntary environmentimproves within the voluntary environment

Current Current positionposition

Proposal on Income Cross-subsidies

Need to restructure the Tax expenditure subsidy to be more equitable

Need to move towards income-based contributions for medical scheme membership

This will improve social solidarity in the funding of health care, and reduce out of pocket expenditure on health care

The technical details of HOW still need to be agreed with National Treasury

Proposal on mandates

Mandatory membership should be phased in over time

First phase is to mandate income related contributions for high income earners or certain employer groups

Such contributions to be based on the cost of providing common minimum package in medical scheme industry

Implementation of compulsory membership of medical scheme should be gradual.

Proposed next steps

Testing of Risk Equalisation framework from 2005-2006

Phasing of income cross subsidies still to be finalised with Treasury

Report to Cabinet in June/July SHI framework still not approved by

Cabinet