Report of the technical support mission for the

Feasibility assessment and financial

projection results for a

Social Health Insurance Scheme in Swaziland

Exploring Possible Options

WHO, July 2008

Report prepared by: Inke Mathauera

Laurent Musangob Guy Carrina

Khosi Mthethwac

a World Health Organization, Headquarters, Geneva b WHO African Regional Office, Brazzaville c WHO Country Office, Swaziland

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Table of Contents

Acknowledgement ................................................................................................................................ iii Acronyms ..............................................................................................................................................iv

EXECUTIVE SUMMARY ..........................................................................................................................V

1. INTRODUCTION .................................................................................................................................... 1

1.1. Overview and purpose of the report............................................................................................... 1 1.2. Health financing mechanisms ........................................................................................................ 2 1.3. The rationale for social health insurance in Swaziland................................................................. 3

2. STUDY OBJECTIVES AND STUDY METHODS............................................................................... 4

2.1. Terms of Reference ........................................................................................................................ 4 2.2. Methodology .................................................................................................................................. 4 2.3. Stakeholders and respondents consulted........................................................................................ 6 2.4 SimIns projections........................................................................................................................... 6 2.5. SimIns Training.............................................................................................................................. 7

3. THE SWAZILAND HEALTH CARE SYSTEM .................................................................................. 9

3.1. Health policy objectives and health sector reform objectives with respect to health financing..... 9 3.2. Health expenditure......................................................................................................................... 9 3.3. Health care provision................................................................................................................... 10

3.3.1. Decentralization and the role of the Regional Health Management Team (RHMT) ............................. 10 3.3.2. Health care infrastructure and staff ....................................................................................................... 12 3.3.3. NGO/mission facilities.......................................................................................................................... 12 3.3.4. The private sector .................................................................................................................................. 13

3.4. Key challenges in the health sector.............................................................................................. 14

4. FINDINGS FROM STAKEHOLDER CONSULTATIONS .............................................................. 15

4.1. Views from stakeholders .............................................................................................................. 15 4.2. Views from providers ................................................................................................................... 17 4.3. Views from ministerial stakeholders ............................................................................................ 18

4.3.1. Ministry of Health and Social Welfare.................................................................................................. 18 4.3.2. Ministry of Economic Planning............................................................................................................. 18 4.3.3. Ministry of Public Service and Information (MOPSI) .......................................................................... 19 4.3.4. Ministry of Enterprise and Employment (MoE).................................................................................... 19 4.3.5. Ministry of Finance (MoF).................................................................................................................... 20

4.4. Views from civil society................................................................................................................ 21 4.4.1. Civil servants' unions (teachers, nurses, civil servants):........................................................................ 21 4.4.2. Employers Federation ........................................................................................................................... 21 4.4.3. SUFIAW (Swaziland Union Federation for Financial Assistants and Workers) ................................... 21 4.4.4. CANGO ................................................................................................................................................ 22 4.4.5. Rural Health Motivators........................................................................................................................ 23

5. KEY DESIGN ISSUES OF SOCIAL HEALTH INSURANCE AND MANAGERIAL

IMPLICATIONS........................................................................................................................................ 24

5.1. Resource collection...................................................................................................................... 24 5.1.1. Additional resource mobilization .......................................................................................................... 24 5.1.2. Contribution rates.................................................................................................................................. 25 5.1.3. Collection methods................................................................................................................................ 30 5.1.4. Willingness to pay SHI contributions in the context of tax-financed government health provision...... 32 5.1.5. Willingness to pay SHI contributions among the very high-income earners......................................... 33

5.2. Pooling......................................................................................................................................... 34 5.2.1. Type of membership.............................................................................................................................. 34 5.2.2. Membership basis.................................................................................................................................. 36 5.2.3. Number of pools.................................................................................................................................... 36 5.2.4. The role of private health insurance ...................................................................................................... 37

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5.2.5. Merging of RSA referral scheme funds with the SHI scheme............................................................... 38 5.3. Purchasing ................................................................................................................................... 38

5.3.1. Benefit package..................................................................................................................................... 38 5.3.2. Strategic purchasing and provider payment mechanisms ...................................................................... 42 5.3.3. Setting provider remuneration rates ...................................................................................................... 44 5.3.4. Contracting............................................................................................................................................ 46 5.3.5. Accreditation and quality management ................................................................................................. 46 5.3.6. Co-payments ......................................................................................................................................... 48

5.4. Governance and management of the SHI fund............................................................................. 49 5.4.1. Governance structure............................................................................................................................. 49 5.4.2. Management structure and administration............................................................................................. 50 5.4.3. Measures to ensure appropriate use of SHI funds ................................................................................. 51 5.4.4. Government's stewardship function ...................................................................................................... 51

5.5. Administration costs and reserves ............................................................................................... 52 5.6. Regulatory framework and a SHI Law......................................................................................... 52 5.7. Key differences between Private Health Insurance and Social Health Insurance....................... 54

6. FINANCIAL PROJECTIONS .............................................................................................................. 55

6.1. Description of Scenario C: "Phased SHI for all Swazi over 6 years".......................................... 57 6.2. Results and implications of Scenario C........................................................................................ 65

6.2.1. Equity and solidarity ............................................................................................................................. 65 6.2.2. Financial feasibility ............................................................................................................................... 65 6.2.3. Government employer contributions to SHI.......................................................................................... 68 6.2.4. The structure of health expenditure....................................................................................................... 69 6.2.5. Resource flows ...................................................................................................................................... 69

6.3. Managerial implications for Scenario C...................................................................................... 70 6.4. Variants of Scenario C................................................................................................................. 70

6.4.1. Sensitivity analysis: Variations relative to Scenario C input variables.................................................. 70 6.4.2. Other variants of Scenario C ................................................................................................................. 70

6.5. Conclusions for Scenario C ......................................................................................................... 72

7. CONCLUSIONS..................................................................................................................................... 75

7.1. Feasibility of Social Health Insurance......................................................................................... 75 7.2. Key decisions to be taken by Government.................................................................................... 76 7.3. SHI Implementation Plan............................................................................................................. 77 7.3. Further success requirements ...................................................................................................... 78 7.4. Challenges and open questions.................................................................................................... 78 7.5. Summary of recommendations on key design issues for a planned SHI scheme.......................... 79 References........................................................................................................................................... 83

ANNEX

Annex 1 - Terms of References Annex 2 - Data sources and assumptions for Scenario C Annex 3 - Description and analysis of Scenarios A and B Annex 4 - Sensitivity analysis

The Annex is found in a separate file.

GDP p.c.: $4,800 (2007 estimations) (source: see Annex 2) Population: 950,000 (estimations for 2008) Exchange rate: 1 USD = 7.79 Emalangeni (2008 average)

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Acknowledgement

We thank the Minister for Health, Mr. Njabulo Mabuza as well as Ms. Nomathemba Dlamini, Principal Secretary, for his strong support of this social health insurance feasibility study mission. The mission team would like to express their sincere thanks to Dr C Mabuza, Director of Health Services/Public Health for their enormous support to the mission's work. Likewise, we are very grateful to Mr. Sibusiso Sibandze and his team for the great assistance during the mission both in terms of organizing the meetings, but above all in terms of the fruitful discussions and exchange of ideas. Mr. Sibandze had joined the mission team in mid February in Geneva to further discuss and agree on the assumptions made for the financial projection scenarios. This was extremely helpful and valuable for this exercise, and we therefore would like to specially thank him for his commitment. We equally thank the teams of the Ministry of Economic Planning and Development, Ministry of Finance, Ministry of Public Service and Information, and the Ministry of Employment and Enterprise for the interesting discussions and the provision of data and information. Furthermore, thanks are due to the members of the different discussion partners at provider level, among the private health insurance sector as well as civil society organizations who shared their views and information. Last but not least, we extend our gratitude to the WHO Representative Dr. Edward Maganu and Mrs. Khosi Mthethwa and the team at the WHO country office as the driving force behind this effort. Both conceptually as well as organizationally, the WHO Swaziland office was indispensable to make this mission a success. We also would like to thank Mr. Ole Doetinchem from the Health Financing Policy Team who assisted in some background calculation requirements for the SimIns projection scenarios. Finally, thanks are extended to all respondents who shared their insights and views on the feasibility of Social Health Insurance in Swaziland with us.

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Acronyms

ADB African Development Bank AFRO WHO African Regional Office ART Anti-retroviral therapy CANGO Coordinating Assembly of Non-governmental Organizations E Emalangeni (currency of Swaziland) GDP Gross domestic product GOS Government of Swaziland Gvt government Ibid. same place IDA International Development Agency IP Inpatient KOS Kingdom of Swaziland MoE Ministry of Employment and Enterprise MoF Ministry of Finance MOHSW Ministry of Health and Social Welfare MoPSI Ministry of Public Service and Information NGO Non-governmental organization NHA National Health Accounts NRPL National Reference Price List OOPs Out-of-pocket spending OP Outpatient p. page p.c. per capita PHE Private health expenditure PHI Private health insurance PPP Public-private partnership RHMT Regional Health Management Team RSA (Republic of) South Africa SHI Social health insurance SimIns WHO-GTZ Health Insurance Simulation Model SUFIAW Swaziland Union Federation for Financial Assistants and Workers TB Tuberculosis THE Total Health Expenditure TWG Technical working group UN United Nations USD US Dollars WB World Bank WHO World Health Organization

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Executive Summary The Ministry of Health and Social Welfare (MOHSW) of Swaziland requested the World Health Organization (WHO) to undertake a financial feasibility study of social health insurance (SHI) as an option of financing health care in Swaziland. This technical support was undertaken from January to July 2008. It comprised two missions to Swaziland and desk work, including stakeholder consultations and information/feedback workshops, data collection and preparing of financial projections. There is not one unique way to social protection for health and therefore WHO aims to assist in identifying down the possible options that are adequate and technically feasible in order to facilitate policy decision making by the Swaziland government. The outcome from the discussions with stakeholders is a vision of social health

insurance for all Swazi. For that matter, financial projections were made using the SimIns health insurance simulation tool. These give the MOHSW and other central agencies as well as policy-makers an indication of the financial implications of the policy directions under consideration. However, a complete and detailed actuarial analysis would still need to be undertaken once concrete and more detailed policy decisions have been made. Two financial scenarios were prepared on the basis of the first mission consultations. They can be summarized as follows: Scenario A: � Social Health Insurance (SHI) for all Swazi with rapid transition to universal coverage � All Swazi become members of the SHI within two years � The MOHSW budget is maintained; the additional resources mobilized through SHI

are supposed to finance the additional health care costs due to increased unit costs (for improved service quality) and due to increased utilization rates.

Scenario B: � Social Health Insurance for all Swazi, with a gradual extension of coverage to the

informal sector over 10 years. � Universal coverage is achieved within 10 years. � The SHI is financially fully responsible for all costs incurred by the insured. � Government subsidies cater for those with low incomes and those unable to pay

contributions. From the stakeholder feedback during the second mission, it became clear that a scenario inbetween the two above resonated well among them. Hence, an extension period of 2 years was considered to be too rapid, whereas reaching universal coverage over 10 years appeared too long. Therefore, a third scenario, called Scenario C “Phased SHI for all

Swazi within 6 years” was developed that takes this and other concerns into account. It has the following characteristics:

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Scenario C: � Social Health Insurance for all Swazi, with a gradual extension of coverage to the

informal sector over 6 years. � Universal coverage is achieved within 6 years. � The SHI is financially fully responsible for all costs incurred by the insured. � Government subsidies cater for those with low incomes and those unable to pay

contributions. Summarized, these scenarios are assumed to achieve universal coverage, though at different speeds, i.e. all Swazi will become eventually members of the SHI scheme. As the poorer part of the population is exempted from contribution payments and co-payments (i.e. no out-of-pocket payments for the SHI benefit package), the likelihood for a Swazi to experience catastrophic illness expenditure, which constitutes one of the greatest risks of being impoverished, is substantially reduced. Furthermore, in these scenarios, the Swazi would have access to better health services than currently, if the additional resources mobilized through SHI are adequately turned into quality improvements in health care services. Achieving universal coverage requires government spending on health: The MOHSW budget needs to be maintained (in constant prices) to pay for curative health care services at GOS and partly at mission/NGO services (in constant prices); in absolute terms, the MOHSW budget for curative health care would increase in line with inflation and economic growth. � In Scenario C, government funds flow (directly) to the SHI to subsidize the

contributions for the exempted and for the low-income members. There is no financial deficit as the amount of government funds is budgeted in a way to avoid this.

� The contribution share by government as an employer of civil servants would amount to E 60.4 Mio. for 2009, assuming a total contribution rate of 7% and employer and employee each paying 50% of this.

It is also important to note that with respect to the average out-of-pocket household expenditure on health, which was E 40 in 2001 - 4.65 USD (projected to be E 63 - about 9 USD - in 2008, current prices), many low-income formal sector workers and civil servants of lower grades will not pay more for health care than before. However, most of their current out-of-pocket expenditure would be turned into prepayment with the introduction of a SHI scheme, except some small OOPs for the remaining (low) co-payments. Since SHI relies on prepayment, households will no longer be forced to pay important sums out-of-pocket when illness strikes. It is important to be aware of the challenges as well as success requirements with respect to realizing a SHI scheme. To address these requires careful reflections and planning on the design and implementation of SHI.

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The government is advised to take key decisions in the following areas:

� The type of health financing, i.e. the decision to favour social health protection via social health insurance, but with continued financial support from Government to the health sector, rather than a pure tax-based system;

� The type of SHI, i.e. who is covered how quickly. The three scenarios provided sketch out difference options: Scenario A ("SHI for all Swazi - rapid transition to universal coverage", within 2 years), Scenario B ("SHI for all Swazi - with gradual extension to the informal sector", over 10 years), Scenario C ("Phased SHI for all Swazi", within 6 years) or variants of it;

� The type of governance structure of the SHI fund; � The type of management structure of the SHI fund.

Once these key decisions are made, and the government opting for a SHI, it will have to decide on critical key design issues and to negotiate with the respective stakeholders, foremost the contribution rates and provider remuneration rates. Two other critical issues to define and decide upon are the future role of private health insurance and of the medical referral schemes (Civil Servants Medical Referral scheme and Phalala Fund): � Ideally, private health insurance companies' role is that of complementary health

insurance; in other words all Swazis are members of the social health insurance, and those who can afford it can purchase a top-up insurance package for mostly "hotel"-related aspects (private rooms with better equipment and facilities; additional coverage of extra services that are not covered by the SHI).

� As RSA referrals, based on clearly defined criteria and proceedings, should be included in the SHI benefit package, one option is to transfer parts or all funds of the Phalala Fund and the Civil Servants Medical Referral Scheme to the SHI fund. The projected budget required for RSA referrals would amount to E 60 million (in 2008 prices).

The Government will also have to develop and agree upon an implementation schedule to establish the SHI agency. This could be realized in the form of an "Implementation Project", which financial support for investments in infrastructure and administration and training of staff in the various management and administration skills. Such a SHI scheme is much more comprehensive than earlier concepts of a medical aid scheme for civil servants only. In fact, the proposed SHI scheme is able to offer better services to all Swazi, while increasing equity in access and equity in financing. The following box outlines in more detail the key characteristics of the potential SHI scheme:

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Box 7.1: Key assumptions and possible institutional design for establishing a SHI for all Swazi (Scenario C)

Key design issues for establishing a SHI for all Swazi

Resource collection:

� The MOHSW budget is maintained (in constant prices). � Resources mobilized through SHI do not replace but complement existing government

funding. � SHI resources are based on contributions by members. (Chapter 5.1.1)

Contribution rates:

� The formal sector employees (public service officers, formal sector employees and pensioners) pay a uniform contribution rate based on their salary (7%, except pensioners: 3.5%).

� Contributions are shared between employees and employers at 50/50. � Informal sector workers (including the unemployed) pay a flat contribution amount of

E 500 (in 2008 prices), which would be adjusted over the following years due to inflation.

� The poor (including orphans and other vulnerable groups without any income) are exempted from contributions, namely 40% of informal sector workers, as they are unable to pay contributions.

(Chapter 5.1.2) Extension of coverage:

Formal sector: � All public sector and public enterprise officers become SHI members in Year 1. � Private sector employees join the SHI scheme in Year 2 and 3 (50% in each year). � All pensioners join in Year 1.

Informal sector: � Informal sector workers gradually join the SHI scheme, starting in Year 4 � Initial suggestions for the extension schedule: Year 4: Vendors, taxi/bus drivers and home workers (20% of all informal sector workers) Year 5: Farmers (30% of all informal sector workers) Year 6: All remaining informal sector workers (50%) From Year 6 onwards: 40% of informal sector workers are exempted (Chapter 5.2.1) Membership:

� Membership is mandatory, i.e. all population groups will eventually join the SHI scheme. Opting-out to join private health insurance should not be made possible.

� Membership is family based, i.e. children below 18 and other dependents (e.g. orphans) or other adult dependents (first grade relatives living in the same household without their own income) are covered.

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(Chapter 5.2.1) Pooling: � The GOS establishes one SHI agency that pools contributions from public service

officers, private sector employees, pensioners and at a later stage from informal sector workers.

(Chapter 5.2.3) Benefit package:

� The benefit package comprises of all essential outpatient and inpatient care at GOS and NGO/mission health facilities and private providers.

� Specialized care for specific cases could be obtained in RSA on the basis of referral through the Mbabane Government Hospital.

� The details of what is included and excluded needs to be determined. (Chapter 5.3.1) Provider payment mechanism:

� Health care providers could be remunerated on the basis of a combination of capitation and flat case payments, the latter serving for high cost services.

� It is noted that a fee-for-service remuneration is not advisable. � The detailed payment structure and managerial proceedings need to be elaborated to

ensure that health facilities receive their facility income through both the existing channel of MOSHW budget transfers and the new capitation/flat payment system in parallel. This includes establishing or strengthening clear accountability channels for heads/managers of health facilities.

� There may be an element of better payments for increased performance. (Chapter 5.3.2) Provider remuneration rate:

� Based on more detailed unit cost information, the government sets capitation-based remuneration rates and flat (case) payment rates for health providers.

(Chapter 5.3.3) Contracting:

� The SHI scheme could offer contracts to all accredited health care facilities that provide services to SHI members to clearly spell out rights and obligations of both sides.

(Chapter 5.3.4) Accreditation and quality management:

� Accreditation should be applied to all health care providers. � Accreditation could become a precondition for contracting. (Chapter 5.3.5)

Governance and management of the SHI agency:

� Governance and ownership of the SHI fund could be semi-public or autonomous.

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� The supervisory board should encompass a wider range of different stakeholders representing various ministries and government institutions, professional associations/trade unions, provider associations as well as other civil society representatives.

� The management of the SHI agency could be undertaken by a parastatal or contracted out to a private company.

(Chapter 5.4)

Legislation:

� It is recommended that the MOHSW develops a SHI Law, jointly with other ministries. (Chapter 5.6)

Specific recommendations for the SHI Implementation:

� The SHI TGW's membership, Terms of Reference, objectives, and decision-making rules should be defined.

� Inter alia, it should be composed of: - Senior staff from the MOHSW - Senior staff from the Ministry of Employment and Enterprise (social security experts) - Senior staff from the Ministry of Finance (macroeconomist/fiscal experts) - Resource persons with expertise in specific issues, including actuarial analysis. � The SHI TGW should be strengthened institutionally and technically to be better

prepared to the tasks ahead such as policy discussions, preparing policy documents for decision-makers, assessing the financial feasibility study, overseeing further financial projection activities.

� Small sub-groups of the SHI TWG, with additional resource persons representing non-government stakeholders could be set up to work on specific issues and questions.

� An inter-ministerial group with senior technical/managerial staff should be established. � A SHI team/unit should be set up within the MOHSW to coordinate and steer the SHI

planning and implementation process. � Development partners should be involved in future consultations and discussions on

SHI to get their support. � An awareness raising campaign needs to be developed, which is tailored to the specific

information needs and group interests of the various target groups, namely: - Potential beneficiaries from the formal and informal sector - Providers - Government stakeholders, - Other non-governmental actors - The very high-income earners and those with a private health insurance plan.

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� The existing household survey data should be analysed to gather more detailed information on household health expenditure per quintile as well as on the percentage of Swazi households facing catastrophic expenditure and impoverishment. This information may contribute to strengthening the arguments and objective of the MOHSW to introduce a SHI.

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1. Introduction

1.1. Overview and purpose of the report

The Ministry of Health and Social Welfare (MOHSW) of Swaziland requested the World Health Organization (WHO) to undertake a financial feasibility study of social health insurance (SHI) as an option of financing health care in Swaziland. This technical support was undertaken in three steps:

1. A first mission in Swaziland took place from 21 January to 1 February 2008 to undertake stakeholder consultations and data collection;

2. A meeting took place in Geneva in mid February 2008 with the Head of the Planning Department/MOHSW to discuss assumptions and undertake initial projections. This was followed by more detailed desk work to analyse the collected data and to analyse basic financial projection scenarios;

3. A second mission was undertaken from 9-17 June 2008 to present and discuss the findings and subsequently finalize the report.

This report presents the feasibility assessment for a Social Health Insurance in Swaziland. The financial projection scenarios illustrate the expected financial consequences of the policy directions that they represent. They serve to inform policy makers, and as such are one tool among others that the SHI Technical Working Group may use to help plan possible future financing options. The outcome of the first mission were two financial projection scenarios for two different SHI scenarios representing alternative policy directions with varying implications for the design of the health financing system. These were: Scenario A: "SHI for all Swazi - rapid transition to universal coverage " Scenario B: "SHI for all Swazi - with gradual extension of the informal sector" Both scenarios were presented and discussed with the various stakeholders. A mix of both scenarios resonated best among the stakeholders. Another scenario was therefore developed and refined by including the comments and feedback gained during the second mission. This is Scenario C "Phased SHI for all Swazi within 6 years" that covers initially all civil servants, formal sector employees and pensioners and then gradually extends coverage to the informal sector over several years. As such, this scheme is more comprehensive and achieves wider objectives of health financing than earlier concepts of a medical aid scheme for civil servants, while at the same time achieving the earlier objectives as well. As there is not one unique way to social protection for health, WHO aims to assist in identifying the possible options that are adequate and technically feasible to facilitate policy decision making by the Swazi government. This report explores and analyses the feasibility of social health insurance as per the Terms of Reference, yet this does not automatically constitute a recommendation for SHI against other financing mechanisms.

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The report is structured as follows: After this introduction, Chapter 2 outlines the study objectives and methodology. The Swazi health care system and health financing system are portrayed in Chapter 3. Considering this context is important to understand the implications and challenges of a SHI scheme. Chapter 4 presents the findings from the stakeholder consultations from the first mission. Both Chapter 3 and 4 serve as the basis for Chapter 5, which discusses key design issues for a potential SHI scheme. Chapter 6 explains and analyses the SHI financial projection scenarios made as part of this study and discusses their implications for the health financing system. Chapter 7 provides conclusions and a way forward. The present report goes beyond the Terms of Reference (TORs). It not only discusses feasibility in financial terms, but also preliminarily in technical terms. Furthermore, it touches upon some of the political feasibility aspects.

1.2. Health financing mechanisms

Social health insurance is one of several options of health financing. A health financing system seeks to organize the way that payment is made for health systems in an efficient and equitable way. The most common ways of financing health care are tax-funding, social health insurance, private health insurance, community-based health insurance and out-of-pocket spending (OOPS), or mixes of those. The following list provides a very brief overview:

• Tax-based financing: the money to pay for health services comes from general government revenue (sales taxes, income taxes, import/export taxes, etc.) and is usually spent by government on public health facilities, but also increasingly on private provision. Generally, all residents are included and have access to these facilities. Additional user fees may be levied for specific services.

• Social health insurance: members pay a contribution to a health insurance agency, which purchases health services from public and/or private facilities. For the formal sector, the payment is proportional to income, so that within the pool of SHI members, the better-off usually subsidize lower income groups. Also, the healthy and young subsidize the sick and elderly. For the informal sector, flat payments may be scheduled, at least in the short to medium run. After a transition period, SHI usually becomes compulsory.

• Private health insurance: Individuals or groups buy health insurance for themselves from private, for-profit insurance companies. These companies pay providers for health services for their insured members and charge premiums from their members according to their health risk status. As a consequence, the poor can usually not afford private health insurance.

• Community-based health insurance (CBHI): Local insurance schemes raise money from their members to pay for their health services. CBHIs show both characteristics of private health insurance and social health insurance, as they are usually voluntary, premiums are not risk-rated and schemes are often self-managed. However, in poor communities CBHIs rarely raise enough funds to provide adequately for health services.

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• Out-of-pocket spending: OOPS is not a health financing scheme in itself but rather the way money is spent on health in the absence of organized health financing schemes. Here, people pay for the services provided. OOPS is very problematic as it causes people to fall into poverty because of medical expenses. This is called catastrophic expenditure. Since health services can be extremely expensive and because illnesses are unplanned, people usually are unable to save (enough) money individually for health services.

Wherever OOPS occurs, prepayment mechanisms can strongly improve on access to care. Each has benefits and disadvantages, none is perfect, and most countries choose a mix of them as their health financing system. What is most appropriate depends on the country context.

1.3. The rationale for social health insurance in Swaziland

In Swaziland, SHI could be an alternative means to financing health care by increasing resource mobilization. In general, the reasons why a low-income country may want to introduce a SHI include:

A. Increasing spending on health care through prepayments rather than through increasing user charges (out-of-pocket expenditure)

B. Mobilizing additional resources from the incomes of the working population to raise revenue for health care either in addition to tax-funding (or to replace tax funding, though the latter is not recommended in Swaziland).

C. The prepayments into a SHI will replace OOPs and hence improve financial risk protection; they may also substitute wholly or partly for private insurance premiums.

D. Providing better or more services to the insured population. E. Introducing organizational change to improve the efficiency of the health system,

e.g. purchaser provide split, new provider payment mechanisms, etc. The Kingdom of Swaziland appears to be seeking all of the above points. Another specific objective in Swaziland is to reduce expenditure for referrals to the RSA, and building up specialized tertiary care in Swaziland. Raising revenue for health services is seen as a necessity to be able to solve the problems in quality of care and human resources in particular, which should then lead to improved health status and satisfaction with the health care system among the population. Other possible sources of financing include tax revenues and donor funding. While the latter is being sought, it is not seen as a sustainable and systemic solution to the problem. Furthermore, increasing the budget to the health sector from government revenue, either at the expense of other government sectors or through increased taxes, is seen as unattainable by MOHSW officials. It should be noted however, that from the point of view of the individual members of a potential SHI from the formal sector, the contribution may be seen as a payroll tax.

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2. Study objectives and study methods

2.1. Terms of Reference

Swaziland is a small country in Southern Africa. It consists of 4 regions, with a total population of less than 1 million people. Its territory is enclosed by the Republic of South Africa (RSA) and Mozambique. Indeed, some of the health care needs of its population are met through medical referrals to RSA, a problem that has motivated government decisions in the following area: The formulation of a social health insurance (SHI) program. The objective of the mission is to provide technical support to the SHI Technical Working Group (TWG) revolving around the area of actuarial analysis of the planned SHI. The technical support consists of three parts: a) Stakeholder consultations and feasibility assessment to generate additional

information to formulate appropriate assumptions for applying a financial projection tool. The stakeholder consultations are also meant as an opportunity to educate would-be members, providers, and supporters of the SHI.

b) Financial analysis of the proposed SHI scheme. c) Local staff training in the financial projection and simulation software SimIns and

institutionalization plan For the full Terms of Reference (TOR), please refer to Annex 1. Upon arrival, the mission team met with the MOHSW Senior Management to discuss the TORs, expectations of the Swazi colleagues regarding the mission, as well as the proceedings of the mission. Likewise, discussions took place with the General Director of Services and the Director of the Planning Unit of the Ministry of Health and Social Welfare (MOHSW) in order to clarify the objective and rationale of the planned SHI. The MOHSW made it very clear that they are interested in establishing a social health insurance scheme for all Swazi people, rather than just for specific population groups, like civil servants. Equity in financing, universal coverage and access to health care are the guiding principles of this initiative.

2.2. Methodology

Mission team: The WHO mission team to Swaziland comprised of: - Inke Mathauer - Laurent Musango - Charles Waza

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Data collection during the first mission: Based on the TOR discussion, a wide range of different actors and interest groups were consulted. All key government ministries were met, as well as four professional associations and trade unions representing different professional group. Health facilities of Government, of the mission sector as well as the private for-profit sector were selected on purposive sampling. Also, non-state actors were met to gather additional or contextual information (see 2.3 for a list of stakeholders met). In most cases, two persons were met during each of these meetings. Data was collected through interviews as well as focus group discussions based on guiding questions. The questions covered the range of issues as outlined in the terms of reference. Usually, open questions were asked, and only if respondents felt unable to answer, were questions changed into closed ones or respondents were prompted. In addition to the stakeholder consultations, secondary data was collected from various ministries as well as from UN sources (see list of references at the end of this report). For the application of the SimIns health insurance model, data were needed on utilization of health services and health care unit costs. These proved to be difficult to obtain. The mission team was greatly assisted by the team of the MOHSW and the WHO country office in getting contacts, arranging appointments and meeting discussion partners. Stakeholder feedback and refinement during the second mission: The second technical support mission in June 2008 served to present and discuss the financial feasibility study with the Government of Swaziland, the MOHSW and the SHI TWG. This feedback and the comments from the discussions have now been included in this present final report of the financial feasibility assessment. Several sessions were held with the SHI TWG to discuss the findings and to receive their comments. Also, two feedback workshops were organized during the second mission for the following stakeholder groups: 1. Providers from the public, private for-profit and NGO/mission sector 2. Beneficiaries (professional associations, trade unions) These workshops had the following objectives: • Explain the concept of Social Health Insurance and its importance • Inform about the findings from the 1st mission • Inform about the SHI plans and how people can benefit from it • Get feedback and views from workshop participants • Point to the further implications regarding the key institutional design issues on which

the Government of Lesotho needs to decide upon. In addition, meetings took place with individual ministries (senior technical and managerial staff) and a joint discussion was held with the Principal Secretary of the MOHSW and the MOF. In particular, the next steps to be undertaken at technical as well as political level were deliberated. All questions and concerns raised are taken up in Chapter 5 and 6.

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2.3. Stakeholders and respondents consulted

Government stakeholders

• MOHSW • Ministry of Public Service and Information (MoPS) • Ministry of Finance (MoF) • Ministry of Employment and Enterprise (MoE)

Potential beneficiaries Representatives from the following professional associations and trade unions were met: � Civil Servants Association � Teachers Association � Nurses Association � Labour Union (SUFIAW) � A group of Rural Health Motivators � Employers Federation � Coordinating Assembly of NGOs (CANGO) � World Vision � Executive Committee of the Vendors' Association, an informal sector organization1 Providers � Mbabane Government hospital � 1 regional hospital � 1 health clinic � 1 public health unit � 2 Mission hospitals � 2 private facilities with inpatient care � 2 private clinics � 1 Regional Health Management Team � 1 mission health centre Other groups and individuals � Administrators of 3 private health insurance schemes (SwaziMed, SwaziCare,

Mphilwenhle) � Individuals from the informal sector, randomly met on the street for 10 minute talks

2.4 SimIns projections

The financial projections produced as part of this work and described in Chapter 6 were calculated using the "SimIns" tool (version 2). SimIns is a health insurance simulation tool in a software package that analyses the basic mechanisms of health insurance.

1 In this report, as a working definition, the informal sector comprises all those persons not working in the

public service, in parastatals or in the formal sector (the latter comprising all those registered companies that pay corporate tax). Thus, the informal sector includes subsistence farmers. Pensioners, however, are also part of the formal sector, as they have a regular income.

7

SimIns projects the development of incomes and expenditures under certain assumptions over a 10 year period. Its principal purpose is to produce financial projections of SHI schemes. SimIns has three principal uses:

1. To illustrate the implications of initial policies with respect to key health insurance variables, thus reflecting (as opposed to setting) different policy options.

2. To determine what sets of contributions and/or utilization patterns and/or health care costs can ensure financial equilibrium in a dynamic, changing environment.

3. To illustrate the impact of health insurance on the overall structure of health financing.

The key focus is on the revenue-expenditure account of social health insurance, the surpluses or deficits, and ways to address deficits. The basic output also includes estimates of health care expenditures for the non-insured and insured. These are based on cost estimates (for different health service categories) multiplied by associated utilization rates (for different population groups, further separated into non-insured and insured). Financing of these health expenditures comes from the government health budget, health insurance contributions, user fees or co-payments and government subsidies. Assumptions for key input variables of the models were developed from secondary data as well as from the different stakeholder discussions. Some important information for the SimIns projection had to be estimated as no data was available. Chapter 6 present the detailed scenarios produced with SimIns. Annex 2 explains for each input variable how it was calculated, what the source of the data is and what assumptions were made.

2.5. SimIns Training

During the second mission five local staff were trained in the usage of SimIns. The objective was to ensure that the MOHSW and the SHI TWG has the capacity to produce financial projections in a continued basis to facilitate their work on designing a sustainable financing mechanism. The projections show the financial consequences of policy proposals, so that these proposals’ financial feasibility can be verified and adjusted if necessary. As the proposal for SHI in Swaziland matures, the financial implications should be tracked using such tools as SimIns. The training consisted of 5 half day sessions and covered the following syllabus:

• The SimIns interface

• Data input

• Output, calculations and graphs

• Projection cycles

• Data housekeeping The focus was on hands-on usage of SimIns, and the participants worked on several exercises and contributed to the development of the projections described in Chapter 6 of this report.

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The local staff trained comprised of Sbongele Dobem (Bureau of Statistics), Sibuziso

Mamba (Ministry of Health and Social Welfare), Janet Mzungu (Ministry of Finance),

Dumisani Shongwe (Ministry of Economic Planning and Development), Sibusiso

Sibandze (Ministry of Health and Social Welfare). This team reviewed the assumptions

and input variables and suggested some changes for a third scenario to be developed. The

major differences between the earlier scenarios (Scenario A and B, see Annex 3) and the

one presented in this report are outlined in Table 6.12.

9

3. The Swaziland health care system

3.1. Health policy objectives and health sector reform objectives with respect to health financing

The following sections of the National Health Policy on Health (MOHSW 2007b, emphasis by authors) relate to health financing and universal coverage: � "Mission: The Health and Social Welfare sector seeks to improve the health and social

welfare status of the people of Swaziland by providing preventive, promotive, curative and rehabilitative services that are of high quality, relevant, accessible, affordable, equitable and socially acceptable."

� "Individual and community participation in the financing of health activities shall be based on the principle of pre-payment and fair contribution."

� "Health services shall be provided free of charge to eligible children, elderly persons, orphans and persons with disability."

� "The MOHSW shall explore alternative financing options to ensure equity and access to services by all citizens."

Overall, there is coherence between the guiding principles of the Swazi Health Policy and the World Health Assembly Resolution 58.33 on sustainable health financing, universal coverage and social health insurance.2 Any health financing system, or reform thereof, in Swaziland should thus be expected to adhere to the above principles.

3.2. Health expenditure

Swaziland's population amounts to just about 1 million people, yet the population is decreasing (UN 2006). Except of a very small number of foreigners, the population consists of Swazis only. The following table provides key indicators relating to health care expenditure (Table 3.1). The table reveals that health care financing is primarily tax-based, but that there is also already some substantial spending on private health insurance schemes.

2 Cf. WHO, Report of the Secretariat, World Health Assembly Resolution on Sustainable Health Financing, Universal Coverage and Social Health Insurance. http://www.who.int/health_financing/documents/cov-wharesolution5833/en/index.html

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Table 3.1: Health expenditure data Indicator Data for 2005

(unless otherwise indicated) Source/reference

THE as % of GDP 3.8% (for 2003) MOHSW 2003, cited in MOHSW 2007b

THE p.c.

USD 164 (exchange rate) WHO NHA estimates, 20053

Govt health expenditure

E 344 Mio KOS 2007 (budget)

Govt health expenditure p.c

USD 51.8 Calculations based on KOS 2007

Govt health expenditure as % of THE

64% WHO NHA estimates, 2005

Private health expenditure as % of THE

36% WHO NHA estimates, 2005

Private health insurance as % of THE

7.5% WHO NHA estimates, 2005

OOP as % of THE

14.5% WHO NHA estimates, 2005

External resources on health as % of THE

9.7% WHO NHA estimates, 2005

Average health expenditure per person and month (2001)

E 10.93 SHIES 2001

% of health expenditure in total household expenditure (2001)

8.33% SHIES 2001

Exchange rate 2005: E (Emalangeni) 6.36 /USD

3.3. Health care provision

3.3.1. Decentralization and the role of the Regional Health Management Team (RHMT) and Rural Health Motivators (RHM)

The local administration is called "Tinkhundla", where various local developmental initiatives are coordinated (e.g. in agriculture) and were certain administrative tasks are being carried out (e.g., elections of MPs, registration of births, marriages and deaths). There are 55 Tinkhundla in Swaziland, which are well known and respected by the community. In practice, the decentralization is not fully effective at the local levels. Even though the decentralized structures were set up, gaps continue to exist. It was noted that the budget is not decentralized, and the traditional decentralized structures (Chiefdom Clerk and "Inkhundla") lack some of the technical and managerial capabilities. To improve the operations of these local level structures, capacity strengthening may be necessary, whereas in some cases, the recruitment of new executive secretaries of Chiefdom and Inkhundla may be necessary (information from key respondents). As regards the budget, it is proposed that it could be also decentralized.

3 When comparing the estimated THE with the KOS 2007 information (MOHSW budget), this figure appears to be too high.

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The Regional Health Management Team (RHMT) is located at the critical level in the system in between the top and the bottom. As stated by the MOHSW on RHMT: “[The

RHMT] can thus be seen as a key cross-over point within the health system, where

national strategies are converted into action; local demands are aggregated and

incorporated into action plans; and where horizontal relationships are established with

other agencies and other sectors covering the same geographical area.” Regions have a plan and budget, but they are only deconcentrated, not decentralized. The RHMT participates in a collective decision-making process and is responsible for planning, budgeting, monitoring and supervising all health facilities and services within the region, for both government and missions. The members have in principle authority over their respective areas of responsibility of hospital administration, medical services, nursing services, public health, health education, health inspection, etc. In practice, the relationships between the hospitals and RHMTs are not yet fully clarified. Rural Health Motivators (RHM) There are approximately 4000 Rural Health Motivators (RHM) in Swaziland, who have been selected by their Chiefdoms and community to support communities by promoting health and managing common health problems. They undertake a 10-week preparation training in which they learn to recognize common conditions and refer patients to health facilities as appropriate. More recently, RHMs have been trained on home-based care, initially on how to instruct and support families. Training for RHMs is organized and run by the local government centres. As families increasingly suffer from HIV/AIDS, RHMs also provide care themselves. Rural Health Motivators receive a small stipend for their work (about 14 USD per month) and supplement this small income with subsistence farming and some financial appreciation of their work from the families and households that they care for. They are predominantly married women who are selected, though the chiefdoms are now encouraged to select younger people. RHMs are supervised and supported by Community Nurses, though nursing staff shortages have compromised the ability of the community nurses to give adequate support. Each RHM was originally assigned to 40 homesteads, but because of the burden of diseases, this number has been drastically reduced sometimes by half. The RHMs are a good potential source of support for individuals, families and community in different programs of the Ministry of Health. RHMs: in charge of 40 households. The majority of them have become old, the younger ones that were recruited come with less motivation. Government pays RHMs 100 E per month as a stipend, and they get gifts from the household. A problem is that RHMs have been overused.

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3.3.2. Health care infrastructure and staff

Table 3.2 below provides an overview of the health facility infrastructure by region and type of ownership, whereas Table 3.3 presents the distribution of medical doctors by speciality comparing the public sector to the private sector. Table 3.2: Health Facilities by Region and Type of Ownership Provider type Region

Govern-ment

facilities

Mission / NGO

facilities

Private for profit

facilities

Industry-based

facilities

Total

HHOHHO 19 11 7 3 40

LUBOMBO 19 7 2 7 35

MANZINI 21 12 14 5 52

SHISELWENI 19 4 4 0 27

TOTAL 78 34 27 15 154

Source: SAM survey (MOHSW 2007c) Table 3.3: Distribution of medical doctors by speciality Provider type Region

Govern-ment

facilities

Mission/ NGO

facilities

Private for profit

facilities

Industry-based

facilities

Total

General practitioners 43 17 48 9 117

Obstetrical Gynaecologist 2 2 2 0 6

General Surgeon 2 2 4 0 8

ENT specialist 1 0 1 0 2

Pathologist 3 0 0 0 3

Paediatrician 1 1 1 1 4

Orthopaedic surgeon 1 1 1 0 3

Ophthalmologist 0 0 2 0 2

Anaesthetist 1 0 1 0 2

Psychiatry 1 0 1 0 2

Specialist physician 0 1 3 0 4

Public Health 3 0 4 0 7

Family Physician 1 0 0 0 1

Total 59 24 68 10 161

Source: Database from Swazi Medical Association

3.3.3. NGO/mission facilities

Table 3.2 has listed the types and number of NGO/mission health facilities. The two biggest ones are the Nazarene church health facilities. NGO/mission facilities are co-funded by government resources for staff salaries and parts of operational costs. The Nazarene and Roman Catholic Church health facilities receive about 90% of their funding from government, whereas a few other clinics (Red Cross, Family Life Clinics, Salvation Army) receive about 50% of their revenues from government. The rest comes from user fees and other donors. Thus, in 2005/2006, Government provided a total of E 68 millions to NGOs and mission facilities, whereby E 62 millions went to the two

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biggest churches mentioned above. Their programmes are closely linked to those of the government, and the two mission hospitals serve as referral facilities. Table 3.4 provides an overview of their user charges structure. Table 3.4: Approximate user fee structure at NGO/mission facilities (in E) Adult

Clinic OP minor STI treatment

10 20-45 *

Mission hospital OP 10 **

Mission hospital IP 20 per day **

* including drugs ** excluding drugs and other diagnostic services

3.3.4. The private sector

In Swaziland, the private sector consists of two types: the company/industry-

based/provided health care, and the private sector. The Industry/company owned health care delivery sub-system is confined to the plantations and industrial towns. Their services are largely curative. Promotional and rehabilitative services are mainly limited to company employees, and thus not accessible to the general public. The private health care sector is owned by individuals or groups of medical practitioners. The whole system is a commercial enterprise and the sub-system is almost exclusively urban based. The majority of the private health care sector offers curative services in outpatient, but some of them offer curative care for inpatients. The income of private clinics comes from private health insurance schemes (SwaziMed, SwaziCare and Mphilwenhle), company/industries payments and out-of-pocket expenditure (OOP). Private clinic doctors estimated that over 70% comes from the private health insurance schemes and companies, whereas the remaining part is from OOPs. There is no formally defined collaboration between public and private health facilities. Certain patients are referred to public facilities, when the required services cannot be offered at private facilities. Also, AIDS and Tb patients are referred to government facilities, where they can obtain drugs at subsidized costs. Most private clinics do not have their own laboratory facilities, but use the “Lancet” laboratories. User charges at private clinics are very high, and there is a big difference between the tariffs of government and private health facilities. The table below compares two clinics (private and public) which have both 5 doctors.

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Table 3.5: Comparison between a public and private hospital

Characteristics: Public hospital

Private hospital

Number of doctors 5 5

Number of nurses 45 24

Number of beds 350 42

User charges:

Consultation 10 E 168 E

Ray- X 10 E 160 E

Laboratory 3 E per exam 3 to 10 E per exam

Admission 6 E for the 10 first days; 3 E thereafter

Deposit of 4000 E to be admitted.

Delivery 5 E 500 E

Delivery section 25 E without hospitalization

950 E incl. two days of hospitalization

Source: interviews with providers

3.4. Key challenges in the health sector

Quality is considered to be poor at government facilities. This mainly relates to process aspects (long waiting times, friendliness, cleanliness, privacy). Furthermore, many Swazi in rural areas have limited access to a doctor in those facilities, and it is likely that the doctor they see is an expatriate. People complain that many expatriate doctors do not speak Siswati, creating communication barriers. However, it is reported that the nurses that help translating are not perceived as patient or friendly. Another quality concern consists in drug non-availability and stock-outs, which is due to problems within the drug supply system. Procurement is done centrally and turns out to be a lengthy process. Also, drug kits are not always adjusted to what facilities need, and it takes very long to order additionally required drugs. Currently, no accreditation scheme or area-wide quality management system is in place. However, the Ministry for Health has set up a unit in charge of “Quality of Care” to strengthen its focus on quality. Moreover, selected hospitals take part of a pilot on quality improvement in collaboration with COHSASA (the Council of Health Service Accreditation of South Africa). The COHSASA program assists health care facilities to implement quality standards based on a set of principles, endorsed by ISQua that are specifically designed to ensure that health care services be safe, legal, efficient and effective. Feedback from hospital doctors on COHSASA is less enthusiastic: The process is considered as very time-consuming involving lots of paper work, but the key informant felt that it does not help and that there is no impact on quality.

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4. Findings from stakeholder consultations This chapter presents the stakeholder views that were gathered during the first mission. Ministerial stakeholders gave their opinion on the feasibility and implications of a SHI. For potential beneficiaries, key questions focused on people's interest in a SHI scheme, their potential willingness and ability to pay contributions, their position on the governance and management of such a scheme. During the meetings with provider-related stakeholders, issues on purchasing and provider payment mechanisms, quality management and accreditation were equally discussed. Questions and concerns raised by the stakeholders during the second mission will be addressed in Chapter 5 and 6.

4.1. Views from stakeholders

In general, the stakeholder discussed showed that there is a very good knowledge and understanding of the health insurance concept. A large part of middle class employees appears to know the principles of prepayment. Many of them would like to join a health insurance, but cannot afford the premiums of SwaziMed. Even many of the informal sector workers are familiar with health insurance principles either through their own experience or since they know other people who benefit from private health insurance schemes. Thus, the existing knowledge and familiarity with the principles of health insurance is a good starting point. The question of whether one receives one's contributions back in case of non-use comes up, but nevertheless the need for making prepayments is realized. However, it must also be noted that many of the stakeholders, even though addressed as representatives of the community, often responded for themselves as urban middle class employees. The following paragraphs provide a summary of the stakeholders' views. Need for awareness raising and explanation:

All beneficiary stakeholders emphasized that there is need to explain the scheme to people so that they internalize it and understand its benefits. The traditional leadership structure is considered to be very important. Therefore, they could be involved in explaining to the rural population the principles of a SHI. Ability and willingness to pay:

For the formal sector employees, i.e. those with a fixed salary, proposed contribution rates ranged from 2.5% to 10% (employee share only). Other respondents said that it should be "half of what you pay for other insurances". It was also gathered that only once people really understand how it works will they be willing to pay higher contributions.

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Various respondents stated that informal sector workers could afford about E 50 a month per household. For example, the rural health motivators said specifically that E 50 is possible for those who can work. Others said that each household could at least afford E 20. Collection of contributions from the informal sector:

The informal sector is nowhere formally represented at national level, despite the fact that about 50% of informal sector workers are organized as estimated by key respondents. To collect contributions from informal sector workers, the following suggestions were made: � There must be flexibility, and it is important that people will not have to travel long

distances. � There could be designated days where the collectors come to the community (to save

transport costs): People are organized in groups, for which they have their set meetings. They could decide on a day to pay, and the mobile office could come to collect for the group.

� There could be the option to pay through banks � Microfinance institutions are an option, but they are not available all over, such that

there remain some inaccessibility issues. � Each "Ikundluwa" (traditional territorial structure") has its meetings: People could pay

before this day. Exemption from contributions and identification of the poor:

The community representatives consulted stated that in principle they know who is poor in their community. Physical visits and observations of their households could confirm this. Benefit package:

Respondents definitively expect private health care in the package. They have less interest in government health care, if service quality remains at the current level. In their view, there must be a clear difference to what they can currently access. A revolving concern of those already on SwaziMed was whether the SHI would imply less benefits than currently available through a PHI scheme. Governance:

None of the stakeholders wanted the government to run the scheme. While some preferred a private company, they were likewise concerned about the higher costs this would imply. As such, in conclusion, the stakeholder discussions focused around a parastatal that should run the scheme. It was also felt that people should be involved in decision-making through wide stakeholder representation. Referral scheme to South Africa:

Various stakeholders support the idea of merging the Medical Referral Schemes with the SHI scheme, under the condition that the new SHI scheme would not be controlled by the Government.

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Private Health Insurance:

There is need for a special Regulatory Body. MOHSW is considered to have the task to develop such regulatory mechanism for the private health insurance schemes in order to put them in order. Contribution rates:

The following two tables summarize the stakeholders' view on possible contribution rates. Table 4.1: Possible contribution rates for formal sector workers Respondents Teacher's union Civ. serv. union Nurses' union SUFWAF

Members 9600 (out of a total of 12000)

6000 (out of a total of 15000)

1500 10.500 > 10 unions

Proposed

contribution

rates for FS

5-10% 5-10% 0-5% 2-5%

Table 4.2: Possible contribution rates for informal sector workers Respondents CANGO World Vision Vendors'Association

Members 70 NGOs NA 200

Proposed

contribution

rates for

informal sector

Those who can afford: E 20-30/ month

E 20-30/ month (Families contribute E 22/ month to ROSCA)

E 60/month for somebody with income of E 1200.

Proposed

mechanisms to

collect resources

from the

informal sector

- People trust school (school committees); churches; health clinics; - Ikundlwa Centre; Chiefdom level, but there may be challenges

- Designated days where the collectors come to the community (to save transport costs); - Banks

- Banks - SHI offices where you pay it in - Post offices

4.2. Views from providers

Provider payment mechanisms:

As most respondents of government facilities and mission clinics were not familiar with the different provider payment mechanisms, it was difficult to discuss and reflect with them on the respective advantages, disadvantages and implications. Most private providers are familiar with a fee-for-service scheme, which is applied by SwaziMed. A much smaller number of private doctors work on the basis of a capitation scheme. SwaziCare and Mphilwenhle mentioned that many doctors are reluctant to be contracted by them as they do not understand the principles of capitation. Provider remuneration rates:

None of the providers knew their unit costs, which hampered the discussion on provider remuneration rates could take place.

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Some of the private providers stated that they would be willing accept lower rates than they currently receive from SwaziMed, if this comes in turn for a higher volume of patients. During the second mission, there was a clear statement by private sector providers that they fully support the SHI initiative.

4.3. Views from ministerial stakeholders

4.3.1. Ministry of Health and Social Welfare

The MOHSW leadership puts strong emphasis on universal coverage and a health financing scheme that provides access to adequate health care to all Swazi. There is in principle strong commitment for a SHI that is also expected to bring "a guaranteed set of resources to the public sector". On the other hand, the following quotes reveal that some respondents consider SHI as a way to give civil servants and other specific groups access to the private sector.

"During their employment, today's (civil servant) pensioners used private clinics,

with shorter waiting times and better quality. How can we deal with them? What

about long-term treatment for those who have cancer?"

"Civil servants do not have access to the private sector".

Another expectation around SHI is that the mobilization of extra resources will be taken back to the facilities to improve services. Also, it is expected that SHI introduces competition between providers. Related concerns are how to ensure and control that the private sector provides adequate services, as under-provision has been identified as a problem. The shortcomings of the Phalala Fund, which is supposed to finance referrals to RSA, but which in practice is perceived to be very inequitable, are another rationale for the MOHSW to consider SHI.

4.3.2. Ministry of Economic Planning

The Ministry of Economic Planning expects a SHI scheme to achieve the following: � Increase accessibility to health care � Protect people in case of catastrophic expenditure � Improve quality of health care � Enhance equity so that the informal sector is also involved. Most important for them is that such a SHI is accessible to all and that it pools funds. The Phalala Fund and the Medical Referral Scheme are "considered as waste, as they are not addressing the key challenge". Therefore, these schemes should become part of the SHI. There is also need to find an alternative of reinvesting these funds to reboost the local health care provision such as to build up specialist care within Swaziland. This should

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also help to get Swazi specialists back to the country. Likewise, it is pointed out that parts of these funds should be reinvested in preventive health care. On the other hand, there is concern about who would be managing such a fund and at what costs. The respondents emphasized that the scheme should be run by a parastatals. It is also suggested that such a scheme be introduced in a phased manner. Another important question raised is how comprehensive the package can be. The respondents were of the view that access to an essential package (PHC) should be free, whereas extras, like care in better (private) hospitals could involve higher contributions or co-payments. Finally, it was felt that the MOHSW may have to review some of its management practices, as a SHI scheme would require different practices, and also in order to improve facilities and the quality of services. Most important, the Ministry of Economic Planning does not expect a negative reaction on the labour market due to a SHI scheme.

4.3.3. Ministry of Public Service and Information (MOPSI)

The MoPSI has been holding discussions with the civil servant unions on a medical aid scheme for them. During the stakeholder consultations, the MOPSI senior management team was informed about the MOHSW plans of a SHI and its advantages and implications. In principle, the senior management staff welcomed the idea of a SHI scheme. However, they felt that they need more details and information. Furthermore, the idea of lower contribution rates is both attractive for individual employees as well as for the Government as an employer of civil servants. In light of the ongoing discussions on medical aid, their key questions and concerns were: � Can you have both SHI and medical aid? � Is SHI as good as medical aid? � How to improve the quality of health services? The mission team discussed with the stakeholders what it would cost Government to pay their contribution shares for the civil servants. The estimates (based on an assumed 6%, paid half by the employer, i.e. the Government) were much lower than what the MOPSI had internally planned for (cf. Table 6.8 in Chapter 6). Obviously, the MOPSI was thus interested in a SHI scheme that can be realized at much lower costs than a private health insurance (medical aid scheme).

4.3.4. Ministry of Enterprise and Employment (MoE)

The key respondents of the MOE emphasized that social protection is an objective of the country; their concern is particularly about social protection at the workplace. The Ministry is developing a legislation (Employment Act) that will introduce a contributory unemployment insurance. They have not yet determined any specific figure so far, since

20

the social partners still have to work out the details. It is designed to be employer- and employee based, but there may also be government contributions. The current building blocks of social protection at the workplace are the

1. Workmen's Compensation Insurance (occupational safety and health) (since 2001?)

2. Swaziland Provident Fund (since 1975) (see Chapter 5.1.2 for more details) The respondents strongly welcomed the idea of a SHI. Given that there is strong trade unionism in Swaziland, SHI could start with the formal sector. A challenge is that the informal sector is not organized and is nowhere really fully represented. When it comes to deciding on and defining a SHI scheme, another important body to consult seems to be the High Social Dialogue Forum, which is chaired by the Vice prime minister, and which comprises of representatives of both houses of parliament, the general secretaries of two Labour and two Employers' Associations, four ministers, and the Swazi National Council.

4.3.5. Ministry of Finance (MoF)

The MoF principal secretary was in principle very open to the idea of a SHI scheme: There was also clear recognition that introducing both a medical aid scheme and a SHI scheme would be impossible and would not fulfil the rationale and objectives of a SHI. As the negotiations with the civil servants association will take some time and last over the next months, there will be time to develop the SHI proposal. This SHI financial feasibility report should therefore be used for the negotiations with them. In principle, these two ideas of a SHI and a medical aid scheme should be merged. Other core critical issues were addressed in this discussion: � Who will be entitled to this scheme? � What role will private and government providers play? � How to improve efficiency in government hospitals? � The need for procurement rules and auditing � The role of PPPs to improve services � What will be the employment effect when PHIs would not play the same role anymore

as today?4 � The future role of the Phalala Fund and the Civil Servants Medical Referral Scheme? While from a technical point of view, it may be advisable to merge and consolidate the Phalala Fund and the Civil Servant's Medical Referral Scheme, it is ultimately a political decision.

4 See Chapter 5.6 for a specific answer on this question.

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4.4. Views from civil society

4.4.1. Civil servants' unions (teachers, nurses, civil servants):

The representatives of the three unions stated that in principle there is great interest in such a scheme. For them, one rationale is to get access to the private health care sector, as the government health system is considered as weak. On the other hand, the unions' representatives were also strong in their belief that a SHI scheme should help improve the government health care provision in order to improve health of all, since 60% of Swazis are poor. It was also clearly understood that private health insurance promotes privatization of health care. The representatives' key issues and questions were: � How to contain costs? � How to rectify inefficiencies in human resources? � How to set up a quality improvement program? � Could there be a synergy with the Pension Fund? It was suggested that a parastatal should run the scheme, as a private company would be too costly. Merging the civil servants' medical referral scheme with the SHI scheme would be acceptable, as long as government does not control and run the scheme. In addition, the nurse union also felt that hospitals need more autonomy to provide better services. Ideally, hospitals would be run by a Board.

4.4.2. Employers Federation

There are about 500 registered employers in Swaziland, 450 of which are members of the Employers Federation. Their most important concern is the issue of governance. It was strongly felt that the SHI agency should be an independent body, and the governance body should not be purely governmental. Neither should the Minister of Health appoint the Board. While employers would certainly prefer to pay less than what is paid currently for PHI, they were concerned about the quality of government services. Other concerns and questions they had included: � Why is the SHI scheme compulsory? � Are any groups being made worse off through such a redistributory scheme?

4.4.3. SUFIAW (Swaziland Union Federation for Financial Assistants and Workers)

So far, health insurance has never been an issue for the Federation, and neither have they been aware of a discussion on health insurance at the national level. However, they are represented in the Board of SwaziMed.

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The idea of SHI appears very reasonable and attractive to them, also in light of the fact that government services are unacceptable. On the other hand, they point out that it needs a lot of selling. Certainly, the issue of solidarity needs to be discussed. Their key concerns and questions comprised: � Will SHI imply less benefits than now? � Will the benefit package include services in or referrals to RSA? � Is SHI compulsory? � What happens to the private schemes, and how not to create divisions among the

workers? � How does one build up reserves in the beginning? As to the governance of the scheme, there were clear reservations about a private sector company running the fund, as profit expectations would take the contributions beyond capacity. On the other hand, the SHI scheme should not be run by government only, since people fear corruption. As such, there should be broad representation by the government, employees and employers, as well as NGOs with experience. Parliament should have a strong monitoring role. During the second mission, the unions made clear that they are in principle in support of the SHI initiative. Obviously, they had many questions and concerns, particularly with respect to the quality of care provided in government facilities. Also, they felt that the suggested range of contribution rates (3% in the initial scenarios presented) appeared reasonable and affordable to them. Given that the SimIns projection team suggested a total contribution rate of 7% (i.e. 3.5% for both employers and employees with a 50/50 share), there will be need to discuss with them again.

4.4.4. CANGO

The Coordinating Assembly of NGOs is registered under the Company Act, Section 21. CANGO was met to represent the view of NGOs' as well as to learn from them what the population, especially the poor may think of SHI. While CANGO confirms that there may be in principle a strong interest, affordability is considered as a challenge. Furthermore, a mandatory scheme may not seem very attractive. Even though there is a strong solidarity spirit, it has its limits. CANGO recommends a proper marketing of the pros and cons of the scheme to convince people. Their key questions and concerns were: � How will the child headed families be covered? � How are orphans catered for?

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For identifying the poor, CANGO suggests to assess people according to their needs by looking at their household situation. Mainly local people should be involved in this, whereas NGOs could validate the community findings.

4.4.5. Rural Health Motivators

The RHMs are very interested in a SHI scheme, and are willing to be involved in the sensitization of communities. However, poverty among the rural population is considered to be a challenge, but the RHMs felt that households could be able to pay E 15 per month on average to the SHI scheme. For the identification of the poorest in the community who are not able to pay a premium, the RHMs felt that they could contribute, because they know very well the ability to pay of the households for which they are in charge. In their view, a physical visit appears to be enough to assess the capacity of a household to pay.

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5. Key design issues of Social Health Insurance and managerial implications This chapter discusses key design issues of a SHI scheme along the three health financing functions of resource collection, pooling and purchasing. In relation to these key design issues, the chapter also explains the assumptions and their rationale that have been made for the financial projection, as presented in Chapter 6.

5.1. Resource collection

5.1.1. Additional resource mobilization

Given the current per capita expenditure, there is certainly need to increase health care financing. But it should be noted that additional resources are not the only solution to better health care. Many of the problems relating to the health sector are structural and thus call for high-level commitment to rectify them (see further below). The institutional design of health financing mechanisms primarily determines how the funds for providing health services flow. Who pays at what time and how much, i.e. revenue collection, is one important function within the system. When health spending in a country is too low overall to ensure the populations’ good health, then the resource mobilization function is also concerned with increasing the funds available to be spent on health. In other words, while one important objective is to turn OOPs into prepayments (to reduce OOPs), the other objective in Swaziland is also to raise additional resources. These serve to increase the overall amount available to be spent on health care, which is necessary in a context of poor health care quality, but raising demands for better health care technology. Raising additional funds relative to the status quo requires there to be enough “fiscal space”, however. Having fiscal space means that the additional resources must be raised in a sustainable manner and must not jeopardize economic stability and growth (cf. World Bank 2006). Thus, economic stability must be considered when introducing payroll deductions as health insurance contributions or when raising taxes to fund health care. Receiving increased donor funds for health spending should be planned well, ensuring that they will be available for at least the medium term. SHI can be a mechanism that generates funds, and in the Swaziland context to raise additional funds. It is essentially a prepayment mechanism as people are asked to make regular contributions, e.g. on a monthly basis. In order to increase available resources for health care, i.e. to be able to offer more and better services, resources mobilized through SHI should then supplement the existing tax-based financing of health care through the MOHSW budget, rather than replace them.

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That is to say, government spending on health, notably MOHSW budgetary spending, should continue as before. Consequently, for the financial projections, it as assumed that the Government of Swaziland will maintain its current level of health care funding through the MOHSW budget (in constant prices), yet adjusting it according to GDP growth and inflation. In this context, when referring to maintaining MOHSW funding for health care, we specifically mean the MOHSW budget for personal curative care. 5 In Swaziland, donor funding is mostly going into the development budget (capital expenditure) (GOK 2007), and the issue of sustainable donor funding is thus of less concern at this point. Obviously, policy-makers need to discuss this assumption, as there may be different views regarding the MOHSW budget under a SHI scheme.

Summarized key assumption for the financial projections:

The Government of Swaziland maintains its current level of funding for the health

sector.

The SHI serves to mobilize additional resources.

5.1.2. Contribution rates

For the formal sector:

The Health and Social Welfare sector is seeks to improve the health and social welfare status of the people of Swaziland by providing preventive, promotive, curative and rehabilitative services that are of high quality, relevant, accessible, affordable, equitable and socially acceptable (MOHSW 2007b). Therefore, equity in contributions would be fully coherent with this SHI initiative, which reflects a desire for equal access to healthcare. For that matter, SHI payments for the formal sector are income-related (and not related to individual health risks), which translates into a uniform contribution rate as a percentage of gross salaries. Stakeholder consultations revealed that employees' contribution rates ranging from 3-8% of their salary would be acceptable. A contribution rate of 5% (respectively 6% and 7%) as a payroll deduction would imply the following payroll deductions (Table 5.1), if we assume a 50% share by the employer (and in the case of civil servants by government). These contribution shares are compared with PHI premiums that a family of four (two adults, two children) would have to pay, assuming that 50% of their premiums would be covered by the employer (columns on the right).

5 The MOHSW budget for preventive and promotive health should be equally maintained.

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Table 5.1: SHI contributions by employees for different contribution rates (in E) Annual salary SHI contribution rates, employee's

share of 50%*

Professional groups:

Average monthly

salary

5% 6% 7%

SwaziMed Standard

Benefit contributions

(employee's share)

for M+3**

Total SwaziMed

premium expressed in

% of salary

Civil servants

A1-Notch 3 16,668 1,389 35 42 49 695 (100%: 1,390)

100%

A4-Notch 3 40,479 3,373 84 101 135 835 (100%: 1,670)

50%

A7-Notch 3 68,084 5,674 142 170 199 865 (100%: 1,730)

30%

B1-Notch 3 30,183 2,515 63 75 88 830 (100%: 1,640)

65%

B4-Notch 3 51,735 4,311 108 129 151 850 (100%: 1,700)

39%

B7-Notch 3 90,359 7,530 188 226 264 870 (100%: 1,740)

23%

C1-Notch 3 45,587 3,799 95 114 133 835 (100%: 1,670)

22%

C4-Notch 3 81,855 6,821 171 205 239 870 (100%: 1,740)

24%

C7-Notch 3 122,228 10,186 255 306 356 870 (100%: 1,740)

17%

D1-Notch 3 83,914 6,993 175 210 245 870 (100%: 1,740)

25%

D4-Notch 3 127,623 10,635 266 319 372 870 (100%: 1,740)

16%

D7-Notch 3 204,890 17,074 427 512 598 870 (100%: 1,740)

10%

E1-Notch 3 133,715 11,143 279 334 390 870 (100%: 1,740)

16%

E4-Notch 3 238,740 19,895 497 597 696 870 (100%: 1,740)

9%

E6-Notch 1 290,491 24,208 605 726 847 870 (100%: 1,740)

7%

F1-Notch 3 231,920 19,327 483 580 676 870 (100%: 1,740)

9%

F4-Notch 1 327,483 27,290 682 817 955 870 (100%: 1,740)

6%

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Formal sector: Annual salary Monthly salary SHI contribution rates, employee's

share of 50%

SwaziMed Standard Benefit contributions

5% 6% 7%

Total SwaziMed

premium expressed in % of salary

Example 1 14,400 1,200 30 36 42 625 (100%: 1,250)

104%

Example 2 60,000 5,000 125 150 175 850 (100%: 1,700)

34%

Example 3 120,000 10,000 250 300 350 870 (100%: 1,740)

17%

Example 4 240,000 20,000 500 600 700 870 (100%: 1,740)

9%

Pensioner 19,200 1600 40 48 56 625 (100%: 1,740)

108%

* The number of children does not affect the contribution payment. ** Premium as a group member for a family with two parents and two children, assuming that the employer pays 50% of premiums. Actual premiums as stated in the SwaziMed brochure hence constitute the double amount of what is stated in this column.

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The table reveals that SHI contributions are significantly below the employee's share of a PHI premium for a "standard package", and reach only the same level for top income groups above a monthly salary of E 29,000. When considering a payroll deduction from gross salaries/wages for health insurance contributions, it is important to bear in mind that there are other payroll deductions beyond health insurance contributions: � Civil servants and parastatal employees benefit from a contributory pension, based on

the Corporate Body Pension Scheme, being a capital based scheme. For the civil service pension, government workers contribute 5%, whereas the government as an employer contributes 10%. Parastatal workers equally benefit from a pension scheme. For private sector workers, there is so far no compulsory national pension scheme in place. Some private sector employers offer a private pension benefit scheme for some of their employees, usually for the senior management level. Employees would pay about 5% of their salary, whereas the employer could pay 5-10% (information obtained from key respondent). Currently, private sector employees in the formal sector contribute to the Provident Fund, with up to E55 per month from both employee and employer.

The Provident Fund is a mandatory government scheme under the Ministry of Finance, administered by company AON, which gives private sector workers some financial assistance after the end of their work life. Most people have to pay E 55 contributions per month, which is matched by the employer. The Provident Fund provides benefits to the handicapped, to those who you cannot come back to employment due to sickness, and for the old after retirement age. 30% of the benefits are paid out as a lump sum, whereas the remaining 70% is paid out as annuities.

There are now discussions and consultations to translate the Provident Fund into a Pension Fund, though plans are less concrete so far. The concept foresees a contribution rate of 5% for the employee and 8% for the employer.

� Indirect labour costs for employers could thus amount to 10-15% to cater for the various insurances (private pension and private health insurance scheme, provident fund, workmen's compensation fund).

� The income tax rates are progressive, with a tax rebate of 2400, resulting in an effective tax rate ranging from 0% to 33%. For an annual income of M 60.000, the effective tax rate is 17% (KoS 2005).

In light of the existing payroll deductions and based on the stakeholder discussions, the financial projections are based on a total SHI contribution rate 7%, as suggested by the local SimIns projection team that reviewed the financial projections and assumptions. If one assumes that this contribution rate of 7% is shared by 50% by the employer, the payroll deduction for employees amounts to 3.5%. As the majority of potential beneficiaries stated to be willing to pay between 5-8% from their salaries, the above contribution rate that is used for the financial projection is actually below the specified range of people's stated willingness to pay. When both spouses are working, both will have to pay SHI contributions.

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Given that pensioners have a formal income, it is argued that they are equally able to make contributions. As there is no employer for pensioners, and hence no employer's share, the contribution rate would be only half of the workers' contribution, i.e. 3.5%. The 50/50 share would constitute equal and balanced sharing of the SHI financing by both the employer and the employee. However, another balance may be chosen based on a different rationale, based on negotiations with employers. The financial projections assumed payroll deductions to be made before income taxation, i.e. contributions are calculated on the basis of gross salaries. Were contributions deduced on salaries net of income tax, overall financial feasibility of the SHI scheme would look somewhat different. Likewise, there would be reductions in income tax revenues, if income tax is deducted of salaries net of SHI contributions. For the informal sector:

The informal sector is another large group from which to collect contributions. It excludes all persons working in formal employment by a registered company or employers of a registered company. As such, the informal sector includes (subsistence) farmers, small shopkeepers and salespersons, vendors, hawkers, workers, etc. In the financial projections, the unemployed and domestic workers have been included in the informal sector group for lack of precise information on their numbers, but according to the labour law, domestic workers are formal sector employees. How to classify casual employees is another question. The Ministry of Employment will have to play an important role in further defining these categories on the basis of which a person joins the SHI scheme as a formal sector or informal sector insured. For the informal sector workers, a flat contribution amount is usually applied, since it is difficult to assess the exact income of the active population outside the formal sector, on the basis of which to deduct a specific percentage. However, it increases equity, if contributions are differentiated, for example into two or three levels, according to informal sector workers' ability to pay. This would also increases the administration tasks of a SHI fund. However, other countries, like the Philippines, have successfully introduced differentiated contribution amounts for the informal sector (Kwon 2005). The poor are exempted from paying contributions and co-payments. In Swaziland, 46.7% of the population are considered as poor (2004 data, in WB 2008)6. For the financial projections, based on discussions with stakeholders, it was assumed that 40% of the informal sector would be exempted, the rationale being that the poverty rate would decrease over time.7 There are already experiences available from various programs and projects as to identifying and targeting the poor. These need to be assessed and evaluated

6 Based on the Swaziland Household Income and Expenditure Survey (SHIES) 2000-2001, the poverty rate is 69% (GOS 2002). 7 The financial projections assume that the exempted members are all part of the informal sector, i.e. nobody in the formal sector is exempted. However, the SHI design may equally take into account that a share of formal sector employees and their family may also fall below the poverty line.

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to develop appropriate criteria to identify the needy that should be exempted from paying contributions and co-payments. Those unable to pay SHI contributions due to their poverty status are protected via risk-sharing through the SHI system, including cross-subsidization between higher income and lower income groups, as well as through government funding. There is a strong rationale for a SHI for all Swazi, even though parts of the informal sector would not pay contributions: There is one fund where all risk pooling takes place, and hence everybody can access the same benefit package and overall improvement in health care services can be organized within one system rather than several ones, hence the risk of having two separate service delivery systems at different degrees of quality is counteracted. These equity issues are also further elaborated in Chapter 6.2. Another critical point for discussion is how to go about the temporarily employed and unemployed, i.e. those without a job in the formal sector economy. The issue at stake is how this group would be covered. During the initial months of unemployment, coverage could be guaranteed, with government making the necessary financial transfers to the SHI system. Alternatively, or after the initial months of unemployment, they could fall into the category of informal sector workers, hence asked to pay the (lower) flat contribution amount of informal sector workers. Finally, it is important to note that the contribution rate of 7% as initially set for these financial projections is not to be understood as final or as a rigid one. The rates may have to change according to the size of the benefit package and other considerations.

Summarized key assumption for the financial projections:

Gross salary-based contribution rates are at 7% for public service officers and formal sector employees:

8

- Half of the contribution is paid by the employer;

- Pensioners pay the ‘employee’ half of the same rate, i.e. 3.5%;

- The informal sector workers contribute a flat amount;

- The poor are exempted from paying contributions and co-payments.

5.1.3. Collection methods

For civil servants and formal sector employees who pay income tax, contributions could be collected by the Ministry of Finance (or the newly established Revenue Authority). Yet, many of the industrial employees in the textile and forestry sector do not pay income tax and are hence not registered as tax payers, as their monthly wage falls below the

8 Average salaries and wages for the formal sector employees, as entered into the financial projections, are assumed to be gross salaries and wages (cf. survey by the MoE 2006). The SHI TWG needs to check whether these include fringe benefits (e.g. housing allowances) or not. It also needs to be discussed whether contribution rates should be applied to total salary packages (including such allowances) or to gross salaries (excluding such allowances).

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taxable income threshold of E 1666. Collection through the Ministry of Finance/Revenue Authority would require registering all the employees. Another option is to apply the same principles of existing payment procedures used for the civil servants pension contributions or for the private health insurance schemes. The pension contribution are deducted at the source and transferred to the Pension Fund. These procedures should be further assessed to learn from existing practice. In this case, for the formal sector, employers could transfer the contribution shares for both employer and employee to the pooling agency / the SHI agency. In this case, employers would bear some of the collection costs, as some additional staff time may be required to make these payments. Other options should also be considered, e.g. contributions could be collected through the banks that pay out wages. In general, factors to take into account when choosing an appropriate collection channel are the costs of setting up this payroll deduction channel, as well as immunity against corruption or other ways of non-compliance with the contribution payment rules. Another important aspect to consider in parallel is the compliance and enforcement mechanisms. There need to be penalties for employers and employees who evade the payment of contributions. These penalties must be high enough to function as an incentive for employers and employees to pay their contributions. With respect to collecting contributions from the informal sector, more information and further analysis and reflection is required to propose an appropriate collection channel for contributions from informal sector workers. Chapter 4 has outlined the opinions of various stakeholders and representatives of informal sector workers on how contributions could be collected. This includes: � School committees � Church committees � Health clinics � Ikundlwa centres � Community collectors on designated days � Banks � SHI offices and mobile offices � Post offices Mobile banking as well as smart cards (as already known from an IFAD project) may be assessed to see their potential role as collection channels. Compliance with collection rules may improve via a preferred agent; however the downside is that collection costs may increase if the collection arrangement cannot benefit from economies of scale. A related question is what an adequate remuneration for this administrative task of collection would be. When determining the level of contributions, this needs to be taken into account.

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It is also worth considering the funeral associations, which are a widespread and accepted institution of collection funeral insurance premiums.9 There are both companies with formal products for funeral insurances (Swaziland Royal Insurance or Royal Insurance Burial Scheme) as well as burial associations, who produce and sell coffins. Church-based burial associations provide moral and financial support. While not everybody has signed up for a burial scheme, it is quite widespread. The widespread acceptance of funeral schemes could provide a help to increase understanding and demand for a health insurance scheme. People are used to making monthly contributions; for example the vendor's association members stated that some of them pay E 55 per month. Another source reported that contributions range from 2-7 USD/month). Last not least, another difficult question is to determine who within the informal sector will be exempted from contributions and co-payments and who will not be exempted. Related to this, the question is how to ensure that the non-exempted do pay contributions.

5.1.4. Willingness to pay SHI contributions in the context of tax-financed government health provision

In light of the fact that government health care provision is largely tax-financed with out-of-pocket expenditure amounting to 14.5% of THE, the question is how to convince people to still make mandatory contributions. The population would need to be made aware that low user fees imply substantial government funding. It needs to be explained that SHI contributions - as a prepayment method rather than OOPs - is required in order to raise additional resources and to pay for an adequate level of health care with improved quality. For health workers, the situation may be different again: Even though there is no explicit policy, health workers may possibly receive free health care, usually from the facility they are working at, and also often for their family. In general, this situation is not necessarily ideal, as free use of care may induce moral hazard or excess demand. On the other hand, people are used to making relatively high payments at the private sector in order to get better care. Likewise, the concept of (private) health insurance is well known in Swaziland (at least among the urban population), and therefore in principle it appears that people would be willing to make (social) health insurance contributions. In conclusion, a task ahead is to negotiate with the various groups and stakeholders, to deal with their group interests around a social health insurance scheme and to find agreements between the various actors. One of the challenging topics is the degree of solidarity so that those who cannot contribute are equally benefiting from SHI. To make this SHI initiative successful, the introduction of SHI should be seen as a critical reform step, which moves health payments from direct payments to prepayment SHI contributions based on ability to pay.

9 Upon death of the insured, the burial scheme or association will provide in-kind or cash benefits for the organization of the funeral.

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5.1.5. Willingness to pay SHI contributions among the very high-income earners

Specific population groups that may be reluctant to join a SHI scheme are those who currently have a private health insurance. It is important to note, however, that private health insurance is only affordable to the very well-off. Particularly in those cases, where the employer pays part or the entire premium, private health insurance members may be interested to maintain their current benefit package. A good communication strategy, information provision and awareness raising around the advantages of SHI for both individuals as well as society will be important to convince them. Employers, on the other hand, may welcome the SHI scheme, as its contribution rates are lower than those of PHI (cf. Table 5.1.), while it still offers a core package of health care services. On the other hand, it also appears that a large part of the current 16,000 PHI principal members may actually prefer SHI with its much lower contribution rates, since PHI premiums are very costly, even when employers pay 50% or a higher share. However, comparing SHI contributions with PHI premiums is difficult, because the assumption of the employer paying 50% of the premium does not hold true for all types of employees. The very high income earners may be particularly reluctant to pay contributions to the SHI, since the 7% contribution rate will amount to a large sum of money. Yet those who have taken out PHI for several family members and taken a high standard benefit will find that their PHI premium is still higher than the SHI contribution. The "savings" they make could be used to buy a top-up insurance for the hotel aspects of private inpatient care (fewer patients per room/ward, better room service and food, etc.). The calculation examples below, which are based on the premiums of SwaziMed, illustrate this in further detail (see Box 5.1). Box 5.1: Examples of health insurance costs Example 1: Public service officer of Grade E3, Notch 3: Monthly salary of E 15520 E

100% PHI premium for SwaziMed Standard benefit (M+3): 1,740

50% Employee's share of SHI contribution rate of 7%: 543

Difference between PHI and SHI 1,197

Yearly savings 14,364

Example 2: Public service officer of Grade F4 Notch 1 Monthly salary of E 27290 E

100% PHI premium for SwaziMed High benefit (M+3): 2,050

50% Employee's share of SHI contribution of 7%: 955

Difference between PHI and SHI 1,095

Yearly savings 13,140

Example 3: Private sector employee Monthly salary of E 20.000 E

50% Employee's share of PHI premium for SwaziMed High benefit package (M+3):

1,025

50% Employee's share of SHI contribution of 7%: 700

Difference between PHI and SHI 325

Yearly savings 3,900

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Ultimately, the question of whether and if so what role the PHI sector should be attributed becomes relevant. If a SHI Law comes into place, PHI companies operating in Swaziland will as a consequence have to adjust their packages on offer. Henceforth, insurance theory predicts that such topping up plans for RSA care currently not available in Swaziland can be offered at much lower costs than a full PHI plan. In fact, South-African PHI companies already offer such "hospitalization-only" packages at lower rates in Lesotho, as predicted (cf. Mathauer et al. 2007). The current SwaziMed offer of a hospital-only package starts at E 690 for a family of four ("M+3"). But if this were designed as a top-up package for the "hotel" part of hospitalization, as described above, it could be offered at much lower costs, since the SHI would pay for the basic hotel costs and the clinical care. Another concession to top-income earners is a cap on the contribution rates, i.e. contribution payments would not go beyond a certain amount and hence not reach 7% for high income earners. Setting a cap results in an even larger difference between what high-income persons would pay for SHI in contrast to PHI premiums (see the calculation example in Box 5.2). However, finding the right level of cap is difficult, because from an equity and solidarity perspective, the contribution rate of those individuals benefiting from a cap should not deviate too much from the 7% contribution rate that applies to the rest of the (less affluent) population. In order to define and set a cap, it is necessary to look at the salary incomes of the top 5% of Swazi people. For example, if one sets the contribution cap at E 1200, this means that anybody above a monthly salary of M 20,000 would pay a contribution rate less than 7%. Box 5.2: Example of health insurance costs for high income earners with a SHI contribution cap

Example: Public service officer of Grade F4 Notch 1 Monthly salary of E 27290 E

100% PHI premium for SwaziMed High benefit (M+3): 2,050

50% Employee's share of SHI contribution of 7%: 955

50% contribution amount with a total contribution cap of E 1200 600

Effective SHI contribution rate 4.4%

Difference between PHI and SHI 1,405

Yearly savings 16,860

5.2. Pooling

5.2.1. Type of membership

In universal coverage schemes such as SHI schemes, prepayment is combined with spreading risk among members of a pool.10 This offers greater protection against high-

10 Chapter 5.2. is fully is based on and cited from Carrin/James 2005.

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cost expenditures and thus improves financial accessibility. For that matter, it is important that no population group is excluded and that the risk pool is sustainable. However, if membership is voluntary, a serious implication is adverse selection, where high risks chase low risks out of the insurance market. This is because the same benefit package is offered to everyone in the pool, implying subsidization from low-risk to high-risk individuals, and from those contributing more to those contributing less - with richer individuals contributing more in absolute terms if contributions are based on an equal share of one's income. With voluntary membership, low-risk individuals may not decide to join the scheme, as they may judge the premium to be excessive with respect to their health risks. Voluntary membership thus leaves a risk pool composed of mainly the higher risks. Further, new members might only enrol when they fall ill. The likely outcome is financial strain on the SHI fund: high-risk individuals are more likely to make demands from the benefit package, but contributions are insufficiently adjusted to this high-risk profile. Thus voluntary membership with risk pooling based on SHI principles may not be sustainable. In countries with a large informal sector and a high poverty rate, gradual introduction of mandatory membership needs to be carefully planned. A decision needs to be taken how fast the informal sector could be included in the social health insurance scheme. The financial projections assume that coverage of the self-employed is extended across the country at a much slower pace, since more administrative and logistical hurdles have to be overcome. For the projections, the SimIns projection team set the following extension schedule: � Vendors, taxi/bus drivers and home workers join in Year 4 (20% of informal sector

population) � Farmers join in Year 5 (30% of informal sector population) � All other informal sector workers join in Year 6 (50% of the informal sector population) The detailed extension schedule and modalities as well as criteria on which informal sector population groups start joining/contributing need to be developed, based on further stakeholder negotiations between the respective groups and civil society actors.

Summarized key assumption for the financial projections:

Membership is mandatory for civil servants and formal sector employees as well as

pensioners.

Mandatory membership and mandatory contributions are gradually extended to the

informal sector from Year 4, until universal coverage is achieved in Year 6.

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5.2.2. Membership basis

By including all dependants of civil servants, employees of private and public enterprises and other contributing groups, adverse selection is further reduced, whereas financial risk protection and coverage is increased. The membership basis is usually the family, i.e. parents and their dependants. Further discussions are necessary to assess how orphans can be covered. They would either be part and counted as "exempted informal sector workers" or as family dependents. In either case, they would not pay contributions themselves, but be subsidized by government funds (for further details on the flow of government subsidies, see Chapter 6). Income earners who take care of their parents may wish to provide health insurance coverage to them, in case these do not receive a pension through which they would be a mandatory SHI member. How to determine whether grandparents or other close family relatives live with the principal insured and whether to treat them as dependants and to be covered by the family insurance is an additional question that requires further analysis. People with disabilities would be covered like anybody else: If the person works in the formal sector and has an income, s/he pays SHI contributions as other formal sector workers. If s/he is part of the informal sector and earns an income, the person will pay. Otherwise, s/he would be exempted. As such, even though a person with a disability may in certain instances need more health care (incurring higher health care costs), the solidarity principle implicit in a SHI scheme takes care of the health care needs and costs. Especially during the transition phase to universal coverage, an important concern, though, is potential fraud in the form of individuals claiming to be dependants of a contributor when they are not. This can be resolved by clearly defining all of a contributor's dependants, for instance via individual health insurance cards for all beneficiaries and with photo identification.11

Summarized key assumption of the financial projections:

Membership is family-based and dependants are equally covered.

5.2.3. Number of pools

Although a SHI system by definition pools risks, risk pooling is not complete when there is fragmentation in risk pooling, i.e. when there are too many small risk pools, i.e. different SHI funds. In this case, certain segments of the population, especially the low-income groups, may have less financial protection against health expenditures than others, as certain risk pools will receive a lower average contribution per member, leading to a

11 In Scenario A, the problem is rather that informal sector workers may have the incentive to remain "exempted members", or present themselves at health care facilities as "exempted members". Again, a good IT data base is important to control this problem.

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more limited benefit package and restrictions on access. Thus minimizing the level of fragmentation enables a greater financial accessibility of health services for all. SHI schemes can either be made up of multiple risk pools / multiple funds, or a single risk pool / single fund (the terms "risk pools" and "funds" are used interchangeably). In a single risk pool, all financial operations flow through it, even if there are branch offices, whereas in a multiple pool system each risk pool has its own financial fund. Single fund systems are attractive, because pooling is maximized, with all members’ risks combined into one pool and with the right to the same benefit package. However, in a multiple pool system, the level of fragmentation can be reduced by risk equalization mechanisms, i.e. by shifting funds from low-risk pools to high-risk pools. Note that the existence of several private health insurance schemes - and SwaziMed, SwaziCare, Swaziland Health Maintenance Society (Mphilwenhle), and (an)other small one(s) - covering about 16,000 people12 plus their families, with the rest of the population covered by the MOHSW, point to fragmentation, resulting in what has been described in the above paragraph: people would have access to different benefit packages depending of which fund they are part of and how much they can afford to pay. There is also the risk for multiple funds to imply higher overall administrative costs, as each fund would have to establish its own core management functions, as such resulting in duplication. A single fund can be normally managed in a simpler and effective way. Administrative costs would thus be minimized, tantamount to achieving economies of scale in administration, so that a larger share of contributions will be spent on actual benefits. There is no danger of monopoly in a SHI scheme with one single fund, if well regulated and well overseen by a supervisory board (see Chapter 5.4). For the reasons explained above, and also given the small Swazi population, it is suggested to establish one SHI fund only for all Swazi, rather than establishing a fragmented system with a separate fund for civil servants, another one for formal sector employees, etc. Still, for managerial purposes, different accounts could be established for different groups of insured, as to be able to monitor actual and required cross-subsidies between groups. This also helps to establish appropriate and acceptable contributions schedules for the different groups of the insured.

5.2.4. The role of private health insurance

The establishment of a permanent stand-alone medical aid scheme for civil servants only is ultimately a decision against a social health insurance scheme. If the remaining population were to become members of the SHI scheme, its contribution ability and risk composition would be very different from the one of the medical aid scheme for civil servants only. Whereas a risk equalization mechanism would normally balance out

12 SwaziMed has the largest share of PHI principal members (around 10,000), followed by SwaziCare (4,000), and Mphilwenhle. With an estimated number of 3-4 dependents per insure, a total of 64,000 to 80,000 Swazi may have some form of private health insurance coverage.

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differences in the pool's risk composition, in this case, it would turn out into a massive transfer scheme if one keeps the SHI outlook with a risk equalization mechanism in order to achieve equal health expenditure per risk unit. However, if a SHI scheme is set up for civil servants only initially, it is of utmost importance that the objective of universal coverage is integrated into the SHI's institutional design right from the beginning. Otherwise, the transition and move to universal coverage will face critical political and managerial challenges. Ideally, with an existing SHI scheme, the future role for private health insurance is that of supplementary private health insurance that gives higher income groups the possibility to purchase top-up plans for mostly hotel-related benefits (e.g., private rooms with more amenities, better food, non-essential health care, such as acne treatment). The opting-out option, i.e. allowing people to purchase private health insurance plans instead of being a member of the social health insurance scheme (substitutive private health insurance) is not recommendable.

5.2.5. Merging of RSA referral scheme funds with the SHI scheme

If desired and political feasible, the different RSA referral scheme funds (Civil Servants Medical Referral Scheme and the Phalala Fund) could be turned into the SHI RSA referral budget. In other words, the full budget of these referral schemes or parts thereof could be merged with the SHI scheme and earmarked for RSA referrals. The establishment of the Civil Servants Referral Scheme was the negotiation result between government and the civil servants associations. Civil servants agreed to forego a salary increase of 2% in return of the establishment of the referral scheme. Even when merged with the SHI scheme, the civil servants would continue benefiting from the referral scheme.

Summarized key assumption of the financial projections:

There will be one single social health insurance fund for all Swazi, rather than several

different funds that would cover different population groups.

5.3. Purchasing

5.3.1. Benefit package

Benefit package definition process:

As patients must receive the necessary health interventions, careful considerations are necessary what to include in the SHI benefit package. Subject to the financial feasibility constraints, the benefit package should be as comprehensive as possible, while at the same time be based as much as possible on explicit efficiency and equity criteria. Efficiency relates to cost-effective services included in the benefit package; equity is

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about the extent to which the health care needs across different population groups can be addressed. Efficiency and equity criteria and the way they are balanced against each other should also account for societal preferences and expectations. As such, it is important that there is an explicit and transparent process through which the benefit package is defined and through which it is clearly specified which services are excluded (cf. Carrin/James 2005). Benefit package content:

For the financial projections, the benefit package consists of the outpatient care and inpatient care services including the provision of drugs that are currently provided within Swaziland at government and mission/NGO facilities. The SHI benefit package could be based on an (Essential) Health Service Package, which the Government plans to develop (as outlined in the new Health Strategy Plan). For such a package to be defined for the purpose of a SHI, the cost-effectiveness and equity implications of specific services as well as the costs for the overall package (and alternative packages) need to be determined. In addition, it is advisable to understand and reach consensus on key priorities and societal preferences, on the basis of which the final benefit package is to be developed. In particular, it needs to be financially assessed and decided whether certain costly medical procedures can be included in the benefit package. A more detailed analysis needs to be undertaken for specific services such as lens and other ortheses and prostheses. Likewise, the financial implications of covering chronic diseases need to be reviewed. As part of the detailed planning process of setting up a SHI scheme and the actuarial analysis, utilization rates and unit costs for these specific services need to be considered. It should also be clearly noted that a SHI scheme cannot cover everything: If the population wishes to have a larger benefit package, this implies usually higher contribution rates. Thus, SHI schemes usually provide either a defined list of what is covered, or establish a list of services that are excluded. In principle existing local infrastructure should be utilized wherever possible and care should be delivered close to where people stay and work. Therefore, it is assumed that outside Mbabane and Manzoni, health care demands will be largely met through Government and NGO/mission facilities. Access to tertiary care should be limited and only possible through referral from lower levels. For that matter, it may be advisable to consider establishing or strengthening a filter clinic at Mbabane town to reduce the outpatient flows to Mbabane National Referral Hospital. Quality of care:

Yet, widespread acceptance of the SHI scheme and of paying contributions will be contingent upon substantial service and quality improvements within Government and NGO/mission facilities. Less is known about the clinical/technical quality of private providers. Also, there seems to be a consensus that the clinical/technical quality of services obtained at Mbabane National Referral Hospital is often better than at private

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facilities, and also given that some of the medical technology is only available there. However, there is urgent need to improve process quality, inter alia: � improved availability of drugs and medical supplies � better medical technology and equipment � more qualified staff � motivated staff � further development and improvement of tertiary, specialized care at the national

referral hospital Moreover, quality assurance, quality improvement activities as well as close regulation and monitoring would be required for all providers, including private providers. If certain health services in Swaziland are not available (or perceived unsatisfactory), particularly middle class formal sector workers will consider their contribution rate as a payment with less benefit in return than expected. Referrals to South Africa:

The reason for including rationalized referral for inpatient care in RSA into the benefit package is based on several considerations: even with improved service availability and improved service quality at Mbabane National Referral Hospital over the next years, there will be continued medical need for referring patients to RSA. Furthermore, to ensure acceptability of the SHI scheme, the option of being referred to RSA when needed must be included. Thirdly, as the government provides already a budget for RSA referrals, which, for various reasons however, is not spent equitably on those in need of referral, it is suggested to transfer those government funds to the SHI Fund which would then introduce and institutionalize a more transparent and efficient referral scheme - in line with the stakeholder preferences (see Chapter 4). For financial feasibility reasons, it is clear that access to RSA health care services need to be rationalized and must be based on clear referral criteria, just like SwaziMed operates a very strict pre-authorization scheme before a patient is sent to South Africa for inpatient care. There is need to closely regulate and monitor referral to RSA for services that are not available in Swaziland and that have been included in the SHI benefit package. Clear criteria must be developed to decide whether a person should be referred or not (cf. WB 2006). The definition of such criteria requires a ranking of priorities that may be difficult as it touches upon tough ethical decisions. Hence, to ensure that the inclusion of RSA referrals into the benefit package does not lead to a cost explosion, the following requirements need to be set in place: - Definition of clear criteria for referral - The referral process must be organized in a way that the referral decision is not a personal one and immune to pressures from individuals or groups - Remuneration rates need to be negotiated with a selected number of providers in RSA - there could be a ceiling of maximum remuneration to a provider per patient. - A claims review process that assesses both the financial and medical aspects must be in place.

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Other considerations:

Another critical question is whether antiretroviral therapy (ART) would be included. To answer this question, two critical steps are necessary: 1. Unit costs and utilization rates need to be known for pre-ART and ART services. 2. Once these figures are known, it can be verified via the SimIns financial projections

whether covering these services is affordable at the current levels of contribution rates (or whether it would require higher contribution rates, or other extra income for the SHI fund in order to break even).

Still, given that various donor organizations are currently supporting the GOS in scaling up ART services by setting up the management and financial structures, it is recommended to continue this way, at least over the medium run, and provide ART outside the SHI scheme, rather than interrupting these current efforts. Available experiences in this matter from other countries such as Rwanda can then be assessed against the background and needs of Swaziland. Similar calculation proceedings are suggested for any other specific health care intervention to be considered for integration in the benefit package (e.g. renal care or other chronic diseases requiring specialized care). More detailed financial costing and actuarial analysis may be necessary to assess the implications of including additional and more specific services that are currently not included in the proposed SHI Health Service Package. Based on such analyses, a decision can be taken on whether and when to include these in the benefit package. During the discussion with the stakeholder groups of potential beneficiaries, there were neither references nor questions regarding traditional healers and whether their services would be part of the benefit package. In any case, there is little official data on them regarding the types of services they offer, their total number, their cost structure, their treatment success rates and quality of care etc. Hence, it is very difficult to include traditional health care into financial projections. The following factors make it particularly difficult to further consider integrating traditional healers' services into the SHI benefit package: � Traditional healers’ services are not only strictly health care-related, but cross into

other fields of rectifying social relations and evil spirits. � As long as there is an absence of data on cost-effectiveness of traditional healers’

medical services, it would be incoherent to include such services, or a subset of them, in a SHI Health Service Package established on the basis of rational criteria such as cost-effectiveness.

� Currently, it remains unclear how traditional healers can be contacted in a systematic way. If they work as individuals (often without a bank account), it is difficult to integrate them in a modern streamlined provider remuneration payment system.

� It would be very tedious to accredit their services for quality assurance purposes. If the MOHSW wishes to undertake further efforts and reflections with respect to integrating traditional healers' services in the SHI benefit package, it may be useful to analyse the experience of other countries. For example in Ghana, selected traditional

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healers' services have been included in the SHI benefit package, if they meet certain standards. The discussions on SHI often only focus on curative care. However, there is need to discuss which preventive and promotive health care activities (e.g., disease screening, vaccinations) could and should be covered by the SHI scheme, and which ones should be financed by the MOHSW. This also calls for planning and close coordination and collaboration between the MOHSW, the SHI scheme and the providers to ensure that the health care system provides comprehensive care including health prevention and promotion.

Summarized key assumptions of the financial projections:

The benefit package contains the following services

� Outpatient care at Government, NGO/mission and private providers

� Inpatient care at Government, NGO/mission and private providers

� Tertiary care at Mbabane Hospital

� Authorized referrals for inpatient care in RSA

5.3.2. Strategic purchasing and provider payment mechanisms

In the financial projection scenarios it was assumed that the amount and allocation of funds from the MOHSW to Government and NGO/mission hospitals and RHMTs (for health centres and clinics) would continue. Both Government and NGO/mission facilities would receive additional resources through the SHI scheme. Private sector clinics would continue receiving income from third parties, i.e. the SHI scheme. The introduction of a social health insurance scheme provides the opportunity of strengthening strategic purchasing, i.e. the systematic and continuous search for the best ways to maximize health system performance by deciding what should be purchased, how and from whom. This entails finding the best and most context-appropriate provider payment mechanisms. Each purchasing approach and payment mechanism has advantages and disadvantages. Adding or combining elements of different provider payment mechanisms can help strengthen incentives to achieve efficiency, equity and quality in health care (cf. Park et al. 2007). Strategic purchasing also often involves a purchaser-provider split. It is clear that any provider remuneration scheme must be adapted to the prevailing context and be simple to administer to take into account the existing administrative capacities and to avoid fraud. Hence, given the currently available administrative skills (small financial management/accounting teams in each hospital and RHMTs) and in the absence of a computerized and network system, it appears best to build upon the current practice of provider payment within the existing payment transfer/banking infrastructure, at least for the initial years.

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For the continued MOHSE funding of GOS and mission/NGO facilities (with partial government funding), the current practice of quarterly budget transfers to RHMTs and Government and Mission hospitals could be further improved: For the continued MOHSW funding, it is necessary to introduce and strengthen a rational resource allocation procedure based on a well-defined allocation formula with weighted criteria to better achieve both efficiency and equity objectives. Resource allocation criteria could include: - Estimates of population "at risk" by age and sex - Specific health care needs in an area, based on epidemiological profiles - Socio-economic and poverty indicators - Local price variations An alternative is to change to an individual capitation based system for the continued MOHSW funding. For the additional funding coming from the SHI scheme, provider remuneration could take the form of: � Formula funding (area-based capitation payments) � Individual based capitation (capitation per insured member) � Flat case payment or differentiated case payment rates to take account of high-cost and

emergency services (cf. Smith forthcoming). Each of these options creates different incentives for the providers and also implies different managerial challenges. Likewise, the remuneration of public and NGO/mission providers cannot be considered independently from the remuneration of private providers. The detailed payment structure and managerial proceedings need to be elaborated to ensure that Government and NGO/mission health facilities receive their facility income through both the existing channel of MOSHW budget transfers and the new capitation/flat payment system in parallel. This includes establishing or strengthening clear accountability channels for heads/managers of health facilities. The purchasing mechanism of the SHI scheme is independent of any other revenues that NGO and mission facilities receive; their search for donations and grants could and should thus continue. SwaziCare and Mphilwenhle operate on the basis of a capitation rate. In other words, a limited number of private providers are familiar with this type of payment mechanism. As they fare well with it, this could be a viable option, and if the MOHSW suggests to opt for a capitation mechanism, a more detailed assessment and exchange of experience may be necessary. It is important to note the disadvantages of a fee-for-service remuneration scheme, especially related to curative health services. The incentive of a fee-for-service scheme for health care providers is to deliver as many services as possible, resulting in over-provision that is unnecessary and often clinically detrimental. Apart from the administratively burdensome claims handling and management as well as the lack of a cost-containment incentive, the fee-for service scheme places the uncertainty of expenditure levels solely on the insurance scheme, and thus ultimately on the

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contributing actors (i.e. employees and employers). The members would have to cope with increased expenditure through increased contribution rates and / or increased co-payment rates, ultimately making health care more and more expensive and ultimately unaffordable for many.

For hospitals and health centres to make efficient use of the additional resources

gained from SHI, i.e. for quality increases, they require a certain degree of

autonomy to decide how they best spend their funds. It is also important to keep in

mind that the financial projections are based on the assumptions that resources

from co-payments go to the health providers and hence are not remitted to the

Treasury. As such, it is also necessary to think about the (new and modified)

managerial and financial roles of the hospitals, the RHMTs and the health

centres/clinics within a SHI scheme (see Chapter 5.3.5). As emigration of health workers is a huge problem in Swaziland - due to reasons of relatively lower salaries than in surrounding South Africa as well as poor working environments among other factors - it is advisable that a share of the additional provider remuneration funds coming from SHI is used for staff motivation purposes and performance related bonuses to staff.

Summarized key assumptions on the institutional arrangements to be coherent with

financial projections:

There is increased managerial and financial autonomy for the Government health

facilities.

Additional resources collected from co-payments remain at the local/regional level;

they are not remitted to Treasury.

5.3.3. Setting provider remuneration rates

Setting provider remuneration rates is a complex task. Depending on the differences of rates for different services, providers may be inclined to change their provider behaviour towards those services with higher remuneration rates. Provider remuneration rates need to relate to average unit costs. Such costs were available neither for Government facilities nor for NGO/mission and private facilities. In the course of establishing the SHI scheme, such a costing study, particularly for private and NGO/mission providers is strongly required. But a one-off costing exercise is not enough. Ideally, unit costs are assessed and re-examined on a regular basis in order to review provider remuneration rates accordingly. As no average unit costs for the chosen service categories was available as a basis for the financial projection scenarios, the mission team had to estimate these. For Government

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and mission facilities, a quick and admittedly imperfect top-down costing analysis was applied, using actual expenditure and workloads for the Year 2007 (see Annex 2). For private providers, unit costs were estimated by comparing the following available information (cf. Chapter 3): - Current fees charged to cash-paying patients - SwaziMed's provider remuneration fee structure - SwaziCare's and Mphilwenhle capitation rates (multiplying these with estimated utilization rates) These three information sources yield very different levels of rates. Table 6.6 lists the unit costs that entered as assumptions into the financial projection scenarios. Even though they are lower than the SwaziMed tariffs, they were assumed to be realistic and feasible also in light of the feedback obtained from private sector providers (cf. Chapter 4) that they would agree to lower rates along with higher patient volumes. On the other hand, with shorter waiting times and more time spent on each patient - quality aspects highly appreciated by patients, as well as higher depreciation values of equipment and buildings, the unit costs (and thus remuneration rates) for private providers were set at a significantly higher rate than the unit costs for Government and NGO/mission providers in these financial projections. Given that Government health services, in particular, but also Mission/NGO facilities require more funding to improve the quality of their services, the financial projections assumed a 40% increase in remuneration rates over 6 years. This increase in funding health care services allows for the necessary inputs for quality improvements. It is very important to ensure that the total resource increase will actually translate into substantial quality improvements. This may require a systematic quality improvement program. A specific quality analysis is necessary to be able to setup an implementation plan for the required quality increases. However, if the MOHSW considers such quick and substantial quality improvements within 6 years not feasible, adjustments to the financial projections need to be made. It should also be pointed out that some private doctors who currently benefit from high tariffs at the level of RSA rates may encounter some reduction in their income. It is clear that the setting and negotiation of provider remuneration rates between the SHI scheme and the providers needs to touch the question of income and profit margins for private doctors. It is also clear that Swazis cannot afford an ever growing number of privately operating doctors with the current income levels. In fact, Swaziland may come to the point where the Government and the MOHSW need to regulate the number of private providers/doctors to ensure that those operating within the context of SHI can do so in a competitive environment, yet ensuring adequate and proper quality of care.

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Summarized key assumption for the financial projections:

Unit costs express full costs for outpatient and inpatient services.

The necessary increase in quality at Government and NGO/mission providers is built

into the financial projections by augmenting the provider remuneration via increased

unit costs by 50% over 5 years.

As the unit costs (and thus the provider remuneration rate) for providers would already

start at a higher level, there is no such in-built increase in provider remuneration rates

to increase quality.13

5.3.4. Contracting

In principle, all health care providers could be eligible for being contracted and accredited as a service provider for SHI members, for a specific range of services subject to their qualification and available equipment and under the condition that they meet certain quality standards. Purchasing could hence be based on well developed contracts that spell out the obligations and rights of both providers and the main purchaser, i.e. the SHI agency. Contracts should specify the following aspects: - Provider remuneration mechanism - Provider remuneration rates - Claims management and payment transfer process - Payment schedule - Accreditation and quality management measures - Surveillance, utilization reviews and claims control - Monitoring and enforcement processes Likewise, such a contract needs to specify the co-payment schedule. Providers should then not be allowed to charge patients beyond the agreed co-payment schedule. All these aspects must be developed in one document which is the "standard operating procedure" to ensure that the SHI managers and the health facility managers respect the contract specifications (cf. WHO 2008).

5.3.5. Accreditation and quality management

Increasing the quality of care at the various provider types is of great importance to make the SHI scheme acceptable and attractive and thus sustainable. An accreditation scheme and quality improvement program therefore would play a crucial role in the efforts of improving quality.

13 This is not to suggest at all that there are no quality improvements required at private providers.

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As no formal accreditation system exists so far, we suggest that in the short-term the SHI agency together with the MOHSW sets a number of critical accreditation criteria for health facilities, particularly for the private sector. In the medium term, the experience from the currently ongoing COHSASA-related quality improvement program should be evaluation to see to what extent and how it can be applied nationwide at both public, NGO/mission and private providers. One option is to set up an accreditation program by the SHI scheme for the initial years after the SHI introduction; in later years, a third-party institute, like a national quality / accreditation agency could undertake this function. Under a SHI scheme, accreditation and attainment of defined accreditation and/or quality management standards could be a contractual obligation for all providers’ types and could also serve as one determining factor to set the final remuneration rate. As private health care provision would be part of the benefit package, private providers should equally be accredited. Accreditation results should be published to provide an additional incentive for providers to score well and to attract patients. In addition to accreditation, a quality improvement plan could be set up in order to sketch out in detail objectives, indicators and activities to realize quality improvements. At the provider feedback workshop during the second mission, various suggestions were made that should be considered: � Quality management could be started at selected facilities, which could be turned into

"star" facilities in a specific catchment area; the number of such facilities is increased each year.

� The quality management program starts at hospital level and then reaches out to the lower level facilities.

In addition to a specific quality management program, general MOHSW and health sector functions need to be improved, foremost drug procurement in order to really improve health care service quality. Quality improvements should become noticeable for the population within one year: For example, friendlier staff and attention to patients, cleanliness of facilities and better organization of patient flows to avoid or reduce queues, better drug stocking and ordering do not require long-term investments. Improvements in the drug procurement system and other managerial core functions may take more than a year, but it is ultimately political will and commitment that determines who quickly patients can expect improvements. Substantial facility upgradings and improvement in the overall human resource situation will obviously take longer. In the medium term, the accreditation and quality management program should be accompanied by both (financial and non-financial) incentives and disincentives to encourage and enhance the efforts of health facilities and their staff to improve (cf. McNamara 2004, GTZ/ILO/WHO 2007). Given that the acceptability of the SHI scheme is largely contingent upon the improved quality of health care, the MOHSW and the SHI scheme need to place sufficient attention to ensure that facilities "comply" and undertake the expected quality improvement activities.

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5.3.6. Co-payments

There is a certain tendency for insured individuals to use more services than needed or than if they were not insured, especially if services are easily accessible geographically or in the event of low risk illnesses. This tendency, called moral hazard, raises the costs of coverage. Co-payments are one form to counteract this problem, and nearly all social health insurance schemes across the world have some form of co-payments for both financial reasons as well as avoidance of moral hazard. In European countries, co-payments constitute up to 30% of total SHI expenditure (Carrin/James 2005). Nevertheless, careful consideration is necessary to determine their levels in order to avoid introducing again financial barriers to necessary health care. The financial projections assume higher co-payment rates at higher level facilities. This is assumed to encourage use of lower level facilities. Yet, the difference in co-payment rates between the various levels is actually small, and for people with some income, this difference may be irrelevant. Ideally, a stricter referral system could be introduced, such that hospital level outpatient care would only be accessible with a referral note from lower level facilities. In practice, though, this may be difficult, as hospital outpatient departments also serve as lower level health care providers in their catchment area. With respect to Mbabane National Referral Hospital, it is easier and feasible to operate a stricter referral system, if a functional filter clinic structure is in place. If this is the case, self-referral to tertiary care would imply still higher co-payments. It could be considered whether there is a maximum total annual amount of co-payments by members. Particularly the chronic sick may require and benefit from such a rule. While parts of the informal sector will be exempted, financial affordability of paying both contributions and co-payments may be a concern for low-income formal sector workers including civil servants in lower grades (A1, A2, B1, B2) and those low-income informal sector workers that do not qualify for exemption from paying SHI contributions and co-payments. The new co-payment rates are lower, but net income of these civil servants would also be slightly lower given that they would have to pay SHI contributions. One option to consider is to exempt certain low-income groups from the co-payments at government and NGO/mission facilities, while they still would have to pay SHI contributions.14

Summarized key assumptions for the financial projections:

In line with current Government practice, there are no co-payments (0%) charged to

access outpatient care at Government and NGO/mission clinics.

Small co-payments of are levied at Government health centres (4%), at the outpatient

department of Government and mission hospitals (8%) and of the National Referral

Hospital (12%), as people should ideally first use lower level health facilities.

14 This type of exemption cannot be simulated with SimIns. A more detailed actuarial analysis would be required on this aspect.

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As moral hazard may be weaker for inpatient care, very small co-payments are levied

for inpatient care at Government and mission hospitals and at tertiary care level (1%).

Co-payments for outpatient care at private providers will be levied, which are higher

than those at Government and mission facilities (20% for OP care and 5% for IP). The

higher co-payments at private providers reflect the difference in unit costs between

government and private providers.15

5.4. Governance and management of the SHI fund

The governance and management of a SHI scheme requires careful design to make it both acceptable to the population and the various stakeholders, as well as to ensure effective and efficient functioning. A central question here is the degree to which the SHI operates within or outside government institutions. This question should be looked at firstly in terms of governance and secondly in terms of management.

5.4.1. Governance structure

As any SHI agency, whether run by a private or parastatal company, would be mandated by the government and would be given the task to work for the benefit of the country of Swaziland, final oversight and stewardship over SHI would be expected to be organized and provided by government. However, as suggested during the stakeholder consultations, it is important to give other stakeholders their fair share of influence over the functioning of SHI. These stakeholders would include representatives from health care providers, associations of health professionals, the employees (e.g. professional associations for civil servants, nurses, teachers, formal sector employees' unions, etc.) and the employers, as well as the self-employed and the rural population. Together with government representation (from MOHSW, the Ministry of Finance, the Ministry of Public Service, Ministry of Employment, the Ministry of Economic Planning, and others), these could be grouped together in a Board of Trustees that would have specific powers pertaining to the appointment of key positions at the SHI (such as the CEO and his/her senior staff), determination of the benefit package, the provider remuneration system, contribution levels, and exemptions, among others. As such, the ownership and governance of such a SHI agency would be of parastatal nature. A clear framework regarding decision-making power and regulation setting needs to be established to clarify the division of labour between the Government and such a board.

15 In principle, from a financial perspective, the higher co-payments should completely make up for the difference of unit costs between Government and private facilities. But due to acceptability reasons, the financial projections assumed somewhat lower co-payments at private providers than actually required from a financial perspective.

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The mission team learnt that some of the Pension Board members had raised the issue whether the existing Civil Service Pension Scheme could also operate a medical aid scheme for civil servants, given that the Pension scheme has already an established infrastructure and operating organization. The concern of putting the Pension Fund in charge of SHI is its mandate, which is focused on civil servants. In contrast, the SHI would be an organization that is in charge of and takes care of all Swazi, so it is rather questionable whether the SHI function should and can be taken up by the existing Civil Servants Pension Fund. However, it is highly recommended to build upon the organizational experience of the Pension Fund as to its governance structure and governing/decision mechanisms.16

5.4.2. Management structure and administration

As to the management, there are various options, from operating as an organizational unit of the MOHSW, as a parastatal, to being outsourced to a fully private, and profit-making, firm. The consultations undertaken during the first mission indicated a strong preference for a SHI management that is independent from government, whereas a private company was not desired either. The reasons cited where the hope for efficient management and a lower risk of corruption if it is outside government. Arguments against a private management were higher costs due to profit interests. In fact, the desired option cited was to designate the SHI to be of parastatal status. While individual subdivisions could have financial incentives for effective purchasing and good financial management of the fund, the overall organization would have a non-profit status, its stated mission and objective being the eventual attainment of universal coverage. In light of the size of the SHI fund (as to the overall number of members), it appears advisable that - instead of outsourcing specific sub-functions - all management tasks be kept under one roof, i.e. the administrator and insurance functions would not be separated. This is because management and administrative tasks relating to resource mobilization, pooling and purchasing are strongly interlinked. Hence, outsourcing some of them increases transaction costs, which have to be assessed against the potential efficiency gains of outsourcing them. There would be one exception to this: The collection of contributions could be possibly undertaken by other agents (compare Chapter 5.1.3). Operating a social health insurance scheme entails a huge number of different managerial and administrative tasks, such as: � Information provision to new members and consumer education � Member identification in the formal sector � Registration and enrolment of formal sector employees � Collection of contributions from formal sector employees � Monitoring that employers register employees as members and deduct contributions

16 Their Board of Trustees is composed of members representing the civil servants, and the other half representing the employer, namely the government. The civil servants associations nominate their representatives, which are then appointed by the Prime Minister. The Board appoints the CEO and the staff, a total of 35.

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� Member identification in the informal sector � Registration and enrolment of informal sector workers � Collection of contributions from informal sector workers � Determining which informal sector workers are exempted from contributions � Pooling of resources � Negotiation with health providers and purchasing and contracting � Provider payment (incl. claims management and claims review depending on the

selected provider payment mechanisms) � Surveillance, � Accreditation and quality management Other general tasks include: � Planning � Budgeting � Actuarial analysis � Financial management and monitoring, accounting and auditing � Information and data management � Monitoring and enforcement Staff with adequate skills in these areas needs to be available. Fund managers should have incentives for effective purchasing and good financial management of the fund. Again, the existing experience in fund management, e.g. of the Civil Servants Pension Fund should be used. Likewise, the available expertise of PHI schemes could be of great benefit.

5.4.3. Measures to ensure appropriate use of SHI funds

There is concern among stakeholders and interest groups that SHI funds may not be properly used and that funds may be embezzled. An important stewardship function of the MOHSW and government as well as a managerial task for the SHI Executive is to establish strong monitoring and anti-corruption mechanisms. Internal and external auditing, a clear reporting channel and publishing of financial reports and accounts as well as performance management based on clearly defined criteria are just some of the necessary measures.

5.4.4. Government's stewardship function

The MOHSW is the overall steward of the health system and thus also takes on an important role with respect to regulating and enabling the SHI Fund. At the same time, it is in charge of ensuring that the impacts of the SHI are monitored and assessed. Furthermore, a specific task and challenge to set up the SHI Fund is information provision and awareness raising of the population and specific interest groups and stakeholders by the government in order to ensure public support.

52

5.5. Administration costs and reserves

Administration costs of a SHI scheme are in general difficult to estimate, more so during the initial years, as each country context is unique, thus implying different cost factors. However, administrative expenditure from other countries can provide some indication and guidance. Whereas in developed countries, average administrative costs amount to a maximum of 6-7% of expenditure, costs are higher for developing countries, particularly in the first 10 years, for a number of reasons, including costs associated with the running of the IT infrastructure that needs to be built up. For developing countries, administrative costs are estimated to range from about 10-15%. Yet, these would exclude setting up the infrastructure in the initial introductory phase, such as building, computers, communication systems and other fixed costs, for which extra resources would need to be budgeted for. In line with the recommendation to keep the provider payment mechanism and payment system administratively simple, at least initially, and given that during the first few years, only the formal sector employees, including civil servants as well as pensioners, will be registered, it is suggested to set administration costs at a maximum of 10% of total SHI health expenditure. Health insurance schemes are faced with an inherent uncertainty regarding their expenditure and incomes. For example, epidemics may temporarily increase utilization rates and hence expenditure, or downturns in the economy may temporarily reduce the contributions collected. Setting aside reserves to protect against this inherent uncertainty is an important measure for a health insurance to remain financially solid. Therefore, in line with the experiences from other countries, it is suggested to set reserves at 4% of total SHI health expenditure.

Summarized key assumption for the financial projections:

Administration costs amount to 10% of total SHI health expenditure.

Reserves are set at 4% of total SHI health expenditure.

5.6. Regulatory framework and a SHI Law

The establishment of a SHI fund for whatever population groups requires regulatory action in the following areas: � Ownership, governance and management of the SHI fund � Membership basis (SHI for all Swazi or for specific groups only) � Mandatory membership � Extension of coverage � Setting of contribution rates � Collection of contributions � Decision on whether income tax is deducted before or after deduction of SHI

contribution � Benefit package definition

53

� Contracting of providers � Setting the provider remuneration scheme � Setting provider remuneration rates � Claims management procedures � Specific complaints mechanisms procedures � Accreditation of health care providers � Quality management requirements within the contract � Surveillance and claims review (including peer review) � Benefit package consumption (complaints mechanism, patient appeals mechanisms) � Investment of SHI funds Passing several separate regulations and administrative orders in these areas leads to a fragmented regulatory framework with high transaction costs and is threatening to be incoherent and providing regulatory loopholes. To overcome this risk, developing a new,

comprehensive SHI Law is necessary. At the same time, the implications with respect to the Employment Act need to be assessed. Furthermore, the Government needs to specify the role of private health insurance companies. It needs to decide whether and if so to what extent it will recognize and integrate PHIs into the health system. As explained in Chapter 5.2. (pooling), it is advisable to have only one fund that offers the basic package. In other words, PHI companies' role would turn into a supplementary one, in that they would offer top-up insurance packages (see Chapter 5.1.3). However, if PHIs are allowed to provide a full package (including the basic package), i.e. if the PHI role is defined not merely as supplementary health insurance, the issue of risk equalization mechanisms between the PHI and the SHI scheme becomes relevant. In particular, one would need to clarify how to deal with those employers, employees and civil servants that have taken out a private health insurance, but also with those who would wish to opt for taking a PHI plan. The mission team did not assess the existence and/or contents of legal provisions relating to the private insurance sector or specifically the private health insurance sector. In any case, it appears that stronger regulatory action is required with respect to the private health insurance sector. It is obvious that the Government will want to assess the impacts of its decision with respect to the private health insurance. One concern was the implications on the labour market if the role of PHIs would drastically change. However, as there are less than 50 persons working in all PHI companies around Swaziland, the employment effect will be marginal in any case. Moreover, if PHIs were to turn into top-up insurance schemes, it is assumed that the number of jobs in this sector may even increase: Since SHI covers the essential health care needs at affordable costs and since, as a consequence, a top-up insurance will likely become less expensive, in total, such top-up plans will be affordable to a larger number of Swazi. The PHIs would thus have the opportunity to expand their activities.

54

5.7. Key differences between Private Health Insurance and Social Health Insurance

Table 5.2 below provides a comparison between private health insurance and social health insurance along critical key dimensions. Table 5.2: Key differences between PHI and SHI PHI (based on offers available in Swaziland) SHI (as suggested for Swaziland)

Benefit package Depends on the package and premiums: E.g.

More basic options (lower premiums): � Overall limit: E 50,000 per year � All OP consultations in Swaziland up to the

overall limit � IP including surgical procedures in private

facilities in Swaziland and RSA with pre-authorization (48 hours in advance for non-emergency) up to the overall limit.

� Other service categories like drugs, mental health services, dentistry, eye examinations, radiology: only up to a certain amount (usually around max. E 1600 per category/pear year).

� Pregnancy/confinement: max. E 18620 More comprehensive options (higher premiums): � Overall limit: E 500.000 � Otherwise, same as above, with additional

benefits, e.g. renal dialysis, optics. � Financial limits for other service categories

are usually higher

� Unlimited OP at all provider types, including drugs, as defined in the benefit package.

� Unlimited IP at all provider types, including drugs, as defined in the benefit package.

� Unlimited diagnostic services � Unlimited maternity care

Monthly contributions for a monthly salary of E 6000*

Depend on a person's health risk, choice of private health insurance plan and how much they can afford and are willing to pay. e.g., E650 (Medium benefit contribution) E 2,050 (High benefit contribution)

Every employee pays the same percentage of his/her salary E 300-360 (with a 5-6% contribution rate)

Solidarity No solidarity: Everybody is in charge of his/her own fate regarding health.

Solidarity across the population

Waiting time Normal waiting time for individual members: 3 months For group members (those joining as a group of company employees): no waiting time For chronic sick: Depends, can be 24 months

None

Co-payments Depends: Once the limit for a specific service category is exhausted, the patient pays 100% of the remaining bill.

Can go up to several thousands Emalangeni.

No co-payments at health clinic level E 5 for OP at GOS and mission/NGO health centres/hospitals E 30 per IP case at GOS and mission/NGO hospitals E 36 for OP at private facilities E 250 for IP at private facilities

* for a family of four persons

55

6. Financial Projections A number of financial projections were made using the WHO-GTZ health insurance simulation model SimIns (version 2) to assist the TWG in designing a SHI policy that is financially feasible. As policy formulation progresses and new ideas are being developed, such financial projection scenarios need updating to reflect such changes and continue to inform policy makers about the financial side of their plans. It will be a continuous task for the SHI TWG to fine-tune data inputs and to use the results of such projections for dialogues with partners and policy makers. We consider simulation projections as valuable inputs for ongoing policy discussion processes and not just one-off exercises. Based on the stakeholder consultations during the first mission, two strategic directions were explored initially. These were presented and discussed with the MOHSW and other stakeholders during the second mission to then prepare a third scenario presented in this report. The two initial scenarios are referred to as:

- Scenario A "SHI for all Swazi - rapid transition to universal coverage" (2 years) - Scenario B "SHI for all - gradual extension to the informal sector" (10 years)

These projections provide a first approximation of the directions that policy-makers could be considering. These two scenarios are presented in Annex 3. From the stakeholder feedback during the second mission, it became clear that a scenario inbetween the two above resonated well among them. Hence, an extension period of 2 years was considered to be too rapid, whereas reaching universal coverage over 10 years appeared too long.

Therefore, the third scenario takes this and other concerns into account. We refer to it as Scenario C “Phased SHI for all Swazi within 6 years”. Table 6.12 at the end of this chapter provides a summary overview of Scenario A, B and C.

Financial projections are made from Year 0 to Year 10. The base year is 2008 (=

Year 0) for which wages, prices, population figures etc. of earlier years have been

projected. If the scheme will be initiated later, baseline figures have to be adjusted

accordingly.

The following tables summarize the key assumptions made with respect to macroeconomic variables for the scenarios. These assumptions were closely discussed with and informed by the Planning Department/MOHSW.

Scenario C was jointly developed with the SimIns Projection team that was trained during the second mission (comp. Chapter 2.5). The team discussed and suggested

slightly modified assumptions in comparison to the previous Scenarios A and B:

- higher contribution rates for formal employees and informal sector workers; - a slower and smaller rise of unit costs which serves to improve quality of care.

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Table 6.1: Input variables: population growth, percentage of dependents17, growth rate and GDP deflator (all in %) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Population growth

NA -0.2 -0.2 -0.2 -0.2 -0.1 0 0 0 0 0

Percentage of dependents

70 70 70 70 70 69 69 68 68 68 68

of which children < 18

90 90 90 90 90 90 90 90 90 90 90

Growth rate

2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

GDP deflator

5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7

Source: see Annex 2 Table 6.2: Structure of workforce and pensioners (in %), wages and growth rate of wages Population group Structure of population Annual wages/income (for 2008) Growth rate of wages per year

Government employees 9.64 E 61122 3%

Private sector employees 30.84 E 39813 4%

Pensioners 1.76 E 19310 5%

Informal sector workers 57.76 NA NA

Source: See Annex 2

All other details on assumptions and input figures used for the financial projections are further outlined and explained in Annex 2.

17 The input variable "percentage of dependents" was calculated for the case of Swaziland as the number of dependents (those below 18 years and above 60 years) divided by the total population.

57

6.1. Description of Scenario C: "Phased SHI for all Swazi over 6 years"

This simulation projects the financial results for a potential social health insurance system for Swaziland in which all Swazi are members of the SHI scheme within 6 years. The Government/MOHSW budget is maintained at the previous years' levels (in constant prices) and continues to finance large parts of health care provision (including the grants provided to NGO/mission facilities). The growth rate of this budget (in constant prices) is set equal to the GDP growth rate. In Year 0 (= baseline year), the Fund is established; from Year 1, the various population groups join according to a defined extension schedule (see below). Provider remuneration mechanisms and rates have to be established within the first year. Whereas the collection of contribution rates from civil servants, pensioners and formal sector employees is administratively easier, this Scenario enables the SHI scheme to develop its mechanisms and capacities over several years to collect resources from the informal sector workers as well as to set up its targeting mechanisms to determine who will be exempted over several years. The assumptions for Scenario C result in the following key characteristics: Coverage and contributions

• In Scenario C, every Swazi will be covered and a member of the social health insurance system. Universal coverage (i.e. 100% population coverage) by this scheme is achieved within 6 year (see Figure 6.1 and Table 6.3 for SHI coverage).

• Coverage is for the whole family. Formal sector:

• In Year 1, civil servants, public enterprise workers and pensioners join the SHI. Thereafter, all private sector employees and workers including all small scale enterprises, which are part of the formal sector, come on board over two years (50% of them in Year 2 and the rest in Year 3).

• As suggested by the local SimIns projection team, Government, public enterprise and formal sector employees pay a contribution rate of 7% of their salary. The employer would pay 50% of this, i.e. employees pay 3.5% of their salary. Pensioners pay a total contribution rate of 3.5% only (as there is no employer to match it by 50%).

• For this financial projection, it was assumed that contributions are calculated from gross salaries (compare Chapter 5.1).

Informal sector:

• The informal sector workers joins later: the first group (20% of the informal sector workers) - vendors, taxi/bus drivers and home workers join in Year 4; farmers (30% of informal sector workers) come on board in Year 5, whereas all other workers (the remaining 50%) become SHI members in Year 6.

58

• For the informal sector workers18, a flat amount is set as contribution for the whole family. The local SimIns projection team set this flat payment at E 500 per year/per core family (in 2008 prices), which is adjusted regularly for inflation over the 10 year projection period. It was assumed that about two thirds of current average out-of-pocket expenditure for health services of Swazi households can be considered to be within their ability to pay.19 This represents about 20% of their household income. This is considerably high and the contribution amount should therefore be closely reviewed and discussed again among the SHI TGW and the MOHSW.

• The SHI members from the informal sector who are poor are exempted from paying contributions and co-payments. Assuming that the poor are based within the informal sector, this translates into an exemption rate of informal sector workers of 40% at the end of the projection period.

• With this exemption rate, about a quarter of the total population (23%) would be exempted from Year 6 when all Swazi will be covered (see Figure 6.1 and Table 6.3). While this exemption rate is below the poverty rate of Swaziland, it is assumed by government officials that poverty reduction programs and government efforts will result in a lower poverty rate by the Year 10 (2018)

• The exempted members as well as low income earners, who pay lower contributions in absolute terms, are primarily supported by government subsidies.

Figure 6.1: Trends in SHI coverage

18 To avoid confusion, note that SimIns calls this population group the "self-employed". 19 Data based on the SHIES 2000-2001, where monthly p.c. expenditure on health care is E8. Taking two thirds of this, with an average family size of 5, this results in an annual household expenditure on health of E 240 for 2001 prices, which comes to E 500 in 2008 when inflation-adjusted.

59

Table 6.3: Population coverage and exemption rates 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total insured

population (in

Mio.)

0 0.105 0.252 0.399 0.507 0.67 0.941 0.941 0.941 0.941 0.941

Population

coverage

(in %)

0% 11% 26% 42% 53% 71% 100% 100% 100% 100% 100%

Insured exempted

informal sector

workers* (in Mio.)

0 0 0 0 0 0 0.218 0.218 0.218 0.218 0.218

Insured exempted

as % of informal

sector

0% 0% 0% 0% 0% 0% 40% 40% 40% 40% 40%

as % of total

population insured

0% 0% 0% 0% 0% 0% 23.1% 23.1% 23.1% 23.1% 23.1%

* Exemption only applies to the informal sector workers.

Benefits, co-payments and utilization rates

• The same benefit package is made available to all members, as outlined in Chapter 5.3.1.

• With the start of SHI, utilization rates are assumed to increase in Year 1 due to lower co payments (see Table 6.5, right columns). In other words, demand increases (Table 6.4).

• The co-payments as assumed in the simulation are much lower than co-payments / user charges currently in place in Swaziland. The assumed co-payment rates for the insured are outlined in Table 6.5.

• Given higher co-payments in the private sector (due to considerably higher costs/remuneration rates), it is assumed in the projections that utilization of inpatient and outpatient care at private providers by the informal sector are much lower (see Table 6.4). Likewise, it is assumed that utilization rates of private health care by informal sector workers do not increase even once insured.

• Use of outpatient care at private providers comes with a higher co-payment rate, given higher unit costs and higher remuneration rates at private health care providers.

The scenario does not make any assumptions on user charges/co-payments for those not yet insured in the initial years. The MOHSW needs to decide on whether these would pay the same co-payment rates at government and NGO/mission facilities than the insured or higher ones.

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Table 6.4: Utilization rates for different health services in the benefit package Current utilization rates

20 Utilization rates with SHI

Gvt clinic/public health units: OP case 1.2363 1.2363

Gvt health centre: OP case 0.1621 0.1981

Gvt health centre: IP case 0.0128 0.0194

Regional hospital: OP case 0.0694 0.0784

Regional hospital: IP case 0.0091 0.0126

NGO/Mission clinic: OP case* 0.2023 0.3514

NGO/Mission clinics: OP case** 0.1211 0.2103

Mission hospital: OP case * 0.1455 0.1882

Mission hospital: IP case 0.0134 0.0203

Gvt referral hospital: OP case 0.1194 0.1459

Gvt referral hospital: IP case 0.0084 0.0116

Private clinic: OP case 0.2084 FS: 0.3947 IS: 0.0722

0.3157 FS: 0.4557 IS: 0.0722

Private clinic: IP case 0.0153 FS: 0.0364 IS: 0.0010

0.0316 FS: 0.0480 IS: 0.0010

Normal delivery 0.0217 0.0217

Caesarian Section 0.0011 0.0011

Referral to RSA NA 0.003

Source: MOHSW 2007c (SAM survey 2007).

Abbreviations: FS=Formal sector; IS = Informal sector; OP = Outpatient care; IP = Inpatient care

* with 90% government funding ** with 50% government funding21

Costs

• Assumed unit costs for the different service categories used for the financial projections are listed in Table 6.5 (Column 1 and 2).22

• Outpatient care at private providers is remunerated at a higher rate than outpatient care at GOS or NGO providers given assumed higher unit costs due to higher quality.23

• Scenario C assumes that costs (and hence payments) for GOS and NGO health services will increase by 40% over the first 6 years of SHI implementation (in constant prices, i.e. on top of inflation). This would represent the increased funding of the health system through SHI introduction in Year 1, the primary purpose of which is to improve quality of care (e.g. availability of drugs and medical supplies, more qualified and more motivated staff, shorter waiting times).

20 These utilization rates are not confined to specific catchment areas, but refer to the total country. They are computed by dividing the total number of contacts at a specific provider type by the total population. 21 Some NGO/Mission facilities receive about 90% of their revenues from government; other NGO/Mission clinics only receive about 50% (information from Planning Department/MOHSW). 22 Unit costs are the average costs to provide one specified service category, e.g. an OP visit at a government clinic, an IP case at a private facility, a normal delivery, etc. 23 The remuneration rates need to be discussed and negotiated with the different provider types. Further finetuning could be necessary. For example, one private provider informally commented that from his perspective, the current unit costs set for outpatient care at private providers may be slightly too low, whereas the unit costs for inpatient care may be slightly too high.

61

• Payments for private sector facilities will also increase by the inflation rate. Their remuneration rate started at a much higher level from Year 1.

• After 6 years, the remuneration rates for outpatient care will be about the same at GOS and NGO outpatient departments of hospitals and private providers (with the exception of the national referral hospital), as it is assumed that the level of quality will then be the same.

Multiplying the unit costs per health service category with the respective utilization rates provides us with the benefit package costs per person. For the Year 1, this stands at E 613, rising to E 764 in the Year 6 (in constant prices) due to the increases in utilization and unit costs (for quality improvements).

Table 6.5: Unit costs for health services and co-payments Health service category Unit costs in

Year 1

(in 2008 E)

Unit costs in

Year 6-10 for

quality

improvements

(in 2008 E)

Co-payments

in Year 1

(in 2008 E)

Co-payments

for Year 1-10

(% of unit

costs)

Gvt health clinic OP 50 70 0 0.00

Gvt health centre OP 120 168 5 4.167

Gvt health centre IP 1,300 1,820 20 1.538

Gvt hospital OP 120 168 10 8.333

Gvt hospital IP 3,000 4,200 30 1.00

Mission clinic OP 50 70 0 0.00

Mission hospital OP 120 168 10 8.333

Mission hospital IP 3,000 4,200 30 1.00

Referral hospital OP 180 252 15 8.333

Referral hospital IP 4,500 6,300 45 1.00

Private clinic OP 180 180 36 20.00

Private clinic IP 7,000 7,000 350 5.00

NGO clinics (50%) 50 70 0 0.00

Normal delivery 1,300 1,820 50 3.846

C-Sectio 3,000 4,200 110 3.667

Referrals to RSA 20,000 20,000 To be defined To be defined

Referrals to RSA

As outlined in Chapter 5.3.1, there is need to determine the criteria for referral to RSA as well as to negotiate and set provider remuneration rates with selected providers in RSA. It is also suggested to have a budget ceiling for referrals. As all Swazi should be eligible for referral when in need and when meeting the criteria, whether they are already covered by the SHI or not in the initial years of its establishment, the following is proposed:

• The SHI is in charge of and manages the "RSA referral budget".

• All Swazi are eligible for referral independent of whether they are already insured or not.

• The current Civil Servants Medical Referral Scheme budgets as well as the funds of the Phalala scheme (the RSA referral scheme) are turned into the SHI RSA referral budget. In other words, the full budget of these referral schemes or parts thereof

62

(depending on political feasibility) are merged with the SHI scheme and earmarked for RSA referrals.

• The financial scenario assumes the availability of a budget of E 60 million in Year 2008 (constant prices) for RSA referrals that could come from the currently existing RSA referrals schemes (Civil Servants Medical Referral Scheme and the Phalala Fund). With an estimated E 120 million spent on referrals (information from key respondent), it is above this projected budget of E 60 million.

• This budget would allow for 3000 referrals at an average cost of E 20,000, representing a utilization rate of 0.003, which is three times higher than a detailed referral study that was undertaken for Lesotho with a similar context and challenges (lack of specialized tertiary services, high expectations among the population). Likewise, the estimated remuneration rate of E 20.000 is 3.5 times higher than the one calculated for Lesotho (cf. Bicknell et al. 2002 and Mathauer et al. 2007).

• The budget of E 60 million could decrease over the years, as the Mbabane National Referral Hospital would increasingly be in the position to offer more and more specialized tertiary care.

MOHSW budget and resource flow into government health care provision

� Importantly, this scenario assumes that the level of the MOHSW funding, i.e. the budget resources to finance GOS and NGO/mission health care provision remains in place and increases with GDP growth (in constant prices).

� Parts of these resources are channelled to the SHI scheme rather than directly to the facilities.24 Parts of these government subsidies are to pay for the exempted, i.e. those who are unable to pay contributions, the other part of these funds serve to subsidize those with low incomes (and thus low contributions). This is because the contributions of the SHI members (from both the formal sector and informal sector) are not enough to fully cross-subsidize low income members and the exempted.

� The amount of subsidies is set at a level to come to a financial equilibrium of the SHI (see Figure 6.3 below). Chapter 6.2.5 on flows of funding will show that this amount of subsidy would not go beyond what the MOHSW would have spent on curative health care in the absence of a SHI (with the MOHSW budget for curative care maintained in constant prices and increasing by GDP growth).

Figure 6.2 outlines the required subsidies to cater specifically for the exempted and for the total SHI balance.

24 One could also assume that the Government provides additional funds to make these government subsidies, on top of maintaining the MOHSW budget for curative care (in constant prices).

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Figure 6.2: Sources of the SHI and government subsidies required

In the legend, the government subsidies as explained above, appear in red under the category "other" (this is for technical input reasons in SimIns)

� The SHI scheme is in charge of all health care expenditure of the insured. � In Year 1 and 2, the MOHSW budget can thus be fully devoted to financing health care

of the non-insured: As the MOHSW budget is maintained, the same amount of money (100% of "original" MOHSW budget for curative care) caters for the so far "non- insured", i.e. so far not yet insured (89% in Year 1 and 73% of the population in Year 2). If government subsidies do not come from other sources (Ministry of Finance) in the years thereafter, parts of the MOHSW budget would then be used for subsidizing the exempted and low-income earners. In this case, the MOHSW budget directly going to government and NGO/mission facilities decreases, but at the same time the number of so far "non-insured" equally goes down.

In the initial years, Scenario C hence constitutes a segmented health financing system with mixed funding sources. The so far non-insured are catered for by government-financed health care provision, whereas SHI contributions (plus government subsidies) cater for the (growing) number of insured people (including the exempted ones). At the end of the projection period, this segmentation is overcome, as all Swazi are covered by the SHI. As such, the SHI scheme will be the key financing mechanism for all SHI members, through income from contributions and government subsidies. The remaining MOHSW budget can serve to finance preventive and promotive health care, further

64

infrastructure and quality developments in government facilities and mission/NGO facilities that receive government funding.25 Alternatively, if the government/MOHSW does not wish the SHI scheme to administer and manage these government resources (subsidies), another option is to design the SHI scheme such that the costs incurred by the insured at government and NGO/mission facilities are partly taken up again by the MOHSW (as in Scenario A). Another option is to transfer government subsidies for the exempted to the SHI Fund, whereas those government resources required to balance the insufficient cross-subsidization among the paying members as outlined above are directly channelled to the MOHSW and NGO/mission facilities, rather than shifting them to the SHI scheme. In terms of calculating precise MOHSW budget allocations to the specific government facilities (including NGO/mission facilities) as well as the respective SHI remuneration rates, this may be more complicated for both of these alternatives from an actuarial/accountant's point of view, but not impossible. Other variables: Reserves and administration costs

• It is assumed that 50% of a budgeted 4% reserves per year of SHI health expenditure will actually be used for unexpected (higher) expenditures. The remaining part of the reserves therefore goes into the account of accumulated reserves.

• 4% of total SHI health expenditure is set aside in the initial 4 years. As reserves accumulate over the years and reach 4% of a year's expenditure, the budgeted reserves could be possibly lowered towards the end of the projection period, while still achieving the objective of protecting the SHI scheme against uncertainties of lower than estimated revenues or higher than planned expenditure.

• Administration costs are set at 10% of SHI health expenditure. Table 6.6 presents the budgeted administration costs and reserves in percent of SHI health care expenditure. Table 6.6: Reserves and administration costs as percentage of SHI health care expenditure for Scenario C

Base

Year

Year

1

Year

2

Year

3

Year

4

Year

5

Year

6

Year

7

Year

8

Year

9

Year

10

Reserves

0%

4%

4%

4%

4%

4%

4%

4%

4%

4%

4%

Administration

0%

10%

10%

10%

10%

10%

10%

10%

10%

10%

10%

25 This could and should continue acquiring donations and other external resources.

65

6.2. Results and implications of Scenario C

6.2.1. Equity and solidarity

Scenario C is designed with the goal of achieving universal coverage and assumes that the SHI can be extended to cover the entire population within 6 years. It contributes in an important way to achieving equity in access and in financing (cf. WHO 2005) because

• Everyone is covered with the same access to the same benefit package

• The poor are exempted and neither pay contributions nor co-payments.

• Contributions are related to capacity to pay: in the formal sector, employees pay the same share of their salary; in the informal sector, the poorer ones are exempted, and a flat contribution is defined for those who are able to pay.

As such, the principle of solidarity is embedded in heath financing, as those with higher incomes pay more (in absolute terms). While out-of-pocket expenditure in Swaziland is somewhat lower than in many other African countries, it may still afflict on certain population groups, especially the poor. A SHI would improve this only once these population groups are included in its coverage and to the extent that co-payments are waived for them. To afford this, the health service usage of these groups will ultimately have to be financed from mainly government subsidies and partly from the contributions of the contributing members (from the formal and informal sector). This is in contrast to alternative insurance suggestions that would allow the better-off to purchase private health insurance (often referred to as “Medical Aid Scheme”). Such schemes would not improve coverage and equity in financing or financial risk protection to the poorest. Some of the key differences between PHI and SHI were outlined in Table 5.2).

6.2.2. Financial feasibility

Scenario C charts a way to universal coverage of all Swazi with one social health insurance. Figure 6.3 presents the financial situation of the SHI Fund without government subsidies.

66

Figure 6.3: Financial feasibility for Scenario C, without government subsidies

It is clear and of no surprise that there is a deficit, as soon as everybody is on board of the SHI scheme in 2014. The important deficit is observed when the informal sector comes on the board in 2012. Even though the MOHSW budget for curative care would be maintained (and increase according to GDP growth of 2.5% per year, about 28% over the projection period of 10 years), this is not enough to finance the assumed cost increases of 40% at government and mission/NGO facilities for the planned quality improvements over the projection period. The following table shows the additional subsidies needed to complete the deficit and Figure 6.4 reflects the financial feasibility when that additional many will be mobilized.

Table 6.7: Government subsidies required to address deficit of SHI Fund (in E Mio., current prices) Year Year 1 Year 2 Year 3 Year 4 Year 5

Gvt subsidies

required

Surplus (25.382)

Surplus (1.229)

39.629 118.387 228.497

Year Year 6 Year 7 Year 8 Year 9 Year 10

Gvt subsidies

required

501.347 520.035 558.421 599.352 642.994

In fact, government subsidies in Year 3 could be somewhat lower by using the surplus of the initial two years.

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Figure 6.4: Financial feasibility* for Scenario C, including government subsidies

* As the SHI is also supposed to manage the RSA referral budget, we need to add E 60 Mio. (for 2008, constant prices) to both total income and total expenditure.26 This amount could decrease over the projection period, as the national referral hospital (Mbabane Government Hospital) would increasingly be in the position to offer specialized tertiary care.27 In this Scenario, government funding for health will be directly channelled to the SHI scheme. In whichever scenario, Government funding will be necessary in the future. In other words, a SHI scheme cannot be viable for all Swazi without that government funding. If government does not want to provide direct government subsidies to the SHI scheme, it could continue providing funds directly to the government and NGO/mission facilities. If expenditure is even higher than projected based on the assumptions a deficit would arise. There would be various ways to respond, by either reducing expenditure or increasing income: � Expenditure can be decreased by the following measures:

If unit costs (and hence remuneration rates) would increase less than 40% over the first 6 years, implying less resources for quality improvements, the deficit would be lower. A closer analysis of the required quality improvements, what this will cost and how to realize these, is necessary in any case. Even a 35% increase is quite substantial and may suffice to achieve appropriate quality improvements.

� Income can be raised by the following measure:

The SHI could increase contribution rates for the formal sector or for informal sector workers. As to the latter, contribution rates have been set at two thirds of average

26 For technical/calculation purposes, we cannot include an extra income and extra expenditure for RSA referrals in the simulation. 27 If it decreases, this implies minor adjustments in the utilization rates of the national government referral hospital, SHI expenditure may increase. Decreases in the RSA referral budget could be turned into additional government funding for the national referral hospital.

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household OOP expenditure. The local SimIns projection team assumed that this is still within their ability to pay. Clearly, more information is required on the informal sector workers' ability and willingness to pay for SHI. In total, however, it is assumed that such an increase will not lead to substantially higher SHI revenues.

� Increasing government subsidies

Government subsidies could be increased. Either these come from the original MOHSW budget for curative care or from tax revenue or non-tax revenue or by introducing additional taxes, e.g. sin taxes that are earmarked for health, or from donor funding. However, given that this scenario assumes that the MOH budget for curative care is maintained, it needs to be seen whether the government would wish or would be able to provide additional subsidies from other, new sources. Importantly, the alternatives are not mutually exclusive and can be combined to differing degrees to find the optimal solution for Swaziland.

6.2.3. Government employer contributions to SHI

The government is expected to pay half of the contribution for public service officers in its role as their employer. This amounts to roughly E 60 million in 2009 and increases to E 83 million in 2018 (in current prices) (see Table 6.8). In constant prices, the government's obligations would be decreasing. Table 6.8: Government contributions to SHI in its role as employer of public service officers, in ‘000 E Payments Year 0 Year 1 Year 2 Year 3 Year 4

Current prices 0 60.42983 62.118 63.85283 65.63783

Constant prices 0 57.17133 55.59867 54.07033 52.584

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

69.79 71.88417 76.42833 78.722 81.08217 83.51467

52.8955 51.5445 51.84783 50.52367 49.23217 47.9745

The total amount of contributions by government are decreasing in constant prices over the projection period, as the total population is decreasing and as the share of civil servants of the total population would remain constant, as outlined above in the assumptions. However, if the number of civil servants would not decrease with the same rate as total population, then government contributions for their employees would be somewhat higher over the projection period. As part of labour costs, each ministry and public enterprise would have to pay the contributions for its employees from its salary budget, just like it does for pension contributions and other similar remuneration aspects.

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6.2.4. The structure of health expenditure

Figure 6.5 below shows the resulting structure of total health expenditure in Scenario C. Figure 6.5: The structure of health expenditure in Scenario C (constant prices)

463 475 486 465 416351

177 198 206 214 223

0 0 0 34 95 173

359 353 358 364 3690

94

232

344 353384 387 393 388 382 377

60

60

60

60 6060 60 60 60 60 60

0

5

11

18 19 2

2 23 23 23 23 23

0

200

400

600

800

1000

1200

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Exp

en

dit

ure

in

Mio

. E

"Remaining" MOH expenditure SHI expenditure (based on gvt subsidies)

SHI expenditure (based on contributions) SHI expenditure for RSA referrals

Co-payment

It can clearly be seen that health insurance expenditure (in yellow, orange and dark orange) takes up an increasing proportion of total health expenditure over the simulation period and becomes the dominant health financing mechanism. Large parts of the SHI expenditure are financed by the government subsidies (supposedly coming from the MOHSW budget for curative care - the dark orange part). Hence, as a result, the "remaining" budget to be managed by the MOHSW (in red) has decreased substantially to cater for preventive and promotive health care. The "remaining" MOHSW budget is in practice even somewhat larger, namely by the amount of donations from other donors to the mission/NGO facilities.

6.2.5. Resource flows

Another concern is where health insurance resources go to. The MOHSW emphasized that additional resources mobilized through social health insurance should mainly flow into the GOS facilities 28 in order to finance the required quality improvements. In Scenario C, 27% of SHI expenditure would flow to the private health facilities, whereas the remaining share would go primarily to the government facilities as well as to the NGO/mission facilities.

28 Including NGO and mission facilities, which receive a large share of their finances from the government.

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6.3. Managerial implications for Scenario C

There will be a separate remuneration and payment transfer process for the exempted, as these do not pay co-payments. The SHI pays a remuneration rate equalling to full unit costs for the exempted, whereas for the other insured members, the remuneration rates is the difference between unit costs and co-payment rates. The Scenario C SHI scheme has to develop and establish mechanisms to collect contributions from informal sector workers within Year 0-3. Likewise, the SHI needs to have designed a viable exemption mechanism until Year 6 (2014). It appears that this is sufficient time. In Scenario C, informal sector workers will only enjoy benefits, once they come on board of the scheme as members, and therefore they have to pay. Discussions and negotiations as well as consensus will have to be established in order to determine and agree on which groups of the informal sector would have to become contributing members first.

6.4. Variants of Scenario C

6.4.1. Sensitivity analysis: Variations relative to Scenario C input variables

Annex 4 provides a detailed sensitivity analysis for Scenario C. In it, the following input variables relating to the expenditure side were increased and decreased to see the effect this would have on the results (see Table 6.9). Table 6.9: Variations in variables for sensitivity analyses

Higher expenditure scenario Lower expenditure scenario

Variation relative to Scenario C input

variables

Effect on total SHI expenditure

Variation relative to Scenario C input

variables

Effect on total SHI expenditure

S1: admin costs

+ 20% Increase by 1.8%

-20% Decrease by 1.8%

S2: health care unit costs

+10% Increase by 10% -10% Decrease by 10%

S3: utilization rates

+20% Increase by 20% -20% Decrease by 20%

S4: cumulative (S1+S2+S3)

Higher expenditure variants 1-3 put

together

Increase by 34% Lower expenditure variants 1-3 put

together

Decrease by 34%

6.4.2. Other variants of Scenario C

Higher co-payment rates at private sector facilities

As outlined in Chapter 6.1, higher co-payment rates at private sector facilities should reflect the difference in unit costs at government (as well as NGO/mission facilities) and unit costs at private sector facilities. Thus, to even out this difference, co-payment rates would have to be set at the following levels:

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� Co-payment rate for OP care at private facility: 14.44% (instead of 20% as in Chapter 6.1)

� Co-payment rate for IP care at private facility: 40.6% (instead of 5% as in Chapter 6.1). For OP care, co-payment rates of Scenario C are thus slightly higher, whereas for IP care, the Scenario C co-payment rates are very low, thus not following the financial rationale, but rather considering other factors, like acceptability. With these reviewed co-payment rates, following purely the economic rationale, total expenditure of the SHI Fund would decrease and hence less government subsidies would be required, as outlined in Table 6.10: Table 6.10: Government subsidies for a scenario with higher co-payment rates at private facilities (in E Mio., current prices)

Year Year 1 Year 2 Year 3 Year 4 Year 5

(1) Scenario C Surplus Surplus 39.629 118.387 228.497 Gvt

subsidies

required (2) Adjusted private sector co-payments

Surplus Surplus Surplus 53.088 159.189

Difference between (1) and (2) in % - - - 55% 30%

Year Year 6 Year 7 Year 8 Year 9 Year 10

(1) Scenario C 501.347 520.035 558.421 599.352 642.994 Gvt

subsidies

required (2) Adjusted private sector co-payments

428.012 442.599 476.649 512.998 551.789

Difference between (1) and (2) in % 15% 15% 15% 14% 14%

Table 6.10 also reveals that government could save 15% (for the last 5 years of the projection period) of its government subsidies if co-payment rates at the private sector were set at a level that fully takes account of the unit cost difference between government (and mission/NGO) facilities and private sector facilities. Those wanting to afford and use health car at private facilities would thus face higher copayments. Higher contribution rates

It was also analysed whether higher contribution rates would make government subsidies unnecessary. For that matter, contributions rates for the formal sector were set at 10%, i.e. an increase by 3 percentage points or by 42.8%. Contribution rates were also increased by 10% for the informal sector. Table 6.11 shows that these increases would not suffice to make government subsidies unnecessary; however, the required amount of government subsidies would be substantially lower, given that the deficit is considerably lower and also only starts in Year 5.

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Table 6.11: Surplus and deficit for a scenario with higher contribution rates (in E Mio., current prices)

Year Year 1 Year 2 Year 3 Year 4 Year 5

(1) Scenario C +25.382 +1.229 -39.629 -118.387 -228.497 Surplus

(+) /

Deficit (-) (2) Scenario with higher contribution rates

+78.696 +112.612 +134.154 +63.488 -30.438

Year Year 6 Year 7 Year 8 Year 9 Year 10

(1) Scenario C -501.347 -520.035 -558.421 -599.352 -642.994 Surplus/

Deficit (2) Scenario with higher contribution rates

-294.699 -298.680 -328.714 -360.972 -395.598

6.5. Conclusions for Scenario C

In conclusion, Scenario C is assumed to achieve universal coverage over a period of 6 years, where eventually all people have access to the same comprehensive benefit package. Once universal coverage is achieved, at the end of the projection period, when the poorer part of the population is exempted from contribution payments and co-payments (i.e. no out-of-pocket payments for the SHI benefit package), the likelihood for a Swazi to experience catastrophic illness expenditure, which constitutes one of the greatest risks of being impoverished, is substantially reduced. Furthermore, in this scenario, the Swazi would have access to better health services than currently, if the additional resources mobilized through SHI are adequately turned into quality improvements in health care services. Achieving universal coverage requires government spending on health: The MOHSW budget needs to be maintained to pay for curative health care services at GOS and for parts of mission/NGO services (in constant prices) as well as to transfer subsidies to the SHI fund for the exempted and for the low-income groups. In absolute terms, the MOHSW budget for curative health care would increase in line with inflation and GDP growth. Many low income workers of the formal and informal sector as well as civil servants of lower grades are assumed not to pay more for health care than before (see Table 5.1 in Chapter 5.1). However, their out-of-pocket expenditure is turned into prepayment. This is particularly relevant for the lower grades and salary groups of the formal sector and the public service. They may have faced higher out-of-pocket payments before, which may have put them in a situation where they had difficulties to find money to pay.

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Table 6.12: Comparison between Scenario A, B and C Scenario A Scenario B Scenario C

Key characteristics

Contribution rates 6% for formal sector employees; 3% for pensioners Flat rate of 400 E for informal sector households (in 2008 prices)

6% for formal sector employees; 3% for pensioners Flat rate of 400 E for informal sector households (in 2008 prices)

7% for formal sector employees; 3.5% for pensioners Flat rate of 500 E for informal sector households (in 2008 prices)

Population coverage through SHI

All Swazi: Informal sector is fully integrated and covered within 2 years (2011).

All Swazi: Informal sector to be integrated gradually from Year 3 (2011) up to Year 10 (2018)

All Swazi: Informal sector to be integrated gradually from Year 4 (2012) up to Year 6 (2014).

Benefit package Everybody can access the same benefit package from Year 2 onwards; Insofar as lower income earners are assumed to be unable to pay the higher co-payment rates at private providers, they have less access to private health care.

Once everybody is covered in Year 10, everybody accesses the same benefit package; Insofar as lower income earners are assumed to be unable to pay the higher co-payment rates at private providers, they have less access to private health care.

Once everybody is covered in Year 6, everybody accesses the same benefit package; Insofar as lower income earners are assumed to be unable to pay the higher co-payment rates at private providers, they have less access to private health care.

Quality improvements

Quality improvements in service provision at government and mission/NGO facilities are financed through increased remuneration rates. This increase by 50% over 5 years.

Quality improvements in service provision at government and mission/NGO facilities are financed through increased remuneration rates. This increase by 50% over 5 years.

Quality improvements in service provision at government and mission/NGO facilities are financed through increased remuneration rates. This increase by 40% over 6 years.

Financial protection Those in the informal sector who are unable to pay are exempted from SHI contributions and co-payments from Year 2 onwards.

Those in the informal sector who are unable to pay are exempted from SHI contributions and co-payments; this happens gradually from Year 5 to 10.

Those in the informal sector who are unable to pay are exempted from SHI contributions and co-payments; this happens from Year 6 onwards.

Catastrophic expenditure

Risk of encountering catastrophic expenditure minimized from Year 2 (although low-income formal sector employees may struggle to pay co-payments)

Risk of encountering catastrophic expenditure minimized (although low-income formal sector employees may struggle to pay co-payments) at the end of the projection period.

Risk of encountering catastrophic expenditure minimized (although low-income formal sector employees may struggle to pay co-payments) at the end of the projection period.

MOHSW budget for curative care

Needs to be maintained at its current level (in constant prices!)

Needs to be maintained at its current level (in constant prices!)

Needs to be maintained at its current level (in constant prices!)

Government subsidies

Indirectly: Through government funding taking up large parts of the health care costs at government and NGO/mission facilities.

Directly: Through government subsidies for the exempted and additional government subsidies for low-income earners.

Directly: Through government subsidies for the exempted and additional government subsidies for low-income earners.

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Scenario A Scenario B Scenario C

Key implications

Expenditure by MOHSW and SHI (including RSA referral budget)

At the end of the projection period (2018): E Mio. 970 (constant prices for 2008)

At the end of the projection period (2018): E Mio. 970 (constant prices for 2008)

At the end of the projection period (2018): E Mio. 1029 (constant prices for 2008). Expenditure in Scenario C is higher because of higher contribution rates resulting in more additional resources collected.

Contributions by government (as an employer)

Year 1 (2009): E 51.8 million/year

Year 10 (2018): E 71.6 million/year (current prices)

Same as in Scenario A Year 1 (2009): E 60 million/year

Year 10 (2018): E 83 million/year (current prices)

Equity in health care access

All Swazi have access to health care and the same benefits from Year 2.

All Swazi have access to health care and the same benefits from Year 10.

All Swazi have access to health care and the same benefits from Year 6.

Equity in financing across the whole population

Household health care expenditure is based on the principle of ability-to-pay. Feasibility considerations require flat contribution payments in the informal sector, against the strict application of the ability-to-pay principle.

Household health care expenditure is based on the principle of ability-to-pay. Feasibility considerations require flat contribution payments in the informal sector, against the strict application of the ability-to-pay principle.

Household health care expenditure is based on the principle of ability-to-pay. Feasibility considerations require flat contribution payments in the informal sector, against the strict application of the ability-to-pay principle.

Key trade-offs

Labour costs Increase through the employer's contribution share 50% of 6% = 3%

Increase through the employer's contribution share 50% of 6% = 3%

Increase through the employer's contribution share 50% of 7% = 3.5%

Employment effects Employers may try to shift employment into the informal sector. Increased labour costs may be considered as a threat to competitiveness

Employers may try to shift employment into the informal sector. Increased labour costs may be considered as a threat to competitiveness

Employers may try to shift employment into the informal sector. Increased labour costs may be considered as a threat to competitiveness

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7. Conclusions

7.1. Feasibility of Social Health Insurance

Universal coverage for all Swazi appears to be feasible and financially sustainable in principle, if the current funding levels provided by the MOHSW budget to GOS and NGO/mission health facilities are maintained (in constant prices), and increased in line with inflation and GPD growth. Such a scheme is thus much more comprehensive and equitable than earlier concepts of a medical aid scheme for civil servants only. In fact, the proposed scheme is able to offer better quality services to all Swazi, while increasing equity in access and equity in financing. The financial projection scenarios require government funding. In Scenario C, government funds flow directly to the SHI to subsidize the contributions for the exempted and for the low-income members. There is no financial deficit as the flow of government funds is budgeted in a way to avoid this. However, the financial feasibility as projected with the SimIns tool goes hand in hand with sound institutional design of the SHI: � There must be no contradictions in the institutional design features (Chapter 5.1.-5.5.). � These institutional design features must be properly implemented � An appropriate regulatory framework must be in place (Chapter 5.6.). � Of particular concern is the future role of private health insurance, as outlined in

Chapter 5.2.4. Ideally, it is turned into supplementary private health insurance that gives better-off income groups the voluntary possibility to purchase top-up plans (for "hotel"-related hospital aspects).

Foremost, the vision of extending coverage to all Swazi needs to be built into the key design features right from the beginning; otherwise it is likely that the key design - i.e. the architecture of the SHI scheme - will turn out to incorporate institutional contradictions that make the scheme more prone to fail. To meet these requirements, sufficient time for planning and preparation is required. Likewise, the necessary resources to meet these conditions need to be available. In general, a slower pace of introducing SHI is therefore preferred over a quick process in order to ensure better design and implementation. This is because there are many issues that require careful thinking, planning, preparation, before SHI can work. Also, unless the legislation and regulatory framework as outlined above is in place, it would be difficult to get a SHI scheme running successfully.

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7.2. Key decisions to be taken by Government

The Government is advised to take key decisions in the following areas:

� The type of health financing, i.e. the decision to favour social health protection via social health insurance, but with continued financial support from Government to the health sector, rather than a pure tax-based system;

� The type of SHI, i.e. who is covered how quickly. The three scenarios provided sketch out difference options: Scenario A ("SHI for all Swazi - rapid transition to universal coverage", within 2 years), Scenario B ("SHI for all Swazi - with gradual extension to the informal sector", over 10 years), Scenario C ("Phased SHI for all Swazi", within 6 years) or variants of it;

� The type of governance structure of the SHI fund; � The type of management structure of the SHI fund.

Once these key decisions are made and if the government opts for a SHI, the Government will also have to take decisions with respect to critical key design issues and to negotiate with the respective stakeholders: � The level of exemption from contribution rates � The contribution rate, i.e. the percentage of payroll deductions � The contribution rate for specific population groups, such as pensioners and informal

sector workers � The type of provider remuneration mechanism, i.e. the way providers are remunerated

by the SHI fund � The provider remuneration rates, i.e. the funding providers receive for their services � The co-payment levels, i.e. the amount of money SHI members have to pay directly � The level of exemption from co-payments � The maximum rate of administration costs and the level of reserves As such, the government also needs to be explicit and find a consensus regarding the financial feasibility assumptions and whether these are low-cost or high cost (compare Chapter 6.4 and Annex 4). Two other critical issues to define and decide upon are the future role of private health insurance and of the medical referral schemes (Civil Servants Medical Referral scheme and Phalala Fund): � Ideally, private health insurance companies' role is that of complementary health

insurance; in other words all Swazis are members of the social health insurance, and those who can afford it can purchase a top-up insurance package for mostly "hotel"-related aspects (private rooms with better equipment and facilities; additional coverage of extra services that are not covered by the SHI).

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� As RSA referrals - based on clearly defined criteria and proceedings - should be included in the SHI benefit package, one option is to transfer parts or all funds of the Phalala Fund and the Civil Servants Medical Referral Scheme to the SHI fund. The projected budget required for RSA referrals would amount to E 60 million (in 2008 prices).

7.3. SHI Implementation Plan

Finally, the government needs to develop and agree upon an implementation schedule to establish step by step the SHI scheme and the agency with personnel. This could ideally translate into an explicit "Implementation Project". There are substantial costs involved in setting up the scheme, such as investments in infrastructure and administration and training of staff in the various management and administration skills. Donors could also provide financial support and technical assistance for these start-up costs or for covering specific diseases in the benefit package. The SHI implementation plan needs to go hand in hand with other important reform activities. Areas that should be addressed comprise: � Health sector strategic planning � Quality management � Drug procurement � Degree of managerial and financial autonomy of hospitals and facilities � Human resource development and motivation strategies � Strategies to retain and attract Swazi specialist doctors in the country � Public-private partnership to exploit synergies, e.g. with respect to sharing high tech

equipment Another important aspect during the planning and implementation stage is to assess experiences from other countries that have been introducing or expanding social health insurance schemes or that consider to do so, such as Rwanda, Ghana, Kenya, Tanzania and Lesotho. Thailand, Philippines and Korea may also provide valuable lessons from Asia in moving to universal coverage. Learning from other countries' experiences and sharing ongoing practice is thus an important exercise in this process. It is important to set up a team within the MOHSW that is in charge of leading and guiding the planning and implementation process. At the same time, an inter-ministerial group could be institutionalized, comprising the Ministry of Health and Welfare, Finance, Economic Planning, Public Service and Information, Employment, and others as required. Furthermore, the already established SHI Technical Working Group is of great importance. Again, there is need to strengthen and institutionalize this group in order to ensure continuity of members' participation and of the group as a total. Terms of references and objectives, membership appointment proceedings as well as decision-making rules should be established.

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Furthermore, the financial projections need to be regularly updated. Foremost, once negotiation starts with the various stakeholders and providers, some adjustments in assumptions and input variables may be required.

7.3. Further success requirements

One of the key assumptions and success factors for SHI to be feasible in Swaziland is that quality of services in GOS and NGO/mission facilities improve substantially, and that health workers are motivated. Furthermore, the following aspects are critical: • The SHI must be governed and managed in an efficient and accountable way; the

quality of its governance is of utmost importance. • A dialogue on SHI needs to take place in order to build widespread consensus. • All stakeholders need to become more familiar with the principles of SHI. • There must be a strong lead actor who is in charge of SHI design, planning,

preparation and implementation. • All key stakeholders need to be involved in the design, planning, implementation,

monitoring of SHI; a strong SHI TGW needs to be set up. • The SHI requires a well-functioning national referral hospital. • People must have trust in the Shi scheme and for that matter, strong monitoring and

anti-corruption measures are required.

7.4. Challenges and open questions

It is important to be aware of a number of challenges with respect to realizing a SHI scheme. While these challenges are not insurmountable, they require careful reflections and planning on the design and implementation of SHI. • High unemployment rate and job instability • Low incomes limiting the ability to contribute • Large extended families • Registration of informal sector and farmers • Collection of contributions from informal sector, and how to assess their incomes • Fragmented trade unions and professional associations • Administrative capacity of the purchaser • Administrative capacity of providers (with respect to contracting, claims management) • Trust among the various stakeholders • Lack of or inadequate infrastructure, limiting access to health care, especially in rural

areas Again, donor support and technical assistance could contribute to overcoming some of these challenges. Furthermore, the following critical questions need to be addressed: • How to increase rather quickly the quality of health care services to make SHI

contributions attractive? • What to do over the next 5 years until the national referral hospital is upgraded?

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The government will have to convince the population that it is capable together with the other health partners (private providers and NGO/mission facilities) to ensure noticeable improvements in the quality of care with a short time. While not each and every quality improvement measure requires additional funding and while improvements in health sector management (such as drug procurement and hospital organization) are equally critical, there is nevertheless overall the need to mobilize additional resources in order to finance necessary quality improvements. Focusing on quality improvements first, whilst postponing the introduction of SHI for some years until health care quality has improved, may not necessarily be a viable option from both a political and financial perspective.

7.5. Summary of recommendations on key design issues for a planned SHI scheme

This section summarizes again the recommendations on key issues for a SHI scheme (see Box 7.1). As noted above, these are based and derived from the stakeholder views gathered during the consultations, on the discussions held with the Ministry of Health and other ministerial stakeholders as well as on the feasibility assessment and reflections by the mission team. Box 7.1: Key assumptions and possible institutional design for establishing a SHI for all Swazi (Scenario C)

Key design issues for establishing a SHI for all Swazi

Resource collection:

� The MOHSW budget is maintained (in constant prices). � Resources mobilized through SHI do not replace but complement existing government

funding. � SHI resources are based on contributions by members. (Chapter 5.1.1)

Contribution rates:

� The formal sector employees (public service officers, formal sector employees and pensioners) pay a uniform contribution rate based on their salary (7%, except pensioners: 3.5%).

� Contributions are shared between employees and employers at 50/50. � Informal sector workers (including the unemployed) pay a flat contribution amount of

E 500 (in 2008 prices), which would be adjusted over the following years due to inflation.

� The poor (including orphans and other vulnerable groups without any income) are exempted from contributions, namely 40% of informal sector workers, as they are unable to pay contributions.

(Chapter 5.1.2)

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Extension of coverage:

Formal sector: � All public sector and public enterprise officers become SHI members in Year 1. � Private sector employees join the SHI scheme in Year 2 and 3 (50% in each year). � All pensioners join in Year 1.

Informal sector: � Informal sector workers gradually join the SHI scheme, starting in Year 4 � Initial suggestions for the extension schedule: Year 4: Vendors, taxi/bus drivers and home workers (20% of all informal sector workers) Year 5: Farmers (30% of all informal sector workers) Year 6: All remaining informal sector workers (50%) From Year 6 onwards: 40% of informal sector workers are exempted (Chapter 5.2.1) Membership:

� Membership is mandatory, i.e. all population groups will eventually join the SHI scheme. Opting-out to join private health insurance should not be made possible.

� Membership is family based, i.e. children below 18 and other dependents (e.g. orphans) or other adult dependents (first grade relatives living in the same household without their own income) are covered (Chapter 5.2.1).

Pooling: � The GOS establishes one SHI agency that pools contributions from public service

officers, private sector employees, pensioners and at a later stage from informal sector workers.

(Chapter 5.2.3) Benefit package:

� The benefit package comprises of all essential outpatient and inpatient care at GOS and NGO/mission health facilities and private providers.

� Specialized care for specific cases could be obtained in RSA on the basis of referral through the Mbabane Government Hospital.

(Chapter 5.3.1) Provider payment mechanism:

� Health care providers could be remunerated on the basis of a combination of capitation and flat case payments, the latter serving for high cost services.

� It is noted that a fee-for-service remuneration is not advisable. � The detailed payment structure and managerial proceedings need to be elaborated to

ensure that health facilities receive their facility income through both the existing channel of MOSHW budget transfers and the new capitation/flat payment system in parallel. This includes establishing or strengthening clear accountability channels for heads/managers of health facilities.

� There may be an element of better payments for increased performance. (Chapter 5.3.2)

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Provider remuneration rate:

� Based on more detailed unit cost information, the government sets capitation-based remuneration rates and flat (case) payment rates for health providers.

(Chapter 5.3.3) Contracting:

� The SHI scheme could offer contracts to all accredited health care facilities that provide services to SHI members to clearly spell out rights and obligations of both sides.

(Chapter 5.3.4) Accreditation and quality management:

� Accreditation should be applied to all health care providers. � Accreditation could become a precondition for contracting. (Chapter 5.3.5)

Governance and management of the SHI agency:

� Governance and ownership of the SHI fund could be semi-public or autonomous. � The supervisory board should encompass a wider range of different stakeholders

representing various ministries and government institutions, professional associations/trade unions, provider associations as well as other civil society representatives.

� The management of the SHI agency could be undertaken by a parastatal agency. (Chapter 5.4)

Legislation:

� It is recommended that the MOHSW develops a SHI Law, jointly with other ministries. (Chapter 5.6)

Specific recommendations for the SHI Implementation:

� The SHI TGW's membership, Terms of Reference, objectives, and decision-making rules should be defined.

� Inter alia, it should be composed of: - Senior staff from the MOHSW - Senior staff from the Ministry of Employment and Enterprise (social security experts) - Senior staff from the Ministry of Finance (macroeconomist/fiscal experts) - Resource persons with expertise in specific issues, including actuarial analysis. - Stakeholders and representatives from civil society � The SHI TGW should be strengthened institutionally and technically to be better

prepared to the tasks ahead such as policy discussions, preparing policy documents for decision-makers, assessing the financial feasibility study, overseeing further financial projection activities.

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� Small sub-groups of the SHI TWG, with additional resource persons from government and non-government organizations could be set up to work on specific issues and questions.

� An inter-ministerial group with senior technical/managerial staff should be established. � A SHI team/unit should be set up within the MOHSW to coordinate and steer the SHI

planning and implementation process. � Development partners should be involved in future consultations and discussions on

SHI to get their financial and technical support. � An awareness raising campaign needs to be developed, which is tailored to the specific

information needs and group interests of the various target groups, namely: - Potential beneficiaries from the formal and informal sector - Providers - Government stakeholders, - Other non-governmental actors - The very high-income earners and those with a private health insurance plan.

� The existing household survey data should be analysed to gather more detailed

information on household health expenditure per quintile as well as on the percentage of Swazi households facing catastrophic expenditure and impoverishment. This information may contribute to strengthening the arguments and objective of the MOHSW to introduce a SHI.

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