SOCIAL HEALTH INSURANCE POLICY

DIRECTIONAIDS LAW PROJECTAIDS LAW PROJECT

10 February 200410 February 2004

Presentation

Brief contextBrief context Taylor Committee proposalsTaylor Committee proposals Departmental positionDepartmental position SHI DescriptionSHI Description Work planWork plan

Policy Context cont.

SA - Health System 2002/2003SA - Health System 2002/2003

Public sector

R33.2 billion

Private sector

R43 billion

Serves 6.9 m

Pcap = R6231.88

R519.32 pmpb

Serves 37.9 m

Pcap = R875.98

R72.99 pm pp

Policy Context

Public sectorPublic sector Private sectorPrivate sectorCoverCover Indigent (pop. growth)Indigent (pop. growth)

Low-income (pop. growth)Low-income (pop. growth)

High income (no change)High income (no change)Good risks (no change)Good risks (no change)Poor risks (decrease)Poor risks (decrease)

Burden of Burden of diseasedisease

HIV/AIDSHIV/AIDSInfectious Infectious CommunicableCommunicableChronicChronic

HIV/AIDS (limit cover)HIV/AIDS (limit cover)Infectious (na)Infectious (na)Communicable (na)Communicable (na)Chronic (reduce cover)Chronic (reduce cover)

ProvidersProviders MedicalMedical

NursingNursing

PharmacyPharmacy

Key Strategic Challenges Inequity in access to health careInequity in access to health care

Ensuring that public health system remains backbone of Ensuring that public health system remains backbone of SA health system care SA health system care

Address systematic cost increases Address systematic cost increases

Develop low-cost market – address high private hospital Develop low-cost market – address high private hospital costscosts

Reduce financial risk to individuals at the time of accessing Reduce financial risk to individuals at the time of accessing health carehealth care

Concept of social security

Three basic pillarsThree basic pillars Pillar 1: Pillar 1:

basic social endowment for all citizens basic social endowment for all citizens Pillar 2: Pillar 2:

contributions from those able to contribute over and contributions from those able to contribute over and above pillar 1above pillar 1

Pillar 3: Pillar 3: social security-type benefits that are more discretionary social security-type benefits that are more discretionary

in naturein nature

Health interventions

Pillar 1Pillar 1 Free health care for children <6Free health care for children <6 Free health care for pregnant womenFree health care for pregnant women Free primary health care servicesFree primary health care services Free health care for disabledFree health care for disabled

Pillar 2: Pillar 2: Social health insuranceSocial health insurance

Pillar 3: Pillar 3: Voluntary medical schemesVoluntary medical schemes

Characteristics Of NHI and SHI

Mandatory contributions for entire population or certain groups Mandatory contributions for entire population or certain groups like (public sector employees)like (public sector employees)

Usually employment related, payroll deductionsUsually employment related, payroll deductions

Contributions from employers and employeesContributions from employers and employees

Premiums are income related and benefits are standardizedPremiums are income related and benefits are standardized

Creates large risk pool and avoids adverse selectionCreates large risk pool and avoids adverse selection

Cross subsidization (healthy and the sick, wealthy and poorCross subsidization (healthy and the sick, wealthy and poor

NHI versus SHI

National health insuranceNational health insurance Benefits for contributors and non-contributorsBenefits for contributors and non-contributors Cross subsidies, dedicated health taxCross subsidies, dedicated health tax

Social Health InsuranceSocial Health Insurance Benefits contributors onlyBenefits contributors only Can increase resources available for public Can increase resources available for public

heath careheath care

Key departmental objectives Strengthen public health care system by Strengthen public health care system by

increasing revenueincreasing revenue Obtain prepaid contributions from those who Obtain prepaid contributions from those who

can paycan pay Reduce inequities in health care financingReduce inequities in health care financing Improve access of lower income groups to Improve access of lower income groups to

quality health carequality health care

Taylor Committee proposals

Four key policy proposals:Four key policy proposals: Move towards NHIMove towards NHI State medical insurance, risk equalisation, State medical insurance, risk equalisation,

social health insurancesocial health insurance Tax subsidy reform, cross subsidisationTax subsidy reform, cross subsidisation Recentralisation of health budgetRecentralisation of health budget

Departmental position

We still require significant tax funding for We still require significant tax funding for public health sectorpublic health sector

Need to compare progressivity of tax Need to compare progressivity of tax funding versus NHIfunding versus NHI

For the medium term,will only commit to For the medium term,will only commit to SHI SHI

State medical insurance

Taylor Committee proposals:Taylor Committee proposals: State-sponsored medical schemeState-sponsored medical scheme

Low cost for low income earnersLow cost for low income earners Sets benchmark price for minimum benefitsSets benchmark price for minimum benefits Benefits in differentiated amenities in public hospitals Benefits in differentiated amenities in public hospitals

plus private primary careplus private primary care

State medical insurance

Taylor Committee proposalsTaylor Committee proposals Civil service medical scheme coverCivil service medical scheme cover

Dedicated low cost restricted scheme Dedicated low cost restricted scheme Compulsory under employer mandateCompulsory under employer mandate Benefits similar to state-sponsored schemeBenefits similar to state-sponsored scheme Could evolve into state-sponsored schemeCould evolve into state-sponsored scheme

State medical insurance

Taylor Committee proposalsTaylor Committee proposals Risk equalisationRisk equalisation

Below average risk schemes contribute Below average risk schemes contribute above average risk schemes receiveabove average risk schemes receive

Enlarges risk pool, schemes compete on Enlarges risk pool, schemes compete on cost and quality rather than risk selectioncost and quality rather than risk selection

Aims to stabilise medical scheme marketAims to stabilise medical scheme market

Mandatory medical scheme cover

Taylor Committee proposalsTaylor Committee proposals Mandate to begin with high income Mandate to begin with high income

earners /qualifying employersearners /qualifying employers Voluntary membership for othersVoluntary membership for others Out of pocket fees for public hospital Out of pocket fees for public hospital

treatment in basic amenities abolishedtreatment in basic amenities abolished Low income mandates after high income Low income mandates after high income

mandatemandate

Department response

Endorse general approachEndorse general approach One state scheme, should evolve from civil One state scheme, should evolve from civil

service schemeservice scheme Support SHI, not ready to commit to NHISupport SHI, not ready to commit to NHI Accept abolition of out of pocket fees, Accept abolition of out of pocket fees,

except possibly bypass feesexcept possibly bypass fees

Departmental response

We endorse:We endorse: SHI plus tax funding SHI plus tax funding Incremental mandates for medical scheme Incremental mandates for medical scheme

membershipmembership Civil service medical scheme as starting Civil service medical scheme as starting

pointpoint Civil service scheme to evolve to state-Civil service scheme to evolve to state-

sponsored schemesponsored scheme

Departmental response

Basic minimum floor of benefits should be Basic minimum floor of benefits should be establishedestablished

Mandatory benefits = Prescribed minimum Mandatory benefits = Prescribed minimum benefits plus primary health care servicesbenefits plus primary health care services

SHI in SA context

Government mandated health insuranceGovernment mandated health insurance Income cross-subsidies among contributorsIncome cross-subsidies among contributors Risk-related cross-subsidies among Risk-related cross-subsidies among

contributorscontributors

Risk Related Cross subsidies

MSA requires all schemes to provide PMB for all MSA requires all schemes to provide PMB for all scheme membersscheme members

Scheme have different risk profiles, resulting in Scheme have different risk profiles, resulting in different cost structuresdifferent cost structures

Research done by CARE found that price of PMB in Research done by CARE found that price of PMB in one scheme was 17% cheaper while for another one scheme was 17% cheaper while for another scheme 130% more expensive than industry scheme 130% more expensive than industry average, just because of different age profilesaverage, just because of different age profiles

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

Risk Related Cross subsidies

Risk equalisation should ensure that all medical Risk equalisation should ensure that all medical scheme members face the same community price for scheme members face the same community price for PMB’sPMB’s

It should:It should: remove the incentives for remove the incentives for medical schemesmedical schemes to select to select

preferred risks, by ensuring that eachpreferred risks, by ensuring that each scheme scheme must must bear the cost of a risk profile equal to the risk bear the cost of a risk profile equal to the risk profile of all profile of all coveredcovered lives. lives.

Create incentives for schemes to improve its Create incentives for schemes to improve its efficiencies and cost controls, by not incorrectly efficiencies and cost controls, by not incorrectly penalising efficient schemes.penalising efficient schemes.

Income Cross subsidies

In most countries with social insurance systems, In most countries with social insurance systems, contributions tend to be based on income contributions tend to be based on income

High income earners cross-subsidise low income High income earners cross-subsidise low income earnersearners

In SA, medical scheme contributions are In SA, medical scheme contributions are community rated community rated

Income related cross subsidies difficult to achieveIncome related cross subsidies difficult to achieve Need to change tax subsidy to improve income Need to change tax subsidy to improve income

cross subsidiescross subsidies

Income Cross subsidies

Tax deductions on medical scheme contributions, Tax deductions on medical scheme contributions, and the tax deductions on medical expenses in and the tax deductions on medical expenses in excess of 5% of income estimated at R7,8 billionexcess of 5% of income estimated at R7,8 billion

Impact is regressive b/c of link to contributionsImpact is regressive b/c of link to contributionsOut of pocket expenditure may be more progressive, Out of pocket expenditure may be more progressive,

but depends on submission of tax returnsbut depends on submission of tax returnsNeed to restructure this subsidy to achieve greater Need to restructure this subsidy to achieve greater

subsidies for lower-income earnerssubsidies for lower-income earners

Income and risk-related cross subsidies Support restructuring of tax subsidy, but Support restructuring of tax subsidy, but

with greater subsidies for lower-income with greater subsidies for lower-income earnersearners

Support risk equalization to stabilize Support risk equalization to stabilize medical scheme environment and prevent medical scheme environment and prevent schemes from profiting via risk selectionschemes from profiting via risk selection

Budget Centralisation

Budget centralisation to follow a political Budget centralisation to follow a political processprocess

Will enlist Treasury support for Will enlist Treasury support for implementation of revenue retention implementation of revenue retention framework in all provincesframework in all provinces

Supporting policies

Preparation of public hospitalsPreparation of public hospitals Hospital revitalisation projectHospital revitalisation project Designated provider network pilotDesignated provider network pilot Civil service scheme developmentCivil service scheme development

Revenue retention policy developmentRevenue retention policy development

Programme of work 2004

Sign DSPN contracts with medical schemes 1 Sign DSPN contracts with medical schemes 1 April 2004April 2004

Finalise technical work on Risk Equalization and Finalise technical work on Risk Equalization and income cross subsidy issuesincome cross subsidy issues

Support DPSA process to implement civil service Support DPSA process to implement civil service medical scheme medical scheme

Obtain Treasury support for revenue retention Obtain Treasury support for revenue retention enforcementenforcement

Finalise policy decision on phasing of mandatory Finalise policy decision on phasing of mandatory covercover