By Heidi Kruger: BHF Head of Corporate Communications & PCNS
The medical schemes industry in South Africa has experienced no real growth in coverage in the last 2 decades with membership stagnating at approximately 7 million lives. But the spend within the private healthcare sector has increased significantly, sitting at approximately R50 billion for 2006.
In contrast, with a spend of roughly R36 billion, the public health sector provides healthcare for the remaining 84% of the population.
It is no wonder then that government is at pains to pursue its goal of a Social Health Insurance, which, through income cross subsidisation, risk cross subsidisation, mandatory cover, the development of low income schemes and addressing alocative inefficiencies in the private sector will cover up to 15 million lives.
Private healthcare funding in the form of medical schemes have come full circle in South Africa since the first scheme was established in 1889 for the employees of de Beers diamond mines and which functioned on the basis of solidarity principles.
But although a plan for a national health service was proposed for South Africa in 1944, which would comprise free health care for all, it was never implemented. Instead, by 1960, one hundred and sixty medical schemes had emerged, covering nearly 80% of the urban middle class white people, and drifting away from the solidarity principles which defined the original schemes, towards individualised cover. By 1980 the number of schemes had grown to such an extent that there was an inadequate spread of risk and pressure began to build to allow greater flexibility in contribution rate determination for different types of risk. By 1999, few open medical schemes permitted any individual over the age of 55 to join, applying age-rating and experience rating and often applying lifetime exclusions for pre-existing conditions. Member contributions were based on number of dependents, income level, age, geographic area, actual claims experience, extent of cover provided, period of membership and the size of the group to which the member belonged.
Despite the widespread application of risk-rating however, due to practices such as the fee-for-service model of reimbursement to healthcare practitioners, healthcare costs and non-healthcare costs continued to rise.
In 1994 the ANC Health Plan envisioned NHI for the country, However in the period immediately after the first democratic elections in 1994, the proposals were watered down to the notion of SHI. In 1995, a Committee of Enquiry into SHI recommended a change in strategic direction which included the proposal that the regulatory structure should reinforce the agency function of the third-party payer, i.e. medical schemes; that the regulatory structure should reinforce uniformity in the benefit structure of medical schemes, enabling consumers to make informed decisions in their own favour; that schemes should operate on the basis of solidarity, i.e that groups within a scheme should not be treated differently; and, that the overall system should create a system of risk-sharing between as large a group as possible, ensuring a minimum level of cover for all be they in the private or the public sector.
This change in policy direction heralded the return to solidarity principles, and paved the way for the first steps towards a Social Health Insurance system for South Africa. In 1998, under the new Medical Schemes Act a set of prescribed minimum benefits, consisting of a basket of 271, mostly hospital based conditions which had to be funded in full by every medical scheme, were introduced. Also introduced was legislation which enforced community rating and voluntary enrolment, forcing medical schemes to accept anyone who applied for membership and to charge the same premium to every member within an option, despite their age or state of health. To reduce anti-selection however, schemes were permitted to apply waiting periods and penalties to those members over a certain age joining a scheme for the first time. In 2001 a further 25 chronic conditions were added to the list of prescribed minimum benefits.
Despite these reforms, however, in 2000 the World Health Organisation reviewed the health systems of 191 countries on aspects such as; responsiveness; fairness of contribution; levels of health achieved; and, the overall health system achieved compared to health system expenditure. South Africa was ranked 175th due to its lack of efficiencies in both the private and the public sector.
The second step towards a Social Health Insurance for South Africa was announced in 2004 when the Minister of Health stated the list of issues on the unfinished reform agenda, namely; risk-related cross-subsidies, income-related cross-subsidies and mandatory cover.
Risk-related cross subsidies:
Policy makers concur that true community rating applies not only to the options within a scheme but to the industry as a whole and that the way to achieve this is through a Risk Equalisation Fund. Risk equalisation on this scale will ensure that all members of medical schemes will pay the same industry community rate for the common package of benefits and that those schemes previously able to design and market themselves in such a way that they attract younger and healthier people, at the expense of those schemes with older and less healthy people, will have to compete on the basis of cost-effective healthcare and not the risk profile of their members. An international review panel consisting of a panel of experts from six countries supported the need for risk equalisation but recommended that a revised set of minimum benefits be developed and that medical schemes standardise their benefits, thereby making medical schemes more user-friendly to consumers and reducing administration work.
More recently, however, the debate around the revision of the basic set of benefits has broadened to include the requirements in the Health Charter for a standard set of benefits, the public sector’s set of norms and standards and the basic package and the SADC policy goals for standardisation across the region.
Income-related cross-subsidy
Until recently, the tax expenditure subsidy to private sector healthcare in the form of tax deduction on medical scheme contributions has been regressive, providing higher income earners greater tax deductions, resulting in the average and lower income groups being disadvantaged. New tax reforms, which came into play in 2006 and which introduced a fixed subsidy per beneficiary have begun the swing to a more progressive tax system which benefit lower income families thereby creating an incentive to join medical schemes.
Alternatives for further tax reforms include monthly payroll contributions which will cover the full set of the basic set of benefits for some 10 million employed people. Under this model, members of medical schemes would pay only a percentage of their contributions to the medical scheme for benefits over and above the basic package.
Mandatory cover:
Government echoed the recommendations made by the International Review Panel for mandatory cover, with the former DG of Health stating “…I am therefore very pleased to inform you that we are more committed to mandatory contributions than we have ever been in the past. First, we have addressed some of the key constraints that prevented us from implementing any sort of mandatory cover in the last decade. Secondly, we have won the commitment of our political principals to move towards this very significant change in the structure of healthcare financing in this country.”
The newly established Government Employers Medical Scheme has beaten the path for mandatory cover by making it a condition of employment for all new entrants into the civil service to join the scheme. But with the constant spiral in the cost of private healthcare, government has been forced to offer subsidies of up to 75% to its employees to make belonging to its medical scheme affordable.
It is clear therefore that the aspect of affordability is the stumbling block to mandatory cover and if the government is to achieve its vision of a Social Health Insurance where 15 million of our population is covered by private healthcare, appropriate low-cost products will have to be developed and greater tax reforms must be implemented.
The newly released Medical Schemes Amendment Bill begins to address these stumbling blocks with proposals for addressing issues relating to healthcare benefits and makes provision for the establishment of lower income medical schemes. Under the proposed amendment, the Minister of Health will be empowered to prescribe variations to regulations pertaining to medical scheme products which cater specifically for low income persons - vital if the industry is to grow.
