Affordability of Health Insurance National Health Insurance Policy Brief 9 Affordability of Health Insurance 28 February 2010

Income and Social Security Considering whole population, 74.3% do not have any earnings. Roughly 1/3 of those are children under age 20 and 1/3 are receiving some social grant. Only 9.0% of the population earn above the tax threshold. Source: Using GHS2008 data from StatsSA

Income and Social Security Whole population by age and gender: 74.3% do not have any earnings and 24.6% are receiving some social grant. Only 9.0% of the population earn above the tax threshold. Source: Using GHS2008 data from StatsSA

Income and Social Security Whole population by age and gender: 74.3% do not have any earnings and 24.6% are receiving some social grant. Only 9.0% of the population earn above the tax threshold. Fewer women are earning and proportionately more are in receipt of the Old Age Pension. Source: Using GHS2008 data from StatsSA

Income and Social Security Medical Scheme Membership There are significant numbers of people earning above the tax threshold but not on medical schemes in the voluntary environment: estimate 1.772 million. There are 2.600 million who earn above the tax threshold and are on medical schemes. Source: Using GHS2008 data from StatsSA

Income and Social Security Medical Scheme Membership Only 59.5% of people earning above tax threshold are on medical schemes in the voluntary environment. Source: Using GHS2008 data from StatsSA

Income and Medical Scheme At the highest income levels, some 80% of people are on medical schemes. This reduces to just under 40% just above the Tax Threshold of R3,833 per month in 2008. Average is 59.5% for all groups earning above the Tax Threshold. Source: Using GHS2008 data from StatsSA

Income and Medical Scheme There are large numbers of people in the two income bands just above the tax threshold who are not yet on medical schemes. Potentially, 1.009 million people earning between the Tax Threshold and R6,500 per month. Family members are not included in this calculation. Source: Using GHS2008 data from StatsSA

Households and Medical Scheme Coverage If everyone in a household where there is currently at least one medical scheme member were to join, total coverage would increase from 7.731 million to 9.866 million or an increase of 2.134 million people. Source: Using GHS2008 data from StatsSA

Households earning above Tax Threshold and Medical Schemes If everyone in a household where there is currently at least one person earning above the tax threshold were to join, total coverage would increase from 7.731 million to 15.533 million or an increase of 7.802 million people (a doubling of membership). This is an upper estimate as the definition of cover is all members of the household and not the “insurable family”. Over 65s only covered if risk equalisation implemented. Source: Using GHS2008 data from StatsSA

Illustration of Affordability Family of four: two adults and two children. Earning an illustrative level of income. Eight income groups. Purchasing typical health insurance products in the market in 2007. One person earning and paying income tax. Using 2008/9 income tax tables, revised to 2007. Social security contribution for health of 4.1% of income. Covers existing Prescribed Minimum Benefits. Extra social security contribution for extra R10 of benefit package is 0.53% of income. Flexibility to look at other family structures (important for tax and subsidy incidence). Flexibility for different year for tax treatment.

Current Affordability Problems Comprehensive package unaffordable except for highest income. People self-select to packages that are more affordable, largely because of reduced benefits. Demographic effect as well: younger and healthier in low cost packages. Source: McLeod and Grobler (2009), The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa

Current Tax Subsidies for Health Tax break has no impact on people earning below tax threshold. Has biggest impact for highest income group. Source: McLeod and Grobler (2009), The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa

Remove Tax Break and Replace with Per Capita Subsidy This has a dramatic impact for those earning below the tax threshold. The proportion of income may still be too high to be affordable but with some help from employer cover is now within reach. Source: McLeod and Grobler (2009), The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa

Remove Tax Break and Replace with Per Capita Subsidy Shaded blocks represent a decrease in affordability compared to the current situation in section B. Source: McLeod and Grobler (2009), The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, as presented to ASSA 2009 Healthcare Conference

Per Capita Subsidy, REF and Income Cross-Subsidy Affordability can be improved for lower income groups by implementing income cross-subsidy and Risk Equalisation Fund together. Source: McLeod and Grobler (2009), The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa

Source: McLeod and Grobler (2009), The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, as presented to ASSA 2009 Healthcare Conference

Innovative Medicines South Africa (IMSA) is a pharmaceutical industry association promoting the value of medicine innovation in healthcare. IMSA and its member companies are working towards the development of a National Health Insurance system with universal coverage and sustainable access to innovative research-based healthcare.   Contact details: Val Beaumont (Executive Director) Tel: +2711 880 4644 Fax: +2711 880 5987 Innovative Medicines SA (IMSA) Cell: 082 828 3256 PO Box 2008, Houghton, 2041. South Africa val@imsa.org.za www.imsa.org.za

Professor Heather McLeod Material produced for IMSA by Professor Heather McLeod hmcleod@integratedhealingmbs.com www.integratedhealingmbs.com