Savings under NHI: Non-Healthcare Costs National Health Insurance Policy Brief 13 Savings under NHI: Non-Healthcare Costs 27August 2010

Definition of Non-Healthcare Expenditure Non-health expenditure = administration costs + managed care management services + broker fees and other distribution costs + net reinsurance loss + bad debts * * [bad debts written off –bad debts recovered + increase in provision for bad debts]

Non-Healthcare Costs 2008 The medical schemes industry spent R9.745 billion on non-healthcare costs in 2008. This was 13.2% of total gross contributions for the year, which were R74.089 billion. Non-healthcare costs were R105.33 per beneficiary per month. Source: Using Annual Reports from Council for Medical Schemes

Non-Healthcare Costs 2008 Non-healthcare costs (NHC) are substantially higher for open schemes than restricted schemes. Of interest is that NHC are lower as the size of scheme increases for restricted schemes, but higher as the size of scheme increases for open schemes. Source: Using Annual Reports from Council for Medical Schemes

Non-Healthcare Costs 2008 There are significant variations between individual schemes, even when differentiated by and ranked by size. Source: Using Annual Reports from Council for Medical Schemes

Non-Healthcare Costs 2008 Expanding the Gross Administration Expenditure item from Annexure K using information from Annexures Q and P. A substantial slice of R1.1 bn or 11.3% of the total is still not explained from the information available. Source: Using Annual Reports from Council for Medical Schemes

Non-Healthcare Costs 2008 Expanding the Gross Administration Expenditure item from Annexure K using information from Annexures Q and P. A substantial slice of R1.1 bn or 11.3% of the total is still not explained from the information available.

Non-Healthcare Costs 2008 The open medium-sized schemes have a large section of these “other unspecified” costs. Source: Using Annual Reports from Council for Medical Schemes

Analysis by Administrator 2008 Administration Fees, Total Fees and Gross Administration Expenditure 2008 by administrator. There is no common relationship between these items and patterns are different by administrator. Source: Using Annual Reports from Council for Medical Schemes

Non-Healthcare Costs 2008 by Administrator Note the two Metropolitan brand names, Metropolitan and Metropolitan Corp. with different cost structures. Self-administered schemes have levels of “other” costs similar to the amounts paid to administrators. Source: Using Annual Reports from Council for Medical Schemes

Non-Healthcare Costs Largest Medical Schemes GEMS and POLMED have much lower non-healthcare costs than other very large schemes. GEMS was R40.91 pbpm in 2008. Source: Using Annual Reports from Council for Medical Schemes

Historic Non-Healthcare Costs Graph is in real terms, in other words after inflation has been removed. Substantial increases in NHC from mid 1994 to 2004. Aggregated across all registered schemes, there appears to have been a substantial reduction in NHC since the high reached in 2004. Source: Using Annual Reports from Council for Medical Schemes

Historic Non-Healthcare Costs There has been a greater reduction in real terms in Restricted Schemes. This is partly due to the effect of GEMS which began operations in January 2006 and had 825,000 beneficiaries by end 2008. GEMS had NHC of R40.91 pbpm in 2008. As GEMS has grown rapidly, so more members move from open schemes that had higher NHC; the average for restricted schemes is lowered; and it brings down the consolidated total. Source: Using Annual Reports from Council for Medical Schemes

Historic Non-Healthcare Costs Relative to total contributions, non-healthcare costs steadily reduced from 9.5% in 1974 to reach a level of 5.2% in 1992. NHC accelerated sharply in the 1990s to reach 14.5% in 2001 before moderating to the current level of 13.2% in 2008. Source: Using Annual Reports from Council for Medical Schemes

Historical GAE+MC Expenditure The trend in restricted schemes is noticeably different from that in open schemes. The trend in open third-party administered and open self-administered schemes is remarkably similar in shape. Source: Using Annual Reports from Council for Medical Schemes

Exhibit 2. Percentage of National Health Expenditures Spent on Insurance Administration, 2005 Net costs of health insurance administration as percent of national health expenditures a b a 2004 b 1999 * Includes claims administration, underwriting, marketing, profits, and other administrative costs; based on premiums minus claims expenses for private insurance. Data: OECD Health Data 2007, Version 10/2007. Source: Commonwealth Fund Commission on a High Performance Health System, Why Not the Best? Results from the National Scorecard on U.S. Health System Performance, 2008 (New York: The Commonwealth Fund, July 2008).

Exhibit 9. Cost of Administering Health Insurance as a Percentage of Claims Under Current Law and the Proposed Exchange Percent 12.7% 9.4% Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way (New York: The Commonwealth Fund, Feb. 2009).

Exhibit 10. Cost of Administering Health Insurance as a Percentage of Claims Under Current Law and the Proposed Exchange, by Group Size Percent Data: Estimates by The Lewin Group for The Commonwealth Fund. Source: Commonwealth Fund Commission on a High Performance Health System, The Path to a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way (New York: The Commonwealth Fund, Feb. 2009).

Administration Costs in the Whole Healthcare System Source: Thorpe KE. Inside the black box of administrative costs. Health Affairs (Millwood). 1992;11:41-55.

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