SOCIAL HEALTH INSURANCE POLICY DIRECTION AIDS LAW PROJECT 10 February 2004

Presentation Brief context Brief context Taylor Committee proposals Taylor Committee proposals Departmental position Departmental position SHI Description SHI Description Work plan Work plan

Policy Context cont. SA - Health System 2002/2003 Public sector R33.2 billion Private sector R43 billion Serves 6.9 m Pcap = R R pmpb Serves 37.9 m Pcap = R R72.99 pm pp

Policy Context Public sector Private sector Cover 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 disease HIV/AIDS HIV/AIDS Infectious Infectious Communicable Communicable Chronic Chronic HIV/AIDS (limit cover) HIV/AIDS (limit cover) Infectious (na) Infectious (na) Communicable (na) Communicable (na) Chronic (reduce cover) Chronic (reduce cover) Providers Medical Medical Nursing Nursing Pharmacy Pharmacy

Key Strategic Challenges Inequity in access to health care Inequity in access to health care Ensuring that public health system remains backbone of SA health system care Ensuring that public health system remains backbone of SA health system care Address systematic cost increases Address systematic cost increases Develop low-cost market – address high private hospital costs Develop low-cost market – address high private hospital costs Reduce financial risk to individuals at the time of accessing health care Reduce financial risk to individuals at the time of accessing health care

Concept of social security Three basic pillars Pillar 1: Pillar 1:  basic social endowment for all citizens Pillar 2: Pillar 2:  contributions from those able to contribute over and above pillar 1 Pillar 3: Pillar 3:  social security-type benefits that are more discretionary in nature

Health interventions Pillar 1  Free health care for children <6  Free health care for pregnant women  Free primary health care services  Free health care for disabled Pillar 2: Social health insurance Pillar 3: Voluntary medical schemes

Characteristics Of NHI and SHI Mandatory contributions for entire population or certain groups like (public sector employees) Mandatory contributions for entire population or certain groups like (public sector employees) Usually employment related, payroll deductions Usually employment related, payroll deductions Contributions from employers and employees Contributions from employers and employees Premiums are income related and benefits are standardized Premiums are income related and benefits are standardized Creates large risk pool and avoids adverse selection Creates large risk pool and avoids adverse selection Cross subsidization (healthy and the sick, wealthy and poor Cross subsidization (healthy and the sick, wealthy and poor

NHI versus SHI National health insurance National health insurance  Benefits for contributors and non-contributors  Cross subsidies, dedicated health tax Social Health Insurance Social Health Insurance  Benefits contributors only  Can increase resources available for public heath care

Key departmental objectives Strengthen public health care system by increasing revenue Strengthen public health care system by increasing revenue Obtain prepaid contributions from those who can pay Obtain prepaid contributions from those who can pay Reduce inequities in health care financing Reduce inequities in health care financing Improve access of lower income groups to quality health care Improve access of lower income groups to quality health care

Taylor Committee proposals Four key policy proposals: Move towards NHI Move towards NHI State medical insurance, risk equalisation, social health insurance State medical insurance, risk equalisation, social health insurance Tax subsidy reform, cross subsidisation Tax subsidy reform, cross subsidisation Recentralisation of health budget Recentralisation of health budget

Departmental position We still require significant tax funding for public health sector We still require significant tax funding for public health sector Need to compare progressivity of tax funding versus NHI Need to compare progressivity of tax funding versus NHI For the medium term,will only commit to SHI For the medium term,will only commit to SHI

State medical insurance Taylor Committee proposals: State-sponsored medical scheme State-sponsored medical scheme  Low cost for low income earners  Sets benchmark price for minimum benefits  Benefits in differentiated amenities in public hospitals plus private primary care

St ate medical insurance Taylor Committee proposals Civil service medical scheme cover Civil service medical scheme cover  Dedicated low cost restricted scheme  Compulsory under employer mandate  Benefits similar to state-sponsored scheme  Could evolve into state-sponsored scheme

State medical insurance Taylor Committee proposals Risk equalisation Risk equalisation  Below average risk schemes contribute above average risk schemes receive  Enlarges risk pool, schemes compete on cost and quality rather than risk selection  Aims to stabilise medical scheme market

Mandatory medical scheme cover Taylor Committee proposals Mandate to begin with high income earners /qualifying employers Mandate to begin with high income earners /qualifying employers Voluntary membership for others Voluntary membership for others Out of pocket fees for public hospital treatment in basic amenities abolished Out of pocket fees for public hospital treatment in basic amenities abolished Low income mandates after high income mandate Low income mandates after high income mandate

Department response Endorse general approach Endorse general approach One state scheme, should evolve from civil service scheme One state scheme, should evolve from civil service scheme Support SHI, not ready to commit to NHI Support SHI, not ready to commit to NHI Accept abolition of out of pocket fees, except possibly bypass fees Accept abolition of out of pocket fees, except possibly bypass fees

Departmental response We endorse: We endorse: SHI plus tax funding SHI plus tax funding Incremental mandates for medical scheme membership Incremental mandates for medical scheme membership Civil service medical scheme as starting point Civil service medical scheme as starting point Civil service scheme to evolve to state- sponsored scheme Civil service scheme to evolve to state- sponsored scheme

Departmental response Basic minimum floor of benefits should be established Basic minimum floor of benefits should be established Mandatory benefits = Prescribed minimum benefits plus primary health care services Mandatory benefits = Prescribed minimum benefits plus primary health care services

SHI in SA context Government mandated health insurance Government mandated health insurance Income cross-subsidies among contributors Income cross-subsidies among contributors Risk-related cross-subsidies among contributors Risk-related cross-subsidies among contributors

Risk Related Cross subsidies MSA requires all schemes to provide PMB for all scheme members Scheme have different risk profiles, resulting in different cost structures Research done by CARE found that price of PMB in one scheme was 17% cheaper while for another scheme 130% more expensive than industry average, just because of different age profiles Clearly, schemes have incentive to risk rate in order to reduce their costs

Risk Related Cross subsidies Risk equalisation should ensure that all medical scheme members face the same community price for PMB’s Risk equalisation should ensure that all medical scheme members face the same community price for PMB’s It should: It should:  remove the incentives for medical schemes to select preferred risks, by ensuring that each scheme must bear the cost of a risk profile equal to the risk profile of all covered lives.  Create incentives for schemes to improve its efficiencies and cost controls, by not incorrectly penalising efficient schemes.

Income Cross subsidies In most countries with social insurance systems, contributions tend to be based on income In most countries with social insurance systems, contributions tend to be based on income High income earners cross-subsidise low income earners High income earners cross-subsidise low income earners In SA, medical scheme contributions are community rated In SA, medical scheme contributions are community rated Income related cross subsidies difficult to achieve Income related cross subsidies difficult to achieve Need to change tax subsidy to improve income cross subsidies Need to change tax subsidy to improve income cross subsidies

Income Cross subsidies Tax deductions on medical scheme contributions, and the tax deductions on medical expenses in excess of 5% of income estimated at R7,8 billion Impact is regressive b/c of link to contributions Out of pocket expenditure may be more progressive, but depends on submission of tax returns Need to restructure this subsidy to achieve greater subsidies for lower-income earners

Income and risk-related cross subsidies Support restructuring of tax subsidy, but with greater subsidies for lower-income earners Support restructuring of tax subsidy, but with greater subsidies for lower-income earners Support risk equalization to stabilize medical scheme environment and prevent schemes from profiting via risk selection Support risk equalization to stabilize medical scheme environment and prevent schemes from profiting via risk selection

Budget Centralisation Budget centralisation to follow a political process Budget centralisation to follow a political process Will enlist Treasury support for implementation of revenue retention framework in all provinces Will enlist Treasury support for implementation of revenue retention framework in all provinces

Supporting policies Preparation of public hospitals Preparation of public hospitals  Hospital revitalisation project  Designated provider network pilot  Civil service scheme development Revenue retention policy development Revenue retention policy development

Programme of work 2004 Sign DSPN contracts with medical schemes 1 April 2004 Sign DSPN contracts with medical schemes 1 April 2004 Finalise technical work on Risk Equalization and income cross subsidy issues Finalise technical work on Risk Equalization and income cross subsidy issues Support DPSA process to implement civil service medical scheme Support DPSA process to implement civil service medical scheme Obtain Treasury support for revenue retention enforcement Obtain Treasury support for revenue retention enforcement Finalise policy decision on phasing of mandatory cover Finalise policy decision on phasing of mandatory cover