1. Social security and healthcare reforms Social security and healthcare reforms MFP Professional Development Day November 2011

2. Agenda Social security reform Health care reform Challenges to making reforms reality Looking ahead

3. Social security reform

4. Rationale: challenges with current system Low coverage Low income replacement Low preservation High costs

5. Employees with pension contributions from employer (by income, %) Source: Statistics South Africa (%)

6. Employees with pension contributions from employer (by industry, %) Source: Statistics South Africa

7. Members who have withdrawn their retirement funds in the past (%) Source: Sanlam

8. Use of retirement funds after withdrawal Source: Sanlam % of members who withdrew funds

9. Retirement fund costs by size of fund Cost (% of contributions) Source: Financial Services Board

10. Social Security Pillars Social assistance: Pillar 1 Non-contributory Tax funded Focused on the poor Social insurance: Pillar 2 Mandatory contributions Focused on income earners Voluntary insurance: Pillar 3

11. Proposals discussed in 2011 Establishment of a National Social Security Fund (NSSF) Mandatory contributions for retirement, death and disability Sufficient unemployment protection to minimise withdrawal from retirement savings Government guaranteed benefits All workers to contribute up to income threshold – currently R157, 000 Contribution subsidy for low income earners Mandatory contributions to approved private funds for income >R157, 000 to R750, 000 Voluntary savings for income above R750, 000 Mandatory preservation

12. Proposed multi-pillar system Social grants +/-15 million beneficiaries All individuals 60 and above will receive state pension Main objective is poverty alleviation Social grants +/-15 million beneficiaries All individuals 60 and above will receive state pension Main objective is poverty alleviation NSSF +/- 8.3 million members (all employed South Africans) Targets income up to R157, 000 with co-contributions for low income earners Mandatory contributions for retirement, death, disability and unemployment Main objective is basic contributory benefits NSSF +/- 8.3 million members (all employed South Africans) Targets income up to R157, 000 with co-contributions for low income earners Mandatory contributions for retirement, death, disability and unemployment Main objective is basic contributory benefits Approved funds Mandatory contributions for income R157, 001 - R750, 000 Main objective is additional cover above NSSF Approved funds Mandatory contributions for income R157, 001 - R750, 000 Main objective is additional cover above NSSF Voluntary savings For income in excess of R750, 000 Main objective is to allow high income earners to save more Voluntary savings For income in excess of R750, 000 Main objective is to allow high income earners to save more

13. Potential positive impacts Greater coverage Lower costs Improved preservation Higher replacement ratios National solidarity

14. Potential negative impacts Contraction in size of private sector Loss of jobs Reduction in corporate and personal tax Strain on national resources

15. International case study: Chile Why reform ? Corruption and insolvency led to collapse of public PAYG system Falling coverage due to rising unemployment and evasion 3 pillar system Pillar 1: basic solidarity pension and solidarity complement for those who financed small pensions (introduced 2008) Pillar 2: Fully funded mandatory DC system called AFP (introduced 1981) Pillar 3: Voluntary DC Pension saving education fund introduced in 2008

16. Mandatory DC pillar – most well known part of Chilean pension system Fully funded mandatory DC system replaced public PAYG system in 1981 Compulsory for salaried workers but voluntary for the self employed Contribute 10% of income for retirement 2-3% of income to cover admin costs, and health and survivorship insurance Contributions based on income threshold Large increase in pension funds under management– 10% of GDP in 1985 to 110% in 2010 Increase in savings and investment rates Challenges faced by DC pillar include: Low density of contribution by salaried workers Low coverage for the self-employed

17. Health care reform

18. Rationale: challenges with current system High disease burden Low coverage Fragmented system Escalating health care costs

19. Reasons for high disease burden HIV/AIDS and TB Maternal, infant and child mortality Non-communicable diseases Injury and violence

20. SA disease burden compared to other developing countries DALYs Source: Econex

21. Population covered by medical schemes (%) Source: Government Green Paper

22. Employees with medical aid contributions from employer (by industry, %) Source: Quarterly Labour Force Survey % of workers with medical aid benefits

23. Per capita expenditure in medical schemes and public sector Source: Government Green Paper Rands

24. Needs versus benefits by income group Source: Ataguba and McIntyre

25. Proposal Establishment of National Health Insurance (NHI) Objectives of NHI: Provide access to quality healthcare irrespective of employment status Pool risk and funds to achieve social solidarity and equity Procure services on behalf of population Efficiently mobilise and control financial resources Strengthen under-resourced public sector

26. Features of NHI NHI is a healthcare funding system aimed at providing universal coverage Health services will be provided through accredited and contracted public and private providers A defined comprehensive package of health services: primary, secondary, tertiary and quaternary Will be phased in gradually over a 14 year period from 2012 Funding model being considered: payroll tax, higher VAT rate and surcharge on individuals’ taxable income

27. Potential positive impacts Greater coverage Better health care for majority of population National solidarity

28. Potential negative impacts Will be clearer when more details are known Contraction in size of private sector Loss of jobs Reduction in corporate and personal tax Strain on national resources

29. International case study: Taiwan Why reform ? Fragmented public insurance system with 10 schemes Low coverage – 41% of population uninsured Seven years of planning from 1986 to 1993 Move to democracy in 1987 served as a catalyst for reform Pressure of elections led President to decree that NHI was to start operating by 1 March 1995 NHI implemented after 2 decades of rapid economic growth

30. Features of the Taiwanese NHI Enrollment into NHI is mandatory - by 2006 98% of population was insured Administered by the Bureau of National Health Insurance (BNHI) NHI funded mainly by premiums : 60% (employees), 30% (employers), 10% (government) Direct government funding also used

31. Features of the Taiwanese NHI Significant involvement by private sector – e.g. bulk of hospitals and hospital beds are privately owned Co-payments for outpatient visits and co-insurance for inpatient services Uniform fee schedule for contracted providers Comprehensive benefit package

32. Challenges faced by the Taiwanese NHI Financial sustainability NHI was facing deficits by 1998 and by 2002 BNHI had to borrow from banks NHI reserve depleted in February 2007 and financial gap was US$437 million in March 2008 Quality issues – ‘fast food healthcare’ High cost of drugs sold through hospitals

33. Challenges to reforms in SA

34. Challenges Can SA finance NSSF and NHI at the same time? How do we improve service delivery before implementation of NSSF and NHI? How do we incorporate what is already working well? How do we take on board views of all stakeholders? What can we learn from the experience of other countries?

35. Looking ahead Waiting for government paper on compulsory preservation Waiting for government paper on latest NSSF proposals Looking forward to robust debate on health care and social security reform with other stakeholders

36. Thank you