improving equity in the subsidies for healthcare in south africa
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Improving Equity in the Subsidies for Healthcare in South Africa. Prof Heather McLeod University of Cape Town University of Stellenbosch South Africa. Public-Private Coverage. - PowerPoint PPT PresentationTRANSCRIPT
Improving Equity in the Subsidies for
Healthcare in South Africa
Prof Heather McLeod
University of Cape Town University of StellenboschSouth Africa
Public-Private Coverage
Source: McIntyre D., van den Heever A. Social or National Health Insurance. In: Harrison S., Bhana R., Ntuli A., editors. South African Health Review 2007. Durban: Health Systems Trust; 2007. URL: http://www.hst.org.za/publications/711
Private Health Insurance
14.9%
Some Private + Public20.9%
Public Sector64.3%
30.2m people using public clinics and hospitalsR1,300 per person pa
7.0m people in voluntary Medical Schemes using private primary care and private hospitalsR9,500 per person pa
9.8m people using private primary care out-of-pocket and public hospitalsR1,500 per person pa
South Africa 200547.0m people
Two Paths to Universal Coverage
1994 to 2007 Gradual, begin with highest paid
workers and their families. Subsidies for workers earning
below tax threshold. Medical Schemes are vehicles for
SHI, buy from private and (increasingly) public providers.
Open enrolment, minimum benefits (PMBs), community-rating, income cross-subsidies, risk cross-subsidies, mandatory contribution.
Competitive purchasers, with Risk Equalisation Fund.
“Post-Polokwane” Dec 2007 Immediate: “within 5 years” Tax and progressive social
security contribution. Central buyer, with public and
private providers. Role for medical schemes
undefined – perhaps top-up only? Package not yet defined. Elections in 2009.
Through SHI to NHI Direct to NHI
Phased Coverage for NHI
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
14.6%
10.6%
13.1%
12.6%
49.1%
Phasing of Mandatory Health Contribution and Coverage
Current Voluntary Medical Schemes: includes insurable family of members
Mandatory from Tax Threshold: earning above R2,917 pm
Mandatory Formal Wage Earners: earning above R2,000 pm but less than tax threshold
Mandatory Formal and Informal Workers: earning between R1,000 and R2,000 pm
Total Population Covered: group with no earnings
Private Medical
Schemes
Employer
Member
Direct community-rated contribution for total package of benefits
Government
Public sector facilities
Treasury allocation of
funds to provinces
Tax
Subsidy in the form of a tax
break for medical scheme
membership
Current Situation
Risk-adjusted transfers for
minimum benefits
Risk Equalisation
Fund
Private Medical
Schemes
Employer
Member
Direct community-rated contribution for packages above minimum benefits
Government
Remove existing tax subsidy
Direct subsidy per person (total population)
Income-based contribution
for private minimum benefits less direct subsidy
Public sector facilities
Risk-adjusted transfers
Public sector facilities
Remove existing provincial allocation
Tax
Income cross-subsidisation
Risk cross-subsidisation0% 100%
0%
100%
1
Pre-1999
2
Medical Schemes Act (2000)•Open enrolment•PMBs•Community-rating
3
Extension of PMBs (2004)
4 5
6
7
Removal of tax subsidy
Re-allocation of tax subsidy on an equal per capita basis at value of PMBs
8Health tax introduced to fund value of comprehensive PMBs
Ultimate polic
y objective
Possible trajectory
combining both risk- and income-
cross-subsidisation
Risk Equalisation
Fund
Comprehensive PMBs implemented
Policy Objective and Trajectory
Source: Ministerial Task Team on SHI July 2005
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 Prescribed Minimum Benefits. Other scenarios include contribution of 10.3% of income to cover
expanded benefit package (not illustrated here). Flexibility to look at other family structures (important for tax and
subsidy incidence). Flexibility for different year for tax treatment.
Current Affordability Problems
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
750 1,500 3,000 4,500 6,0009,000
20,000
50,000
2.9%5.1%
12.1%
33.2%
63.1%
72.6%
79.8% 78.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
10,000
20,000
30,000
40,000
50,000
60,000
Informal workers
Formal farm and domestic
workers
Formal workers below tax threshold
Worker just above tax threshold
Low-paid civil servants
Clerical and service
Supervisory and
managerial
Professional
Pro
po
rtio
n o
n V
olu
nta
ry M
edic
al S
chem
es
Mo
nth
ly In
com
e in
Ran
ds
Income Group
Income and Voluntary Health Insurance
Monthly Income of Contributor
Proportion on voluntary medical schemes
Lowest income groups unlikely to have VHI and if so are probably fully subsidised by employer. At high income groups, 70-80% of people have voluntarily chosen to have cover.
Current Affordability Problems
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
411%
206%
103%
69%51%
34%15.4%
6.2%
120%
60%44% 44%
33% 27%15.4%
6.2%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Informal workers
Formal farm and domestic
workers
Formal workers below tax threshold
Worker just above tax threshold
Low-paid civil servants
Clerical and service
Supervisory and managerial
Professional
Per
cen
t o
f In
com
e
Income Group
Effect of Income on Benefit Package Choice under VHI
Most comprehensive package
Benefit package chosen according to income
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.
Current Tax Subsidies for Health
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
Tax break has no impact on people earning below tax threshold. Has biggest impact for highest income group.
120%
60%
44% 44%
33%
27%
15.4%
6.2%
120%
60%
44%41%
28%24%
12.9%
4.8%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
Informal workers
Formal farm and domestic
workers
Formal workers below tax threshold
Worker just above tax threshold
Low-paid civil servants
Clerical and service
Supervisory and managerial
Professional
Per
cen
t o
f In
com
e
Income Group
Effect of Tax Break on Affordability
Benefit package chosen according to income
Contributions after tax break
Remove Tax Break and Replace with Per Capita Subsidy
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
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.
120%
60%
44% 44%
33%
27%
15.4%
6.2%
120%
60%
44%41%
28%24%
12.9%4.8%
56%
28% 28%33%
25% 22%13.0%
5.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
Informal workers
Formal farm and domestic
workers
Formal workers below tax threshold
Worker just above tax threshold
Low-paid civil servants
Clerical and service
Supervisory and managerial
Professional
Per
cen
t o
f In
com
e
Income Group
Effect of Per Capita Subsidy on Affordability
Benefit package chosen according to income
Contributions after tax break
Tax break replaced with per capita subsidy
Per Capita Subsidy, REF and Income Cross-Subsidy
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
Affordability can be improved for lower income groups by implementing income cross-subsidy and Risk Equalisation Fund together.
120%
60%
44% 44%
33%
27%
15.4%
6.2%
56%
28% 28%33%
25%22%
13.0%5.2%
48%
26% 22%31%
24% 22%13.0% 7.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
120%
Informal workers
Formal farm and domestic
workers
Formal workers below tax threshold
Worker just above tax threshold
Low-paid civil servants
Clerical and service
Supervisory and managerial
Professional
Per
cen
t o
f In
com
e
Income Group
Effect of Per Capita Subsidy and Income Cross-Subsidy on Affordability
Benefit package chosen according to income
Tax break replaced with per capita subsidy
Introduction of income-cross subsidy after per capita subsidy and REF
Sequencing of Reform Critical
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
This methodology can be used to explore the effects of other sequences of reform. Some sequences make affordability substantially worse in the interim which would destabilize VHI. Sequences with larger minimum benefit packages not shown.
48%
26% 22%31% 24% 22% 13.0%
7.7%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Informal workers
Formal farm and domestic
workers
Formal workers below tax threshold
Worker just above tax threshold
Low-paid civil servants
Clerical and service
Supervisory and managerial
Professional
Per
cen
t o
f In
com
e
Income Group
Effect of Different Sequences of Reform on Affordability
Benefit package chosen according to income
Introduction of income-cross subsidy after per capita subsidy and REF Introduction of REF before per capita subsidy
Introduction of REF after per capita subsidy before income cross-subsidy
The Sequential Implementation of Complex Reforms
From an implementation point of view, there are considerable risks in implementing all the steps towards a system of mandatory membership at the same time. If all steps are not introduced at the same time, the order in which the steps are introduced will have a different impact on different stakeholders.
In order to retain stability within the current system as well as to attract new members into the system it would be essential to introduce income cross-subsidies simultaneously with risk equalisation and before other reforms to the benefit package. If not it will decrease the affordability of private health insurance for many members, thereby forcing them to opt out of the system.
At worst, risk equalisation needs to be introduced after the per capita subsidy and before full income cross-subsidies, but prefer risk equalisation together with full income cross-subsidy.
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
Preferred Sequential Implementation
The sequence that will cause the least instability and seems most viable in terms of the impact on workers is as follows: Already in place: open enrolment, community rating, minimum
benefits. Remove tax subsidy and replace with a per capita subsidy; Introduce the Risk Equalisation Fund to operate between options;Simultaneously introduce an income cross-subsidy; Introduce mandatory membership for all earning any income (very
lowest income need some form of wage subsidy or subsidy of social security contributions if these are a flat percent of income);
Deal with option restructuring issues to improve community-rating at scheme level and enlarging the package of minimum benefits (suitable trajectory for these reforms still requires further analysis).
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
Conclusion on Sequential Implementation
The difficulties raised by the sequential implementation of complex reforms are significant in the transition from a voluntary to a mandatory health insurance system.
Risk equalization is a critical institutional component in moving towards a system of social or national health insurance in competitive markets, but the sequence of its implementation needs to be carefully considered.
Source: McLeod and Grobler, The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa, forthcoming 2009.
