Universal Coverage Through National Health Insurance In South Africa:

1. Do quality gaps between the public and private sector matter? Universal Coverage Through National Health Insurance In South Africa: Okore Okorafor Health Policy Unit Medi-Clinic Southern Africa 15 March 2011

2. Overview of the Presentation • Setting the context • Objectives of the Study • Literature & Conceptual Framework • Methods and results • Policy Implications

3. Context: Dual Healthcare System General taxes Medical Scheme Contributions 8.2m Public healthcare budget Medical Schemes (PHI) Out of pocket payments Public Providers Private Providers 46% of Total Health Expenditure 54% of Total Health Expenditure

4. Is there a need for a Health reform? Private Sector • Higher Quality of Care • Wealthier members of the population • Rising premiums a concern for affordability INEQUITY Public sector • Lower Quality of Care • Poorer members of the population • Deteriorating quality a concern for acceptability

5. Quality Comparison – Public vs Private Data Source: 2008 General Household Survey Palmer N. 1999. Patient choice of primary health care provider. South African Health Review. Durban: Health Systems Trust Gilson, L. and McIntyre, D. 2007. Post-Apartheid Challenges: Household Access and Use of Health Care in South Africa. International Journal of Health Services, 37 (4): 673-391. Burger, R and Van der Berg, S. 2008. How well is the South African public health care system serving its people? 2008 Transformation Audit: Risk and Opportunity. Cape Town: Institute of Justice and Reconciliation.

6. Quality: Challenges faced in the public sector • Challenges faced in the public system • Lack of managerial capacity • Insufficient decentralisation of managerial authority • Lack of accountability within the system (DBSA 2008) • Severe shortage of health professionals (42.5% of posts are vacant) (Econex 2009) • Poor disciplinary procedures and corruption • Poor technology management, unsatisfactory maintenance and repairs • Delayed response to quality improvement requirements (Shisana 2011) • Concern around ability to improve quality of health care services in public sector if additional financial resources are made available!

7. NHI Proposal & Principles • No official Government proposal; but ANC (2010)… • Free at the point of care/use • Choice of provider • Mandatory progressive contribution according to ability to pay • Universal access to health services that meet established quality standards • Single funder • NHI Fund to be established in 5 years • Full implementation of NHI in 14 years (2025) • Public is free to continue with medical scheme (PHI) cover only after contributing to the NHI Fund

8. Financing the NHI • Funding sources considered.. • Pay-roll taxes (from less than 1% to 7-8%) • Increase in VAT • Surcharge on taxable income • General taxation • Elimination of income tax subsidy (medical scheme members) • Implicit – reduction of the private sector by increasing the opportunity cost of voluntary private health insurance.

9. Objective of the Study • Estimate the likely impact of the NHI on the medical schemes market in South Africa • NHI pay-roll tax • Elimination of the income tax subsidy for medical scheme members • Two schools of thought • Income shock will significantly reduce the demand for PHI • Medical scheme members will re-prioritise their expenditure basket to ensure that they are able to access private health care

10. Literature & Conceptual Framework • A lot of work has been done on the demand for voluntary PHI within the context of a universal NHS • Heterogeneity of the population • Existence of a quality gap • Conceptual Framework UPHI(QPHI, y – p, µ) > UNPHS(QNPHS, y, µ) • UPHI: utility derived from the use of private health care through PHI • UNPHS: utility derived from the use of public health care • QPHI: quality of care (perceived or actual) obtained in the private sector • QNPHS: quality of care (perceived or actual) obtained in the public sector • y:represents income • p:is the premium paid for private health insurance • μ: is the probability of being sick (greater than 0)

11. Conceptual framework (contd..) • Even whereQPHI > QNHS, it is necessary that: U (QPHI – QNHS) ≥ |U (y – p)| • Deduction • Price elasticity of demand for PHI is higher if the quality gap between the public and private sector is small. • Price elasticity of demandfor PHI is low if the quality gap between the public and private sector is large. Level of substitutability

12. Methods Data source: 2005/2006 Income and Expenditure Survey (21,144 households and 84,978 individuals) Regression analysis (probit model) Model 1:PHI = f (α + β1Incomet + β2X2 + ... + βkXk) Model 2: PHI = f (α + β1Incomet+1+ β2X2 + ... + βkXk) Incomet+1 = Income less NHI tax and Income subsidy Other variables: education, presence of child/elderly in household, household size and area of residence

13. Limitations of the Study Income tax subsidy should ideally be calculated based on tax-rate of premium payer. Due to lack of information on premium payer, average household tax rate (per household is used) IES of 2005/06 (5 years old) SA tax brackets used as boundaries for progressive NHI tax

14. Results

15. Results: Predicted change in medical schemes market The magnitude of the change in the medical schemes market indicates a significant quality gap between the public and private sector. Size of the medical schemes market more responsive to changes in quality within the public sector Further Implications for the SA health sector!

16. Implications & Recommendation • Government needs to focus much more on improving the quality of care in the public sector. • Systematic problems • Additional finances will not improve quality on its own • Inefficiency will be introduced in the system if the quality of care in the public sector is not significantly improved • Medical scheme members [NHI tax & income tax subsidy] • Non scheme members [NHI tax] Additional financial burden – No additional benefit?