National Health Insurance what are the options?

1. National Health Insurancewhat are the options? Alex van den Heever November 2008

2. Please note… This talk reflects the personal views and advice of the speaker and is not an official presentation representing any organization

3. Health systems and all that stuff… CONTEXT

4. Context – the use and abuse of terminology… • The history of discussions on strategic health configurations for South Africa have involved a fairly liberal use of terminology • Reference to National Health Insurance (NHI) and Social Health Insurance (SHI) has been common • NHI seen as referring to a universal contributory system, while SHI seen as applicable to contributors (and their families) only

5. However… • SHI actually refers to any mandatory contributory system with a split between the purchaser and the provider of service occurs irrespective of whether it is universal or not • A universal SHI is what is referred to as an NHI • Because of the “purchaser provider split” such systems are classified as “demand-driven” as they involve the reimbursement of service providers based on actual or expected activities and are to be distinguished from …

6. A supply-driven system… • Which, when publicly provided and universal, is generally referred to as a National Health System (NHS) (using the UK nomenclature) • They are supply-driven because they involve tax funded publicly provided serviceswith limited sensitivity to unplanned activities (i.e. demand) • Such systems prospectively plan (hopefully) services for expectedactivities

7. However a NHS … • Does not “purchase” services, it funds them, with only specific inputs (drugs and consumables) purchased, and should be distinguished from a system which … • Purchases the services through some form of contract with an independent supplier

8. What kind of system does South Africa have? • A supply-driven means-tested public system coupled with a … • Voluntary demand-driven contributory multiple payer system

9. International experience shows … • That a universal NHS evolves from health systems that have actively subsidised the development of their supply-driven system, while… • A universal SHI evolves from voluntary employer-based contributory systems which have broadened their cover to include the entire population through regulatory interventions (subsidies, employer mandates, community rating, risk equalisation)

10. What influences the path taken? • For countries with high levels of growth, high levels of formal employment, and a low levels of inequality, any path is possible • However, once a path is determined at some key point in the history of a country, it becomes difficult to change thereafter • For countries with low levels of formal employment and high inequality (a consequence of unbalanced development) a combination of supply-driven public services and demand-driven private services is inevitable • Demand-driven systems require sophisticated management to prevent cost blow-outs and poor quality service delivery – countries without this capacity should and usually do prefer supply-driven systems

11. What do the experts say? “In all countries which have achieved National Health Insurance, this has been made possible by the gradual growth in formal employment and incomes. The historical pattern has been for voluntary schemes and schemes that are compulsory for particular groups of workers to grow over time, to a point where they can be integrated in one scheme or reorganized within a coherent national framework, with public services for the rest of the population incorporated as well. Without the necessary employment base, NHI would place a heavy burden on government funds.” Mills A (Prof) is head of the Health Economics and Financing Programme of the London School of Hygiene and Tropical Medicine

12. Pathway to universal SHI (NHI) A universal SHI (or NHI) emerges from a multiple payer demand-driven system and not from a supply-driven system

13. South Korea’s path to universal SHI (NHI)

14. What happens when a developing country tries to replace its supply-driven system with a demand-driven system? “The efforts of the Columbian government to increase its health care budget did not prevent private expenditures reaching 45 percent of total health expenditure in 1999 (more than 60 percent were out-of-pocket payments, the rest mainly employers’ contributions). This is why, in a list of proportion of households with catastrophic health expenditure, Columbia ranked fourth out of 60 countries, after Vietnam, Brazil, and Azerbaijan. The cost escalation is probably due to the financing method. Rise in cost per capita for the contributory system (74 percent between 1997 and 2002) was comparable to the change in the subsidized system (88 percent for the same period). By contrast, the cost per capita for those who continued to be served by a system based on a supply-oriented model (the vinculados) remained under control between 1997 and 2002, increasing by 36 percent.” (De Groote et al, 2005, pp132-133).

15. There is no evidence of a material difference between universal NHS or SHI systems, irrespective whether or not they are single- or multiple-payer … “There is actually no evidence showing that in Europe SHI countries enjoy better quality health care than countries with tax-financed health systems. For example, survival rates of cancer patients are relatively poor in Denmark and England, but good in Iceland and Sweden, which also operate tax-financed systems; the latter two, in fact, have better survival rates than France, Germany and the Netherlands, which all operate SHI financing systems. … In any case, other system variables are likely to matter too; the bivariate associations point, for example, to survival prospects for cancer patients in Europe being better in richer countries, and in countries that spend more on health care. In Latin America, where dedicated SHI facilities or private providers deliver care to SHI members and health ministry facilities deliver care to the rest of the population, both types of provider have been criticised for delivery of poor quality care.” (Wagstaff, 2007, p.2).

16. Supply-driven universal systems perform no better than demand-driven universal systems… Universal Systems Cost is NOT a function of whether the system is a universal NHS, a universal multi-fund system, a universal single-payer system NHS = national health system MP SHI = Multiple Payer Social Health Insurance SP SHI = Single Payer Social Health Insurance (National Health Insurance)

17. High degree of convergence… • In the more advanced health systems there is ultimately some degree of convergence on approaches… • Supply-driven systems start to introduce purchaser provider splits where this can improve operational efficiencies • Demand-driven systems try to develop vertically integrated strategies (supply-driven service provider approaches) • Budget constraints are applied irrespective of the system • Supply-side regulation and price controls are applied in conjunction with contracting

18. Health systems incorporate multiple goals • Goal 1: Improvements in health status, focusing on those in greatest need • Approach: Strategic public/community health interventions, including non-medical interventions • Funding: Always tax funded – with supplementation from international donor organisations • Goal 2: Social security, involving access to personal health services and income protection from out-of-pocket health expenses • Approach: Public and private provision of services and access to risk pooling mechanisms • Funding: Combination of tax (to achieve income-based cross-subsidies) and/or mandated insurance contributions Most improvements in health status arise from the effective implementation of strategies related to GOAL 1 and not GOAL 2

19. Where are the greatest gains in health status achieved? Universal systems that are able to establish universal and amalgamated social security strategies Most gains in health outcomes occur with government health expenditure at levels below US$ 500 per capita South Africa Systems which split their public health and social security strategies

20. For developing countries, therefore… • Goal 1 is provided universally and tax funded, but focused primarily on high-risk communities • Goal 2 is split between supply-driven systems providing personal services and demand-driven insurance arrangements (both voluntary and mandatory) Only when GDP growth and employment levels are high (in the upper range of upper-middle income countries and beyond) is it possible to “amalgamate” social security arrangements – which is not always done because it is not always necessary

21. Quite clearly therefore… • Social security strategies, although related, have a different purpose to public health strategies, and require their own strategic focus to be successful • Confusing social security with public health will result in a waste of scarce resources • Social security strategies should be pursued in parallel with public health strategies, with explicit exploitation of synergies and mitigation of conflicts

22. What does the Polokwane decision say? “the implementation of the National Health Insurance System by further strengthening the public health care system and ensuring adequate provision of funding.”

23. Why has South Africa not pursued a universal SHI to date? Input to the 1994 Finance Committee established by the Department of Health to advise on NHI states… “It is clearly financially unaffordable to offer universally either the benefits currently on offer in medical aid schemes, or free and complete in the public sector. Benefits would therefore have to be severely restricted. However, it is difficult to see how this can be achieved because the setting up of a universal scheme would raise expectations about access to care. Moreover, the scheme would put in place a financing mechanism before having in place the health service infrastructure to satisfy demand. Benefits would inevitably be unevenly available, causing justifiable grievance.” Mills A (Prof) is head of the Health Economics and Financing Programme of the London School of Hygiene and Tropical Medicine

24. What are the challenges South Africa TODAY

25. South Africa does not perform well compared to its peers… The peer groups include the ten countries below and above South Africa in terms of GDP per Capita (US$ PPP adjusted)

26. Number of Natural and Non-natural Deaths Source: Statistics South Africa

27. Major burdens of disease - person Disability Adjusted Life Years (n = 14,782,220) Growing incidence of non-communicable diseases

28. Prevalence of HV from Antenatal Survey Source: Department of Health, 2008 and earlier

29. The problem is not about how much, but rather, how well the public funds are spent… South Africa Compared to Peers (15 above and below per capita GNI in PPP US$): Government Expenditure on Health and Maternal Mortality With continued public sector failure it will become more and more about the money…

30. Public health sector employment declined in relation to population and need as a result of poor strategic policy decisions … Rank and leg promotions cause real staff unit cost increases with no budget accommodation Status quo trend • 2007 • Shortfall accounting for population growth = 64,087 (R9.7 billion) • Shortfall accounting for population growth and burden of disease = 79,791 (R12.0 billion) Source: Persal, National Treasury

31. Provincial per capita health expenditure (Constant 2008 prices) … What happened to public services? HIV and AIDS and district services improved with only capital expenditure improvements for hospitals No improvement in budget coupled with increased staff costs HIV and AIDS allocation begins Rank and leg promotions cause real unit cost increases for health system

32. Where have all the doctors gone?

33. Human Resources for the Health System at all levels – roadmap to a plan • Death • Disability • Retirement • Emigration • Private sector • Leave profession • Teaching and training • Immigration • Foreign recruitment • Other Require Quantified Plan • Priority human resource requirements • Express as quantifiable targets • New staff needs • Efficiency improvements No information at present

34. Health districts do not perform well… WHO Target Cure Rate = 85% Total TB Cases for 2008 = 307,503 Cases not cured = 133,854 (44%) Source: Based on data made available by the Health Systems Trust

35. What do we see when we weight district populations for health need? 50% of the Population is located in only 11 health districts There is no centralised allocation for districts Where the weighted population exceeds the crude population, health need is likely to be greater than indicated by the crude population

36. TB is getting worse because of dysfunctional health districts … The failure to effectively treat TB patients within the district health system causes: an increase in preventable mortality Increased (treated) burden of disease Increased unit cost of treatment Break in trend from 2002 Source: Department of Health

37. Indicative ARV Treatment Cost: at 21%, 50% and 80% coverage from 2008 (R million) What lies ahead… Does not include new protocols : Earlier treatment (350 CD4) TB – treat with ARVs if HIV+ Source: Assumed cost of R500 pm, treatment requirements estimated using the ASSA2003 model

38. In the absence of a national resource allocation mechanism it is hard to see how service priorities can be effectively met … North West Eastern Cape Free State Gauteng KwaZulu-Natal Western Cape Northern Cape Limpopo Mpumalanga

39. New expenditure required in the medium-term to tread water – relative to the mid-1990s

40. Medical Scheme beneficiaries Up to quarter 2 of 2008 Source: Council for Medical Schemes

41. Medical scheme per beneficiary costs have been largely unchanged for five years, with claims costs steady for three years, and non-health unchanged for seven years… Source: Council for Medical Schemes

42. It is clear there has been a positive systemic change in medical scheme costs … Three factors provide explanation- Scheme price competition with growing product standardization and restrictions on risk selection Stronger regulatory oversight of contribution and non-health cost increases Increased number of beneficiaries off a relatively fixed supply base (from 2004) Medical Schemes Act implemented

43. Estimated catchment populations for public and private sector hospital and ambulatory care (2007) 7.5 million Source: based on the GHS for 2006 and the Council for Medical Schemes

44. Private Hospital Supply (beds per 1,000)

45. Strategic options WAY FORWARD

46. Improved resources not only about increased funding…

47. Need to combine the reform of the private and public systems to achieve the maximum impact Add 7.5 million to medical schemes REF, PMBs, Community rating low Private Sector Income-based contributions, PMBs Cross-subsidy from high to low income Geographical equity, allocative efficiency, prioritise greatest health need High Public Sector Increased inputs, remove avoidable utilisation Low High Cross-subsidy from healthy to sick

48. Strategic direction (quality rating from 1-5, with 5 the highest)

49. Strategic direction (quality rating from 1-5, with 5 the highest)

50. Strategic requirements for private sector reform