National Health Insurance Policy Brief 8 Reducing Fragmented Risk Pools 25 January 2010
Pooling • Pooling is the accumulation and management of revenues in such a way as to ensure that the risk of having to pay for health care is borne by all the members of the pool and not by each contributor individually. • The “insurance function” within the health system. • Present in every system, whether explicit (people knowingly subscribe to a scheme) or implicit (tax revenues). • Main purpose is to share the financial risk associated with health interventions for which the need is uncertain. • Pooling reduces uncertainty for both citizens and providers. Large risk pools are more predictable than small, fragmented risk pools. Need for solvency margin reduced. Argument for large pools is not an argument for single pool. Source: WHO World Health Report 2000
Cross-subsidies for NHI Risk cross-subsidy Income cross-subsidy Source: WHO Health Report 2000
Minimum Number of Livesfor Provider Organization Risk Acceptance Type of Risk Minimum Lives Primary Care Physician 500 - 1,000 All Physician Services 20,000 - 30,000 Hospital Services only60,000 - 100,000 All Risk 20,000+ Source : Lucas, Managed Healthcare Business Models for Hospital Organizations, Milliman and Robertson, 1997
Beneficiaries and Schemes Source : Council for Medical Schemes Annual Reports
Medical Scheme Risk Pool Size In USA minimum size to accept full healthcare risk is 20,000 beneficiaries. 2008: 71% of open schemes and only 29% of restricted schemes were that large. Source: Using data from Council for Medical Schemes Annual Report 2008/9
Medical Scheme Risk Pool Size Each option in a medical scheme is a separate risk pool. Thus there were 355 separate risk pools in 2008, of which only 80 were sufficiently large to accept full healthcare risk, using the USA definition. There were 1.7 million beneficiaries in risk pools that are too small by this definition. Source: Using data from Council for Medical Schemes Annual report 2008/9
Risk Factors in REF Formula • Age • Deliveries • Gender(recommended from 2007) • Not ethnicity. Not geographic region • Not open/restricted scheme • Not primary member, marital status or family size • Not income • Measures of chronic disease burden: • Numbers with each CDL disease • Numbers with multiple CDL diseases • Numbers with HIV/AIDS on ARV therapy • Not high cost, low frequency conditions. Source: FCTT 5 November 2003; RETAP 2007
Amount pbpm Payable to REF Industry Community Rate for March 2006 is R224.90
District Risk Pools Source: Using data from StatsSA, Community Survey 2007
District Risk Pool Size Source: Using data from StatsSA, Community Survey 2007
Public sector purchasers Other public Risk-adjusted transfers Tax (e.g. VAT) Direct subsidy per person (total population) National risk adjustment fund Government Income-based social security contribution Remove existing tax subsidy for medical schemes Risk-adjusted transfers Tax Mandatory membership all above tax threshold Mandatory Member Competing private purchasers Employer Direct risk-rated contribution for packages above comprehensive minimum benefits
Conclusions on Risk Pooling • Risk pooling is a function of health systems, regardless of how they are designed. Larger risk pools are preferable to small ones but as the WHO has argued, the argument for large pools is not an argument for a single pool. • There is likely to be a continuation of a multi-tier system: a tax-funded public sector alongside some sort of mandatory health insurance system for those earning a sufficient amount to be able to contribute to healthcare in the form of some sort of social security contribution. • As in the ANC Health Plan of 1994, competitive risk pools are envisaged as the vehicles for this mandatory system. • A risk adjustment mechanism between provinces and perhaps health districts will also be needed to ensure equity between the regions in the public sector.
Medical Scheme Risk Pooling • Substantial fragmentation due to the proliferation of options and the design of options. • Encourage the formation of larger medical scheme pools. • Implementation of more standardised benefit packages. • Lack of legislation facilitating restricted scheme mergers. • Most critical element is to introduce a system of risk-adjustment between medical schemes, as envisaged since 1994. Creates a single risk pool amongst all scheme beneficiaries for the common benefits. • The absence of a risk adjustment mechanism severely undermines both risk cross-subsidies and income cross-subsidies. • The most critical element of reform that is needed in 2010 in medical schemes is to implement the long-awaited Risk Equalisation Fund.
Innovative Medicines South Africa (IMSA) is a pharmaceutical industry association promoting the value of medicine innovation in healthcare. IMSA and its member companies are working towards the development of a National Health Insurance system with universal coverage and sustainable access to innovative research-based healthcare. Contact details: Val Beaumont (Executive Director) Tel: +2711 880 4644 Fax: +2711 880 5987 Innovative Medicines SA (IMSA) Cell: 082 828 3256 PO Box 2008, Houghton, 2041. South Africa email@example.com www.imsa.org.za
Material produced for IMSA by Professor Heather McLeod firstname.lastname@example.org www.hmcleod.moonfruit.com