26 January 2004
I must start by welcoming our international review panel to one of the most beautiful country and city in Africa.
Although we have invited you to help us address some very challenging questions, I hope that you will find time to experience a little bit of our warmth and hospitality.
To our team at home, especially the consultative task team leaders, I thank you for the time and effort you have put in to produce the very detailed reports we will be reviewing this week.
I feel privileged to address such an eminent audience that aims to address an issue that has been on our political agenda for almost as long as we have had democracy in this country.
We have set up the International Review Panel to evaluate our work on key aspects of our private health care system and to advise us appropriately.
I am quite pleased to see such a wide representation of countries that has implemented some of these reforms that we will be discussing here.
I must thank you all for making time in your very busy schedules to be with us, in particular:
Thank you, and to the chairs of the Task Teams and Sub Teams:
Even though you come from different parts of the universe, you will be aware of the transformation agenda that the African National Congress (ANC) led government set for itself in terms of creating a ‘better life for all.’
Access and funding of the essential health care for every citizen was and still is a high priority in our transformation agenda as part of creating a ‘ better life for all.’
When the ANC came into power in 1994, it inherited a fragmented health care system with inter - provincial inequities and the unregulated private sector.
I am sure you are aware that the private sector accounts for over 60% of total health expenditure and provides care for less than 20% of the population.
The key challenge to us at that time was to seek measures to improve affordability of, and access to, private health care through the use of the medical schemes or what is normally referred to as sickness funds or mutual funds in other countries.
This thinking was informed by the view that the private health sector is a significant part of our health system as it plays a complementary role to the public system, which provides health services to more 80% of the population, and that medical schemes will continue to act as the main financial intermediaries in the private sector.
It is clear to me that the private sector will continue to play a key role in the provision and financing of health care for our people.
It is for this reason that government will continuously take a keen interest in the functioning of this sector. However, the private sector was and is still faced with quite a number of challenges, which may affect its long - term sustainability.
Costs in the private sector have been increasing more rapidly that the inflation rate.
This escalation of costs has caused medical aid cover to be unaffordable to many people.
The industry was characterized by risk rating, which reduced or eliminated cross- subsidization in the medical schemes environment.
Despite our best attempts to address this, the incentives still exist for the industry to structure their benefits in ways that discourage high-risk members from joining.
This tendency has deprived medical aid cover to people who could qualify to make some contribution towards their health care.
We realized at that time that the problems facing the private health sector would require a political commitment from the part of government in order to improve access to health care for all.
The ANC Health Plan of 1994 recommended that we appoint a Commission of Inquiry to look at the crisis in the medical schemes sector, and to also consider alternatives such as National Health Insurance.
We then appointed two Committees of Inquiry and later a Health Department Task Team to advice us on how to reform the financing of the private health care in South Africa in a quest for greater access and efficiency.
Of major interest to us was the advice of the Departmental Task Team, which proposed the prioritization of the implementation of the Medical Schemes Act.
Subsequent to this, we introduced the Medical Schemes Act in 1998, which came into effect in 2000 with the following fundamental principles:
With the Medical Schemes Act firmly entrenched in our private health care industry, we feel more ready to press forward with the rest of the reforms.
We have taken the policy position to move to establish a social health insurance system in South Africa.
In our particular context, SHI will comprise three components:
In this workshop we hope to focus on the cross subsidy issues, as the work relating to mandatory cover will be informed by much of what we achieve in cross subsidies.
I will deal first with the income-related cross subsidies, and then the risk-related cross subsidies.
INCOME RELATED CROSS -SUBSIDIES
We decided to re-establish community rating because we have always held a view that access to adequate health care is a right that should not be subject to an individual’s ability to pay.
We were convinced that in a country like ours where there is massive poverty and where there are huge differences in incomes, it was also critical to understand the intrinsic relationship between health and income.
Due to limited resources in funding health care, we took a view that risk rating should be outlawed so as to allow those who could afford to make some contribution towards their health care to do so.
Our intervention was fueled by the fact that comprehensive cover was priced out of the reach of many individuals with modest incomes.
It should also be acknowledged that the tax expenditure subsidy on medical scheme contribution, currently estimated at R7, 8 billion, is an important reflection of government commitment to encourage people to provide for their own health care.
Its intention is to make medical aid cover affordable for more people by subsidizing their contributions.
However, we have noticed that the tax expenditure subsidy is highly regressive and inequitable as it favours high-income people over low-income people.
Our thinking is that the tax expenditure subsidy should benefit the poor more than the rich.
We established a Subsidy Consultative Task Team to develop a revised subsidy framework for medical schemes, which achieves an equitable redistribution of income between both public and private sector health system users.
We hope to get your views on how this subsidy could be restructured to achieve our set objectives.
HEALTH RELATED CROSS SUBSIDIES
We have spoken for a long time about a need to establish a risk equalization fund within the medical schemes.
This was also mooted at the same time of the reform of the private health care financing in this country during the mid and late 90’s.
It was clear to us at that time that community rating, open enrolment and prescribed minimum benefits would pose a greater risk without a risk equalization fund, as it is the case now.
However, the reason we did not implement risk equalization fund at that time was not a question of policy oversight but a question of timing.
At that time, as I have indicated, we inherited a large and a complex private sector, which was unregulated.
Further to this, the most constraining factor at that time was the lack of credible, comprehensive and reliable data, which we understand is very crucial for a successful risk equalization process.
We then decided to take a very cautious approach, as we did not want to destabilize the industry by introducing too many reforms at the same time.
Hence we prioritized the implementation of the Medical Schemes Act with the principles that I have just outlined.
We now have improved the manner in which the medical schemes industry functions.
We created the Council for Medical Schemes together with the Office of the Registrar of Medical Schemes, which is charged with the regulation of this industry.
Medical schemes are now required by law to submit statutory data to the office of the Registrar of Medical Schemes.
This helps the Council for Medical Schemes and the Office of the Registrar to be proactive rather than reactive in regulating the industry.
We believe that we have now created an enabling environment to start talking about the implementation of risk equalization fund within the medical schemes, as this is still feasible in the voluntary environment.
In acknowledging the complexity of the work, and the need for industry buy-in for to process to succeed, we invited local industry experts and interested groups to advise the department.
We have established a Risk Equalization Fund (REF) Consultative Task Team to develop the REF formula, and make recommendations in this respect.
It is in this regard that we would also like to obtain your advice in order to assist us to implement these reforms without destabilizing the current market.
Of key concern to us is how we can effect both risk related cross and income-related cross subsidies in the medical schemes market, especially as we move towards a social health insurance system in the country.
Our challenge is one of timing and sequencing, while also ensuring that we have the technical capacity both in terms of information and institutions to successfully implement a Risk Equalization Fund.
In this workshop, we wish to draw from your insights and experience in the countries that you worked in.
I hope that your inputs will be of much help to us and that we can learn and draw from your expertise as we continue reforming the health sector in this country.
I Thank You!
DR. ME TSHABALALA MSIMANG
MINISTER OF HEALTH