South Africa needs a new healthy policy, writes researcher Alex van den Heever. But is the proposed National Health Insurance appropriate?
THE possible introduction of some form of National Health Insurance (NHI) in South Africa would involve a major shift in emphasis from the way in which health service is presently structured.
It is worth discussing the reasons for introducing some form of NHI and why attacking these options as being “socialist” is somewhat naive. However, it will also have to be assessed whether NHI is entirely appropriate within the South African context.
South Africa has a distorted health care industry, public and private. It is an industry in need of a fundamental rationalisation in terms of existing perverse institutional relationships.
A new structure and system of regulation in South Africa will be required consciously to re-prioritise activities to meet certain social objectives. These objectives can be listed as follows:
* To ensure that the entire population has access to a minimum essential package of services.
* To ensure that this package of services increases over time as the economy grows.
* To ensure that the cost increases of health services and pharmaceuticals are contained, such that national health care expenditure does not continue to increase at a rate in excess of the growth rate of the economy.
Internationally there is general recognition of the need to regulate and moderate the functioning and excesses of the health industry. It is one of the classic examples of a dysfunctional market where the pursuit of individual self-interest generates negative social returns. Allocating medical resources purely on an ability-to-pay basis has been rejected by all countries in the world, including the United States, as unethical.
However, pooling funds through medical aid mechanisms, or even through tax-funded NHI options, to limit individual risk, have resulted in explosive cost consequences when combined with fee-for-service remuneration of medical providers. This occurs because a third party is remunerating providers of medical services on behalf of a patient experiencing no cost at the point of service.
In South Africa between 1982 and 1991 there was a 157 percent increase in contributions to medical schemes after inflation is accounted for. This means that in 1991 contributors were paying one-and-a-half times more for a similar or lesser benefit package than they had in 1982. Clearly this cannot be allowed to continue.
Health markets in general, and specifically in South Africa, are perverse. There is an asymetry of information between buyer and seller within the context of an emotionally charged environment. Given this, it is clear that health markets have to be regulated in the public interest, and regulated well. The debates do not centre on whether health care markets should be regulated or not, but deal with the choice of mechanism.
One approach for achieving an aspect of the required regulation of the health care industry is to introduce some form of NHI where contributions to the fund are linked to the employed population, and the benefits spread generally over the entire population. Linking the funding to a fixed contribution, through a dedicated tax, creates a stable source of finance linked directly to the size of the economy. The adequacy of the funds clearly also depends on the size of the economy.
However, a funding mechanism is not enough. If the remuneration of providers from this fund occurs on a fee-for-service basis, expenditure increases will soon make many benefits unaffordable. Consequently, the method of funding providers will play a large part in ensuring the package can improve as the economy grows.
One method is to provide a global budget which cannot be exceeded, whereby private providers (that is, clinics, hospitals, and general practitioner practices) are funded up-front for members who register with them.
Another method is to ensure that the essential package of services remain or become directly state provided and funded.
This option does not require that the private sector should be “nationalised”, but rather that the state focus its attention on the essential package of services for those unable to afford the full cost of medical care and allow the private sector to provide a discretionary package of services for those who can afford to do so.
Perhaps this sounds pretty much like the existing system. The difference would be to fund the state system far better than is the case at present, and to find some means of doing so.
The private sector would also have to be regulated differently. Regardless of how the essential package is funded or provided, the private sector can no longer be allowed to function as it has done in the past. Inducing shifts towards managed care will be a fundamental requirement for eliminating the endemic cost spiral within the private sector and these will have to accompany any broad-based reform of the health system.
At the end of the day NHI is nothing more than a tax dedicated to health. Consequently, alternative more conventional revenue raising mechanisms such as increasing personal taxes, value added tax or tobacco and alcohol taxes could be alternatives. Even increasing the top marginal tax rate to 45 percent from 43 percent would raise between R800-million to R1-billion in additional revenue for the state in a non-regressive manner. However, these latter taxes go into the general revenue fund and are not earmarked for health expenditure.
The first and most crucial question is whether an NHI funding mechanism is required when the most simple direct alternative would be to obtain agreement from the Department of Finance for a dedicated level of public health expenditure and then raise the necessary taxes through conventional means. The state mechanism is the most direct and effective means for delivering basic services to the indigent and low-income population in a developing country.
The state health services are in the process of structuring their budgets so that they can differentiate between primary, secondary and tertiary care in their financial planning. Given these new programme structures, a reprioritisation of state funds towards primary care will not be difficult to ensure or monitor. The only difficulty is funding. Good reasons would have to be given as to why a complex financing mechanism should be introduced when the alternative is relatively simple and will be able to achieve the intended objectives more directly and securely. Only once this option is definitively excluded should alternatives be considered.
The announced investigation into NHI for South Africa will look into some of these issues. The committee intends reporting on a “plan” by April.
Alex van den Heever is an economist at the Centre for Health Policy, University of the Witwatersrand