Alex van den Heever's submission to the Department of Health on the National Health Insurance Green Paper

EXECUTIVE SUMMARY

Overview

This paper provides an analysis of the Green Paper on a "Policy on National Health Insurance" published in August 2011. Its purpose is both to respond to the Green Paper's proposals as well as to deepen discussion on much needed health reform in South Africa.

What is proposed?

The central diagnostic offered in the Green Paper is simply that South Africa has a two-tier health system when it should have a single-tier system called National Health Insurance (NHI). Consequently its key recommendation is that South Africa should implement a single-tier system. The terms single- and two-tier are not defined and neither is the mechanism NHI.

Taking account of the rest of the paper it appears a two-tier system refers to instances where private funding for healthcare, seen as commercial in nature, coexists with public funding. A single-tier system is, by a process of elimination, one where all health financing occurs through a single government-organized system. The reform proposals however do not conform to what is understood generally as NHI but appears to be just the name given to the reform framework. The paper therefore implicitly seeks to address the institutional architecture of the health system.

Although no systematic evaluation of any form is provided by the Green Paper, it builds a case on the grounds that medical schemes face increasing costs, and provide their members with better access to healthcare than the state. The case for the proposed reform therefore rests on two arguments. Firstly, that systemic medical scheme cost increases are prejudicing their members, through benefit denials, and becoming unsustainable; and secondly that the better access to healthcare by medical scheme members distorts health resources away from public sector users. The latter is therefore an equity argument.

On the strength of this, the Green Paper recommends that the public health system be centralized under the control of a "national fund" (under a chief executive appointed by the Minister of Health) with regional offices, effectively removing the health function from provincial governments. This restructuring of the public health system, which is unrelated to the conduct of medical schemes, is not motivated on the basis of any situation analysis of the public system or any formal rationale.

The achievement of the "single-tier" health system as goal is therefore premised on a strategy to consolidate existing financing through a single source. The Paper sees this as achieved through a general tax increase equivalent in aggregate value to existing medical schemes‟ expenditure of the order of 3% of Gross Domestic Product (GDP). The additional funds, together with the existing public sector budget, are intended to purchase both existing public and contracted private healthcare providers.

For the consolidation to avoid a net decrease in disposable incomes due to the tax increase, however, all medical scheme members and their dependents, numbering 8.3 million at present, would need to voluntarily transfer their complete coverage to the public health system. Alternatively, if only some medical scheme members transferred, a substantial drop in out-of-pocket expenditure would be required. It is implicitly acknowledged by the paper that this consolidation will not work if the public health system remains dysfunctional.

How should the proposal be evaluated?

Confirmation of the implicit (as the paper is not explicit) business case for the proposed reforms consequently requires:

1. A strong strategic case based on clear evidence of institutional failures within both the public and private sectors and their causes;

2. A set of feasible options that could address the institutional failures in the short- medium- and long-term;

3. An appraisal of the options, including economic and financial evaluations, which identify a preferred approach; and

4. An in-depth analysis of the preferred option, including an economic evaluation, a financial evaluation, and a risk analysis.

The above constitute the minimum requirements for any policy to be regarded as rationally formulated, regardless of its scale. The degree of rigour applied is however appropriately dependent on scale, with a stronger rationale required the larger the project or policy impact.

Given that the Green Paper proposes to increase taxes by equivalent to 3% of GDP (or roughly R100 billion per annum in 2011), and to completely alter the institutional architecture of the public health system, government is obligated to present a very sound and well-develop case. The policies so proposed must be demonstrably rational and have a proper government purpose.

Evaluation and discussion

Despite the scale of the proposals the Green Paper does not provide a rational business case, with not one of the above-mentioned four requirements adequately addressed. As the reform framework affects the existing and future right to healthcare of all public and private sector users of the health system this is worrying.

No comprehensive situation analysis is provided that isolates institutional failures with the existing architecture of the health system, whether public or private. Instead the diagnostic sections, the extent they can be referred to as such[1], only ever discuss the private health system. Consequently, the proposed elimination of the provincial health system and the establishment of a central fund, which are public sector reforms, lack any explicit rationale.

The analysis of the private sector provided in the Green Paper, upon which the entire reform framework appears to be based, relies on factually incorrect information which in some instances appears, worryingly, to be deliberate. This includes suggesting that medical scheme per capita contributions have doubled over a seven-year period when they have in fact increased by only 3.7%.[2] It also refers to hospital and specialist cost increases that are incorrect and do not exist in the report referred to.[3]

Factually incorrect and misleading statements are also made regarding health workforce differentials between the public and private sectors. For instance, it is stated that "A larger part of the financial and human resources for health are in the private health sector serving a minority of the population." However, it is estimated that there are 238,596 (73%) health professionals in the public sector and only 89,183 (27%) in the private sector.[4]^,[5]The catchment populations are estimated to range from 76% to 70% for the public and 24%[6] to 30%[7] for the private. No systematic distortions in the health workforce can be determined other than those caused by decisions of the public sector itself.

In fact both nurses and general practioners are better represented in the public than the private sector according to the Department of Health itself.[8] However a Department of Health pamphlet on NHI released to coincide with the Green Paper (in all official languages) reflects workforce information known to be incorrect, and furthermore contradicts data produced in independent studies and its own human resource strategy.[9]

The existence of crude per capita expenditure differentials between medical scheme members and public sector users are incorrectly regarded as evidence of an equity differential. For this to be valid some feedback effect from private expenditure to public sector access would need to be shown. No such analysis or reasoning is however provided.

It however could occur for services which face medium-term supply constraints, such as human resources. It could be argued that a burgeoning private sector could make them unavailable for public services. There is however no evidence that this is occurring. The public sector is also well supplied in hospital beds and clinics, which are very close to the World Health Organisation norm (when the public sector catchment population is used as the denominator).

However, medical products are not supply-constrained and any level of demand in the private sector will have no impact on public sector provision. The private sector however pays a higher price for medical products and demands higher volumes. Both contribute to the cost differential and neither has anything to do with equity. At best it could be argued that consumers in the private sector are exploited. An argument supported by analysis produced by the Council for Medical Schemes.[10] This is however not an equity argument and merely suggests that Government should regulate the sector properly.

Even in the face of cost distortions in the private sector, medical scheme members are quite evidently prepared to pay a premium not to use public sector services. The General Household Survey also shows a high level of patient satisfaction with 94.9% of private sector users very satisfied relative to only 60.4% for public sector services.[11]

Over a period of seventeen years (since 1994) the Department of Health has however never intervened in the market or through the competition authorities (who have extensive powers to deal with such issues), proposed any coherent legislation, changed any problematic legislation, or used its powers to apply conditions to hospital licensing. It has also not implemented recommendations from regulatory authorities and stakeholders explicitly requesting interventions of this nature.[12]

The exaggerated language on costs used by the Green Paper, combined with the use of inaccurate information, raised belatedly in 2011, is questionable as prevalent problems exist because of government's failure to properly intervene.[13]

Taking account of the above, the Green Paper offers no diagnostic foundation upon which to build a strategic case for reform, whether applicable to the institutional design of the public sector or to levels of taxation. Also, no options are presented, or reasons provided why particular proposals are selected over others. It appears as though this work was not done.

The proposal to eliminate the provinces and establish a central fund involves significant institutional risk and could unhinge an already under-performing poorly performing public sector. Performance weaknesses within the public sector are likely to be exacerbated on two counts: the centralization of functions that need to be decentralized to work well; and the application of a political governance model to a fund with major procurement and administrative responsibilities. The services have to date floundered for these exact two reasons.[14]

On the tax increases and resulting proposed expenditure:

• No usable information on the assumptions for the costing is provided;
• The unit cost information assumes public sector resource costs at current prices, which is implausible given the real increases in public sector costs over time and the fact that the proposals envisage buying services from the more highly priced private sector;
• The utilisation change estimates (which build up to some overall cost) are based on reforms to the Thailand health system and bear no relation to the South African experience;
• No confirmation is provided that for the tax increases a single-tier health system results; and
• No useful information is provided on what the additional funds are to be spent.

Given the scale of the proposed outlay, and the macroeconomic risks involved, it is crucial that the emergence of a single-tier system be shown to be plausible. As the Paper provides no definitive evaluation of this central assumption, a negative inference can only be drawn. Were a strong case possible it would no doubt have been included in the Green Paper.[15]

Any failure to achieve a single-tier health system, which depends crucially on medical scheme members transferring in large numbers to public sector coverage, will have macroeconomic effects due to net reductions in disposable income and the transfer of consumption and production from more productive sectors to the health sector. This could see overall health expenditure rising to in excess of 11% of GDP[16] and a decline in GDP growth.[17]

Uncertainty surrounding the achievement of a single-tier system is reflected in the Green Paper itself, which states that the implementation of NHI "could have positive or negative implications, depending on the model utilized and its outcomes."[18] This refers to a "draft report" by the National Treasury. However, no further information or analysis is provided. An evaluation is therefore still required to demonstrate that the reforms will serve rather than harm the public interest.

Given that the central premises of the business case cannot be confirmed, it is premature to talk about methods of taxation or public sector restructuring. All South Africa‟s health objectives can plausibly be achieved with the existing architecture of the system, and existing levels of finance. Importantly, no evidence has in fact been produced in the Green Paper to contradict this view.

What should be reformed?

South Africa however cannot avoid its obligations to reform the health system. And it would be negligent of Government to presume that the NHI proposals reflect a satisfactory response to the current state of affairs.

The way forward can be divided into three categories: recommended interventions that should not be pursued; recommended interventions that should be pursued but require more work; and interventions that have not been mentioned but should be pursued.

Interventions that should not be pursued on the basis that no rationale has been provided or are not in the public interest:

• The establishment of a central fund and all its associated recommendations.
• The removal of health as a concurrent function of the provinces.
• The removal of academic hospitals from provincial supervision.
• The national registration of the population (as this will in any case occur through other government interventions as part of the social security reform process).
• The removal of the tax expenditure subsidy for medical scheme contributions (however, it should be modified to take the form of a refundable tax credit[19]).

Interventions proposed that should be pursued, subject to proper review and development:

South Africa should consider improving the public health budget to a level of 4% of GDP. As South Africa grows the capacity to extend and deepen benefits will then grow with GDP.

A decentralized district health system with de-politicised governance and accountability structures should be implemented. District authorities established under this framework should be permitted to appoint and remove the chief executive and chief financial officer. These authorities should be given the autonomy to develop strategies within the context of a coherent district financing system, national and provincial norms and standards, and agreements established between provincial authorities and district authorities. District boards should not be appointed exclusively by the political head of a provincial health department.

Autonomous public hospitals with independent and de-politicized governance and accountability structures should be a priority. The proposed frameworks that have been gazette by the Minister of Health however fall far short of the requirements of a public hospital system.

The complete implementation of the human resource strategy as published needs to proceed in conjunction with the development of support structures to guarantee its sustainability.

• A centralized funding framework for emergency-related trauma insurance should be implemented. Although sponsored by government, it needs to operate as an independent social security agency supervised by an independent board that reflects South Africa's social partners as well as specialist expertise.
• The Office of Standards Compliance should be implemented. However, it needs to be independent of government, with an independent board and executive. Government should not appoint or remove the executive. This should be the responsibility of the board.

Interventions that are required but upon which the Green Paper is silent:

• Existing regulatory structures supporting the health system need to be de-politicised and made properly independent, with all conflicts of interest removed. Appropriate cooling off periods are required for any person in a position to influence a regulatory decision.
• As proposed by the Department of Health in 2010, a price regulator needs to be implemented capable of supervising a system of centralized price negotiations for: hospital tariffs; professional fees; medical devices and medical products. The regulator should also take over the functions of the medicines Pricing Committee operating in terms of the Medicines and Related Substances Control Act.
•  The means test needs to be removed for anyone not able to access a medical scheme. In order to prevent any dilution of the funding for the public system through the removal of the means test, persons above the tax threshold should be required to take up medical scheme coverage. Medical schemes should be required to fund all public sector utilization. This is an efficient way to harmonize the public and private funding and provider systems and strengthen universal coverage.
• As medical schemes plainly provide critical social protection to income earners, and will continue to do so indefinitely, it is critical that they are well regulated. Any failures within this system will expose gaps in the achievement of universal coverage in South Africa.

Required reforms include:

• Implementation of the governance reforms proposed in the Medical Schemes Amendment Bill of 2008;
• Implementation of the risk-equalisation fund proposed in the Medical Schemes Amendment Bill of 2008;
• Implementation of medical scheme benefit arrangements as proposed in the Medical Schemes Amendment Bill of 2008;
• Coherent and responsible clarification of the demarcation between the business of a medical scheme and the business of ordinary commercial insurance is required;
• The system of waiting periods and late joiner penalties needs to be better constituted to prevent unfair discrimination against vulnerable applicants;
• The distinction between medical savings accounts and risk-pooled benefits needs to be clarified;
• The regulation of administrators and brokers needs to be reconfigured to remove conflicts of interest and properly distinguish between marketing activities and advice; and
• The prescribed minimum benefits framework needs to be made watertight while also giving schemes the ability to manage costs (which requires that government set up the proposed price regulator).

Conclusion

Taken at face value the Green Paper does not provide a strong basis for improving the South African health system. Important areas of reform are not mentioned or incompletely discussed, while speculative and untested proposals are given undue weight.

The financing and institutional proposals contained in the Green Paper also involve significant risks for the country and the health system. Despite this, no diagnostic, feasibility analysis, business case, or risk analysis is thought necessary.

Overall, the standard of workmanship that went into the Green Paper is a cause for concern with numerous factual and logical errors reflected throughout. As many of these errors affect the main recommendations, a re-thing of the policy options is in order.

Government consequently needs to consider the development of a new Green Paper that holistically responds to the known and prevalent challenges. It should furthermore present valid and distinct business cases for: any alteration in the architecture of the system; any substantial institutional change; and any proposal to substantially alter levels of taxation.

Prof. Alex van den Heever currently holds the Old Mutual Chair of Social Security, Policy Management and Administration at the University of the Witwatersrand and is a Research Fellow at the Helen Suzman Foundation. The full version of his submission can be accessed on the Foundation's website here - PDF.

Footnotes:

[1] It appears the "Problem Statement" in the Green Paper is meant to serve this function.

[2] See par 6.32.

[3] See par 6.31.

[4] All the estimates took account of estimates from Persal, Discovery Health Ltd, Colleges of Medicine of South Africa.

[5] See section 6 for a more complete analysis of the workforce.

[6] This is based on the General Household Survey utilisation for 2006 converted into a value equivalent to 100% use of the private sector. The resulting value is lower than stated by the Department of Health.

[7] This is the figure provided by the Department of Health. See box 6.11.

[8] This is acknowledged in the human resource strategy published by the Department of Health in October 2011. Department of Health, Human Resources for Health, South Africa, HRH Strategy for the Health Sector: 2012/13 - 2016/17, 11th October 2011, p. 28 and 30. [http://www.doh.gov.za/docs/stratdocs/2011/hrh_strategy.pdf]. This report states that general practioners and professional nurses have higher staff to population ratios in the public than the private sector.

[9] See pars 6.41 - 6.46 and table 6.3.

[10] Council for Medical Schemes, 2008.

[11] Statistics South Africa, 2010, p.18.

[12] Council for Medical Schemes, 2008.

[13] See par 6.12 for a discussion of the failure of the Department of Health to intervene.

[14] See pars 6.16 - 6.20 and 6.29.

[15] See section 16 for a discussion on the costing.

[16] See section 16.

[17] Due to the transfer of production from productive sectors to a less productive sector.

[18] GP, par 61, p.21.

[19] This would allow subsidies to be provided to families below the tax threshold.

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