Financing Options for National Health

Financing Options for National Health Insurance (NHI) in South Africa Presentation to Wits School of Public Health Presenter: Mark Blecher CD: Health & Social Development January 2013

Introduction Inspired by vision of universal coverage, NHI aims to improveaccess to quality services and provide financial risk protection Proposes phased transition, three phases over a 14 year period National Treasury is considering key financing issues and choices in line with the vision laid out by the Green Paper on NHI Given the substantial call the NHI will make on the government budget, NT analysis focuses on resource requirements and revenue raising options Treasury has also begun to look at other dimensions: risk and revenue pooling purchasingof health services including the proposed benefits package provision of health care services 2

Expenditure on Healthcare 2011/12 Source: National Treasury Budget Review 2012 3

NHI where are we? NHI Green Paper approved by Cabinet NDoHconference Lessons for South Africa Launch of 10 NHI district pilots NDoH release of NHI White Paper Aug 2011 Dec 2011 April 2012 2013 Conditional grant for NHI : R 150m in 12/13, R300m in 13/14, R 450m in 14/15 NT release of NHI Financing Paper

Framework for health financing analysis Collection of funds Pooling of funds Purchasing of services Provision of services Sources: households, firms, governments, donors Mechanisms: Tax -PIT, VAT. Social insurance, NHI. Private insurance. User fees. Community financing. Donations/grants Types of collecting agency: government, parastatal, private Risk pools: coverage and composition of risk pools and degree of fragmentation; number and nature of purchasing authorities Resource allocation: degree to which this is needs based (risk equalized); resource allocation formula (risk adj. capitation) Transfer of pooled funds to providers Active vs. passive purchasing, contracting, information systems Benefits package Budgeting, allocative efficiency Payment mechanisms Mix of public and private providers who are accredited to deliver health services Source: Kutzin, 2000

Health financing issues & questions While the Green Paper has many positive features Vision of broad, deep, equitable coverage Public single payer Purchaser-provider split Mixed public-private provision Primary care as foundation stone New regulatory bodies Phased transition many health financing questions remain Financing Mechanisms: How much public funding is needed? What mix of sources will be most equitable and sustainable? Governance of the fund:what type of NHI fund will be most efficient? How will the fund work with provinces and district pools? How might medical schemes evolve? Scope of Benefits: What level of services is affordable? How to set priorities? Contracts and Payment: Which forms of contracting and provider payment will control costs and drive quality?

REVENUE GENERATION & COLLECTION 7

NHI Cost model 1: Funding Requirements: Adapted from Green paper (real 2010/11) R million Year Baseline: Health Budget 10/11 102,097 % Change 11/12 108,928 6.7% NHI costs revised given pilots % Change Funding Gap 12/13 112,130 2.9% 113,130 1,000 13/14 116,086 3.5% 118,086 4.4% 2,000 14/15 120,160 3.5% 125,944 6.7% 5,784 15/16 124,365 3.5% 134,324 6.7% 9,959 16/17 128,718 3.5% 143,262 6.7% 14,544 17/18 133,223 3.5% 152,795 6.7% 19,572 18/19 137,886 3.5% 162,962 6.7% 25,076 19/20 142,712 3.5% 173,805 6.7% 31,093 20/21 147,707 3.5% 185,370 6.7% 37,663 21/22 152,877 3.5% 197,705 6.7% 44,828 22/23 158,227 3.5% 210,860 6.7% 52,633 23/24 163,765 3.5% 224,891 6.7% 61,126 24/25 169,497 3.5% 239,855 6.7% 70,358 25/26 175,430 3.5% 255,815 6.7% 80,385 8

NHI Cost model 2 (McLeod) Table 5: Early cost model for NHI built up from medical scheme data* Cost in Rbn (2009 terms) of Benefit Package Offered by NHI Efficiency assumption Medical Scheme Prescribed Minimum Benefits (PMBs) Basic Benefits: PMBs+ Primary Care High Cost Benefits: PMBs+ all In-Hospital Core Benefits: PMBs+ Primary Care+ In- Hospital Fully Comprehensive: all healthcare benefits Medical schemes efficiency: 100% of cost Moderate improvement: 80% of cost Presumed public sector cost: 70% of cost Staff model efficiency: 50% of cost 156 251 224 319 334 125 201 179 255 267 109 176 157 223 234 78 126 112 160 167 *Developed by McLeod based on analysis by McLeod, Grobler and Van der Berg 9

NHI Cost model (3) ASSA Table 7: Actuarial Society (ASSA) NHI cost model at full implementation (2025/26) Benefit Package Cost Less 30 per cent: efficiency savings and price reduction Comprehensive Total cost: R336bn Total cost: R235bn (Addition to baseline (Balance of funding: Prescribed minimum benefits (PMBs mainly hospital) Primary Health Care funding: R248bn) R148bn) R55bn) Total cost: R119bn Total cost: R86bn Balance of funding: Balance of funding: R59bn R26bn Total cost: R45bn Balance of funding: R23bn Total cost: R34bn Balance of funding: R12bn Further 30 per cent price reduction and supply side constraints Total cost: R143bn (Balance of funding: Same as 30 per cent price reduction scenario (Total cost: R86bn) Same as 30 per cent price reduction scenario (Total cost: R34bn) 10

Costing models Green Paper numbers Derived from utilisation trends by 5-yr age-group and unit costs. Piloting means costs will be lower in earlier years than presented in Green Paper. A revised scenario shows total costs in 2025 remain R255 billion (2010 rands) ier80b additional, but figures in early years rise more moderately The two other costing models show broadly similar results, but variation can be obtained by adopting different assumptions. What drives health care costs? Demographic changes over decades Medical inflation over long time periods Utilisationassumptions to what extent can these be influenced Unit costs: extent to which private sector is used Provider Payment methods Benefit package Supply side constraints 11

Revenue Collection: Tax Principles In determining which taxes to use for raising revenue for NHI, consider the main principles of a good tax: Efficiency: The tax system must produce sufficient income for the state, with minimum distortions to the economy. Equity: All residents must contribute to the fiscusin proportion to their ability to do so. Both horizontal and vertical equity are important. Simplicity: As far as possible, taxes should be simple to understand and should be collected in a timely and convenient manner. Transparency & certainty: The manner in which taxes are collected and the calculation of tax liabilities should be certain. Tax rules and procedures should be transparent. Tax buoyancy: The tax system should raise sufficient revenue during all phases of the business cycle, while it lends support to a counter-cyclical fiscal framework. 12

Finding the right balance Finding the right balance is one of the key challenges to achieving a financially sustainable, efficient and equitable solution to funding NHI, to ensure that: Overall tax burden remains reasonable Measured by tax revenue/gdp ratio Tax mix and level does not impact negatively on: Economic growth; employment creation; savings Important considerations: tax base tax mix trade-off between efficiency and equity relative level of progressivity 13

PIT, VAT & CIT as a % of GDP TAX / GDP ratio: Three main taxes 11.0% 10.0% 9.0% Individuals VAT Companies 8.0% 7.0% 6.0% % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% YEAR 14

Tax options under consideration Tax Surcharge on taxableincome: Personal IncomeTax (PIT) system is progressive, marginal tax rates increase -18% to 40%. Allows for relatively high tax threshold Payroll Taxes: Imposed on employer and/or employee Current payroll taxes:uif, Skills development levy (1%) Social security reforms in the pipeline Value added tax: Indirect tax Levied on transactions Pros & cons A flat surcharge on taxable income in addition to the PIT liability (similar to the Medicare levy in Australia) could be considered Administratively feasible Possible concern is the potential negative impact on savings Increases cost of employment and incentivizes movement to the informal economy Consider high unemployment rate in South Africa Recent global trends show a movement away from this Less distortionary, has a relatively broad base Does not impact on savings or employment negatively Impact on the poor how regressive and how to compensate forthis? SA s VAT rate 14%-compared to global average of 16.4% Used to fund NHIS in Ghana 15

Other Tax instruments / options Sin taxes Attractive in that they appear to reduce smoking & alcohol abuse Two drawbacks (1) Incentives for illicit trade (2) Revenue raising potential minimal 2011/12: R11bn from cigarette & R12bn from alcohol sales Potential for token payment User fees Can serve as demand management mechanism and can address (to some extent) moral hazard, can raise some (minimal) revenue But, create inequities, raise barriers to access, not effective in containing costs, and discriminate against the poor Consider effective rationing mechanisms (gate-keeping), if user fees should be used for unnecessary extras excluded from benefit package, services not in accordance with treatment guidelines, use of non-accredited providers 16

POOLING RISK AND REVENUE 17

Pooling Green Paper proposes A single National Health Insurance Fund est. byend of first phase (yr5) with: - Provincial offices est. at end of 2nd phase (year 10) who will contract with: 47 integrated District Health Authorities, who will purchase PHC services Issues to address Role of public sector risk pools at subnational level - risk adjustment formula Legacy of existing pools challenges in transitioning to a comprehensive NHI Structure, staffing and governance New legislation (+ constitutional change?)required to establish the NHIF, and define the responsibilities of national and provincial spheres of government Degree of autonomywith rest of government (NHIF and NDOH), alignment of NHIF and existing provincial funding streams 18

Medical schemes/voluntary health insurance under NHI Medical schemes can play a number of roles in NHI systems form the early core of social health insurance, or operate as a form of private health insurance : substitutive, complementary, supplementary Medical schemes cover > 8 million beneficiaries in SA GEMS covers 1.6m people, 54% of all civil servants, and spends 4x more per cap. than public sector -phasing into NHI needs to be handled with care Potential reforms to consider: Development of common basic benefits package Development of framework for managed care organisations Cost controls: reimbursement, pricing negotiations and tariff determination Risk equalisation Efforts to maintain competition among providers, limiting monopoly provision Transitional arrangements likely to be lengthy given cost differentials, evolution of NHI over 14 year period, and challenges surrounding integration of funds. 19

PURCHASING 20

Purchasing as outlined in Green Paper Coverage scope, breadth and depth Who? All South Africans and legal permanent residents. What? Uncertainty on benefits package, pricing, utilisationrates, etc Likely to be based on current services, progressively extended over time How much? Co-payments discouraged, but may exist for services not in accordance with treatment guidelines, not covered by benefit package, non-adherence to referral system, use of non-accredited providers Reimbursement mechanisms Hospitals:global budgets initially, then applying a case-mix and ultimately Diagnostic Related Groups (already used in the private sector) PHC providers: risk adjusted capitation, and possibly following improvements in information systems, linked to performance mechanism 21

Purchasing key issues to consider Active purchasing? Going beyond passive reimbursement of inputs Contracting/purchasing complex, skills need to be built up at district, provincial & national level Cost containment: Many countries that moved to NHI have seen rapid price and cost escalation, need to put into place controls: Modify demand: health promotion & prevention, incentiviseentry at lowest or most appropriate level Control the supply: gatekeeping, electronic patient records;modify provider behaviour through prospective payment mechanisms; price controls Methods for paying providers can have powerful effects on volume of health services, their price and cost to the NHIF Hospitals: currently no standard way to determine how a public hospital is funded and large differentials in funding hospitals of similar type and workload. PHC providers: need to develop and pilot new contracting and reimbursement options e.g. District contract with private GP. 22

Areas of purchasing to be piloted Need to build capacity in active purchasing what to buyin light of health needs and evidence on what works how to buy contractual mechanisms and payment systems from whom to buy in light of levels of quality & efficiency Strategies that could be examined in pilots Costing of package of services starting with PHC? Mechanisms for billing the NHIF (and medical schemes) for care rendered in public facilities Contracting mechanisms with private GPs, pharmacies and eventually hospitals Reimbursement mechanisms such as DRGs Different ways of delegating responsibility Results based financing? 23

PROVISION 24

Green paper on Provision Re-engineering of primary health care(phc): District-based clinical specialist support teams School-based primary health services Municipal ward-based primary health care agents Strengthening of public health services Infrastructure improvements for public sector hospitals Human resources: doctors and other scarce professionals Hospital management, financial management in provinces, supply chain systems Doubling numbers on ART from 1.7 m to 3.4 m, better detection of TB Mix of public and private provision Introduction of some private provision to widen scope and nature of services. Phased approach: starting with GP contracting, and pharmacies, over time hospitals Quality: Accreditation of facilities and establish Office of Health Standards & Compliance (OSC) 25

Provision key issues to consider Consider new models of public provision: e.g. Hospital Trusts in UK Mix of public and private provision to widen scope and nature of services, phased approach: starting with GP contracting, and pharmacies, over time hospitals. build on SA s strengths, harnessing quality care from all segments of the provider network challenge is that private services have typically been more expensive than public ones Quality: Accreditation of health facilities and establish of Office of Health Standards Compliance as an independent entity 26

Conclusion NHI will necessitate public funding in addition to the national health budget could reach R 80.4 billion (real 2010/11 rand) by 2025/26 The right balance between efficiency and equity needs to be found in deciding which tax instrument or combination of tax instruments is most appropriate A combination of VAT, payroll taxes, or a surcharge on taxable income is being considered Additional funds for NHI must be accompanied by measurable and sustained improvements in health services, including quality of care Pilots underway in 10 districts - Further analysis must be carried out on contracting and payment tools, and the mixed delivery platform including contracting with private GPs, pharmacies and eventually hospitals NT to release its financing discussion paper alongside White Paper. 27

Annex (1): Pilot districts 28