Healthcare regulatory reform where to?

Healthcare regulatory reform where to? Christoff Raath Health Monitor Co

Agenda slides look like this 1. A brief history 2. Where are we now? 3. Future scenarios 4. Role of the Profession 2

The need for health regulation Consider the fate of an oncology patient in need of health cover 3

Health and politics Distorted value attribution Example air safety vs road safety Examples in healthcare abound Oncology treatment Seperation of siamese twins Clean water and sanitation 24-hour skilled nursing staff at public hospital ICU 4

The art of stating the obvious 5

Speaking about the unspoken 6

Health Plan, 1994 Principles for National Health Insurance: Current medical schemes form the basis. Membership compulsory all formal sector employees and dependants. Schemes may not exclude high risk [Jan 2000]. Basic package of care to be statutorily defined [PMBs]. Contributions for basic package will be income-related. Pooled in central equalisation fund; each scheme paid according to risk profile i.e. a risk adjusted capitation fee. Schemes can offer cover above essential package. Long term goal for all citizens, including unemployed, to be covered under the NHI system. Source: prof Heather McLeod, 2004

Mutuality Normal insurance Premium relates to risk Involves an assessment of risk Solidarity Losses paid according to need Contributions unrelated to risks Perhaps based on ability to pay Implies some measure of universality or compulsion Source: Prof David Wilkie (1997)

Regulatory overview The Medical Schemes Act 1998 Community rating Open enrollment Prescribed minimum benefits PMB extension - chronic disease list (2003) The future Risk equalisation Common benefits Income cross-subsidies Revision/extension of Prescribed Minimum Benefits Low income medical schemes Mandatory cover (or mandatory contributions)

Regulatory completion (for private funding sector) Social Protection aspects in place Sustainability aspects not in place Guaranteed benefits Risk equalisation Demarcation Open enrollment Community rating Mandatory cover Risk based solvency Access Equity Price Utilisation

Historically proposed Social Health Insurance Government Universal Subsidy per person equal to Public sector subsidy Risk Equalisation Fund Remove Tax Expenditure Subsidy SARS Income Cross-Subsidy: SHI Tax Risk-Equalised Basic Benefit Package (BBP) Member Medical Scheme Employer Direct Contribution only for packages above BBP Additional Direct Contribution if no SHI tax Source: Ministerial Task Team on SHI July 2005

Policy Objective and Trajectory 100% Income crosssubsidisation 0% Pre-1999 1 Medical Schemes Act (2000) Open enrolment PMBs Community-rating 2 Health tax introduced to fund value of comprehensive PMBs Extension of PMBs (2004) 3 Comprehensive PMBs implemented Risk Equalisation Fund 4 5 0% Risk cross-subsidisation 100% 8 7 6 Possible trajectory combining both risk- and incomecrosssubsidisation Re-allocation of tax subsidy on an equal per capita basis at value of PMBs Removal of tax subsidy Source: Ministerial Task Team on SHI July 2005

not a policy oversight South Africa is unusual in having open enrolment andc ommunity rating without risk equalisation. This was not a policy oversight, but a question of timing, and the South African Department of Health considers that the environment is now ready for the introduction of a Risk Equalisation Fund (REF). Source: Prof Heather McLeod, 2005. (Our emphasis) Quoted by Minister of Health in same year.

Table Salt Sodium Chloride

Table Salt Sodium Chloride Sodium without chloride is a toxic substance Chloride without sodium is a toxic substance But combined in the right way, we get ordinary table salt The same could be said about community rating without risk equalisation open enrolment without compulsory participation prescribed minimum benefits paid in full if no ethical or reference tariff exists

The industry challenges related to affordability and coverage are a direct, predictable and inevitable outcome of the regulatory dispensation within which we find ourselves 17

ANC Manifesto NHI, 2009 The ANC is determined to end the huge inequalities that exist in the public and private sectors by making sure that these sectors work together. Introduction of the National Health Insurance System (NHI) system, which will be phased in over the next five years. The principles of NHI will include the following: NHI will be publicly funded and publicly administered and will provide the right of every South African with access to quality health care, which will be free at the point of delivery. People will have a choice of which service provider to use within a district. The social solidarity principle will be applied and those who are eligible to contribute will be required to do so, according to their ability to pay, but access to health care will not be according to payment. Participation of private doctors working in other health facilities, in group practices and hospitals, will be encouraged to participate in the NHI system. Source: African National Congress 2009 Manifesto Policy Framework

Regulatory overview your logo here

National Health Insurance Universal Coverage is a sound and necessary objective Several positive developments have already emerged under the banner of NHI But with implementation timelines ranging from 14 to 25 years do medical schemes become a regulatory orphan in the meantime?

Death spiral

Low cost option gone wrong Loss-making Low cost options Loss-making Unhealthy Loss-making top option Loss-making REF Worried healthy (Worried wealthy) Surplus-making

Low cost option gone wrong Loss-making Unhealthy Loss-making top option Loss-making Low cost options Loss-making Worried healthy (Worried wealthy) Surplus-making

Sequencing of health reforms Prof Heather McLeod and Pieter Grobler Income cross-subsidies to precede risk equalisation Similar presentation by Willem Claasen at a BHF conference Aggressive income cross-subsidy proposals TES replaced by R90 grant per life for all beneficiaries Ironically, NT discussion document on tax credits proposes REF as a centralised collection mechanism to facilitate tax credits to the poor 27

Prescribed Minimum Benefits A necessary part of the regulatory framework Evidenced by some insurance products masquerading as full medical scheme cover but equally dangerous if at cost is bluntly applied out of context 28

CMS Annual Report 2012-2103 "PMBs remained under constant attack in the year under review. Despite evidence to the contrary, there are those who persistently claim that PMBs drive up the costs of medical schemes and consequently push up contributions, which in turn allegedly makes medical schemes increasingly unaffordable and the medical schemes industry unsustainable in the long run. Such attacks, though vociferous and unrelenting, remain unfounded. The CMS has been inviting parties making such allegations to come forward with evidence in support of their claims, but 13 years later, no such evidence has ever been brought to our attention. In fact, our research paints a very different and a very positive picture of PMBs and their impact on the industry. Since PMBs were reintroduced with the Medical Schemes Act, the industry has been performing better than ever and meical schemes have reached a new level of financial soundness. Equally important is the fact that members of medical schemes remain protected against unforeseen and catastrophic health events. Source: CMS Annual Report 2012-13, page 48

Challenges - PMB claims paid higher than Scheme rate 2 500 000 000 2 000 000 000 1 500 000 000 1 000 000 000 500 000 000 8% 7% 6% 5% 4% 3% 2% 1% Year PMB claims paid above Scheme rate 2010 539 963 601 2011 839 177 079 2012 1 157 629 069 0 0% Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov 2010 2011 2012 Proportion of payments higher than scheme rate Scheme rate Paid to providers Claimed by providers Source: GEMS Presentation at CMS Indaba on 1 March 2013, Cape Town

ITAP inflation committee Weighted average Standard deviation Plan mix 2.05% 3.51% Demographic impact 1.52% 1.86% Residual utilisation 1.05% 3.19% Total 4.61% 2.83% RESIDUAL UTILISATION broken down by discipline Weighted average Standard deviation Hospital 0.37% 4.09% Specialists 4.70% 5.30% GPs -1.93% 10.06% Pathology 3.60% 4.12% Radiology 3.00% 3.80% Medicine -0.47% 5.17% Other disciplines 1.36% 4.87% Total 1.05% 3.19% Source: Preliminary results of ITAP Inflation Committee Presented on 7 March 2013

PMB Trends Spend per life per month. Not adjusted for inflation.

PMB Trends Anaesthetist behaviour Charges as % tariff for 10 of the largest anaesthetist practices in South Africa

Planned solution to PMB reimbursement Minister don t want to plaster over the cracks Competition Commissioner inquiry Price regulation Possible bargaining chamber under DoH Apparent 5-year timeline in the meantime? 35

Regulatory balance Implementation Compliance Inspections Recent emphasis on Governance PMBs Penal and litigious Administrative interventions Progression Industry engagement Consultative processes Indulge in technical debates Consider ITAP findings Advise on policy trajectory CMS Indaba

Regulatory progression 2003 amendments to regulations 2009 PMB code of conduct 2012 Draft demarcation regulations (Dept of Finance) 2013 2014 38

Regulatory attention required Risk fragmentation section 33(2) Solvency regulation 29 PMB reimbursement regulation 8 Demarcation Risk equalisation and income cross-subsidies 39

Draft amendment bill Not clear where the process is Changing the and to or Several governance-related restrictions Removal of section 33(2)(b)? 40

Section 33(2)(b) Low cost Mid-range Super plus Required to facilitate affordability Required to prevent discrimination based on state of health 41

Section 33(2)(b) Low cost Mid-range Super plus Common benefits? 42

Section 33(2)(b) Low cost Mid-range Super plus Common benefits? 43

NHI Semantics

NHI Semantics NHI

NHI Semantics Universal Coverage

NHI Semantics Fixing service delivery vs Rearranging financial conduits

Future trajectory? Election year Lots of time required Hard to ignore existing infrastructure GEMS as a platform? By consequence, other schemes? International experience and existings of top-up cover The fate of health insurance products Better public facilities? More healthcare professionals? 48

Role of the profession How can the Actuarial Society assist to enhance South Africa s understanding of the context and dynamics of healthcare financing? Schemes, insurers, media, regulators, policymakers Speaking of the unspoken Stating the (sometimes not so) obvious 49

For every complex problem there is a solution that is simple, neat and wrong - Henri Louis Mencken