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(More) policy uncertainty: Medical schemes under the NHI

By Dr Paula Armstrong

Minister of Finance Malusi Gigaba presented his first Medium Term Budget Policy Statement (MTBPS) on Wednesday 25 October 2017. Many stakeholders in the healthcare space kept a watchful eye for any indication of funding mechanisms for National Health Insurance (NHI). Although no significant changes to revenue allocation with regard to healthcare expenditure were announced in the MTBPS, the silhouette of NHI looms large on the horizon. Discussions around its implementation and the implications thereof have gained momentum in recent months, following the publication of the most recent version of the NHI White Paper.[1] A notable concern is the level of uncertainty about regulations that will govern medical schemes in South Africa. In particular, the projected role of medical schemes and, by implication, the private healthcare sector, has been described in contradictory terms by two documents; the White Paper published on 28 June 2017, and Government Notice no. 660 of 2017, published on 7 July 2017.[2]

Ultimately, the White Paper and the government notice determine the fate of medical schemes as this country moves towards the objective of ensuring widespread access to high quality healthcare. However, these documents envisage the future of medical schemes in South Africa and their role in contributing towards universal healthcare coverage quite differently.[3]

White Paper: Moving away from medical schemes

Section 7.5 of the White Paper speaks to public funding options for the NHI. Having considered various combinations of possible sources of tax revenue, the White Paper indicates a preference for generating revenue for the NHI through “option B” – a combination of payroll taxes (payable by employers and employees), and a surcharge on individuals’ taxable income. Each of taxes amounts to 2%.[4] In addition, the White Paper suggests that medical scheme tax credits be reallocated towards funding the NHI.[5], [6] Specifically, it is suggested that:

“As the NHI evolves, the tax treatment of medical expenses and medical scheme contributions will be reviewed. It is also expected that there will be a reduction in the need for medical scheme contributions and/or the level of coverage required. The resulting saving in … expenditure could help to reduce [the] proposed tax increases. With the implementation of NHI, the role of medical scheme in the health system must change.”[7] (emphasis added)

In other words, the White Paper suggests that under the NHI, the need for medical scheme membership will be diminished because individuals currently utilising the private sector will receive healthcare of similar quality in the NHI and will therefore no longer require medical scheme membership to access the private sector. They will use the NHI system. In addition, the White Paper calls for the reallocation of all Government subsidisation of medical scheme membership for State employees towards NHI funding requirements.[8]

The White Paper therefore sees a vastly reduced role for medical schemes in the NHI. By withdrawing the medical scheme tax rebate, the White Paper suggests removing a reimbursement from government to private sector users initially designed as an incentive to make use of private healthcare and ultimately lessen the burden of healthcare provision on the state. The private sector will have a peripheral role to play in the country’s future healthcare provision, and will largely be absorbed by the NHI. The resources spent by government in enhancing the affordability of private sector healthcare will be redirected towards funding the NHI.

Government notice: Expanding medical scheme membership

Government Notice no. 660 of 2017 calls for the establishment of a number of committees, including the National Advisory Committee on Consolidation of Financing Arrangements for the NHI. The overarching mandate of this committee is “[the] consolidation of funding streams into 5 transitional funding arrangements [that] will effectively reduce the current fragmentation and through a process of income cross-subsidisation allow for the transition towards the establishment of a single financing pool without having to wait for the raising of additional revenue through the tax system.”[9]

Amongst other things, the Terms of Reference for the Committee call for an investigation into the introduction of mandatory medical scheme cover and contributions for all workers employed in the formal sector.[10] It is noted that the “costs of mandatory cover will include subsidisation by Government, employers and employees”, and that “[where] appropriate, the state will provide a subsidy against the annual contributions, either upfront or through the tax credit system”.[11] In addition, the Notice calls for the consolidation of existing restricted and open medical schemes, in order to achieve better risk adjustments across medical schemes. A consolidation of medical scheme options increases the risk pool within which cross-subsidisation takes place, thereby improving the ability of medical schemes to honour beneficiary claims. Mandating membership further increases the risk pool and further improves the viability of medical schemes. Both of these options will also decrease medical scheme contributions – some commentators are of the view that it may decrease contributions by as much as 10%.[12]

In contrast to the White Paper, this document seems to consider medical schemes, and by implication the private sector as it operates currently, as a necessity for the future of healthcare provision in South Africa. The proposals put forward aim to improve the affordability of medical schemes and therefore private healthcare. This effectively enables the private sector to accommodate a larger portion of overall healthcare demand in South Africa, thereby (further) alleviating the burden on the public sector. By striving to make the private sector more affordable and accessible through mandating medical scheme membership amongst the employed, this Government Notice seems to demonstrate an acknowledgement of the potential for the private sector to contribute towards the NHI’s objective of achieving universal access to quality healthcare in South Africa. Channelling demand towards the private sector relieves a severely pressurised public sector, allowing it to better use the resources available to improve the quality of healthcare provided.

While the White Paper speaks explicitly to the removal of medical scheme tax rebates and government subsidisation of medical scheme membership for state employees, Government Notice no. 660 of 2017 proposes the consideration of mandatory membership for all workers employed in the formal sector. The notice proposes that mandatory membership be subsidised in part by government and where appropriate, through the tax credit system. These proposals are a direct contradiction of each other.

The implied role of medical schemes characterised by the NHI is therefore uncertain. Should the proposals put forward in the White Paper prevail, the role of the private healthcare sector will be limited, with this part of the sector being largely absorbed by the public sector to comprise a single healthcare system. In the case that provision is made to expand medical scheme membership and consolidate medical schemes in order to facilitate adjustments to the risk pool, the private sector will be able to play a supporting role in healthcare provision in South Africa, alleviating the public sector and allowing the current allocation of resources for public healthcare provision to be better used to improve the quality of healthcare in the country and in particular to those in the poorest parts of society who are unable to access high quality healthcare.

[1] Department of Health. 2017. National Health Insurance for South Africa: Towards universal health coverage. White Paper.

[2] Government Gazette no. 40969. 7 July 2017. Government Notice no. 660 of 2017. NHI Implementation: Institutions, bodies and commissions that must be established.

[3] Econex has published blog posts detailing the White Paper’s stance on medical schemes as well as the socioeconomic distribution of healthcare benefit and financing in South Africa. These provide useful context for the discussion of the role of medical schemes and the private sector in healthcare provision in South Africa.

[4] NHI White Paper. Par. 242, p 48.

[5] ibid.

[6] Econex Research Note 46 analyses the theoretical implications of this for medical scheme affordability.

[7] NHI White Paper. Par. 243, p 48.

[8] NHI White Paper. Par. 243, p 48.

[9] Government Notice no. 660 of 2017. p 18.

[10] Government Notice no. 660 of 2017. p 19.

[11]ibid.

[12] This is based on research on Progressive Benefit Design presented by Barry Childs at the Board of Healthcare Funders (BHF) Southern African Conference in July 2017. Childs’ presentation is available here.

Author/s: Dr Paula Armstrong

Nothing in this publication should be construed as advice from any employee of Econex and should be seen as general summaries of developments or principles of interest that may not apply to specific circumstances.

2017-10-27T19:17:31+00:00 October 27th, 2017|