Health care reform rooted in reality

by Aug 17, 2009All Articles

June 05, 2009 Edition 1
Dr Jonathan Broomberg

Health care by its very nature is emotive. The consistent underperformance of the South African health care system when measured against other nations is not only costly in financial terms, but also affects individuals and their families at a personal level every day. High-profile horror stories of inadequate care in public facilities, accompanied by doctors’ strikes in recent weeks, have highlighted the urgency of effective treatment for South Africa’s ailing health care system.

The ANC’s 2009 election manifesto proposed a National Health Insurance (NHI) system as a key component of its efforts to address the serious problems afflicting the health care system.

At this stage, little is known about the details of any NHI proposals. Key elements of the proposals are reported to include the implementation of a new, dedicated payroll tax for health care and the establishment of significant administrative infrastructure to oversee these funds and buy health care benefits for the population.

It is too early to comment on these proposals in any detail, as the absence of a formal policy document means that many critical details are still lacking, but it is not too early to lay the foundations for a robust and healthy public debate on the NHI proposals, which will be essential as we embark on this ambitious health care reform process.
We believe any health care reform, including the proposed NHI system, should be based on the following four principles:

o    Transparent and vigorous public debate, based on hard evidence. Thus far, the NHI debate has been held behind closed doors, with no public or stakeholder participation. It is vital that detailed policy documents be made public as soon as possible to allow all interested stakeholders to participate. It is also vital that proposals be based on hard evidence, not on ideological assertions and beliefs. In particular, it is critical that we understand the true economic cost and impacts of any proposals.

o    We also need a detailed understanding of the successes and failures of other countries that have tried reforms of these kinds, particularly those countries with socio-economic profiles similar to our own. It took South Korea, Australia, Canada and many other European countries decades to establish universal health care access at the scale we are contemplating in South Africa. We can, and must, do more in a shorter time, but this will require contributions and collaboration on the part of all stakeholders.

o    Health care reform, including the NHI, must uplift the standards of public health care and improve quality and accessibility of health care for all.

The key objective of the proposed NHI system appears to be to provide access to a decent package of health care benefits for all South Africans. We support this objective. To achieve this will require a focus on tackling the severe and ever-worsening problems of our public hospital system. This is the backbone of South Africa’s health care system, and fixing it must be the priority for government over the next five years. In an independent rating of health care system performance across 43 countries conducted by Monitor Group, South Africa’s public sector ranked 36th. The most fundamental problem ailing our health care system is the failure of the public health care sector to meet the health care needs of citizens, as well as its failure to use our scarce public funding efficiently and appropriately to improve accessibility, quality of care and health outcomes.

Health care reform must be rooted in economic realities. The NHI proposals appear to be based on three critical components: raising substantial additional funding for the NHI through a dedicated payroll tax; providing a comprehensive package of health care benefits to all South Africans; and using a combination of public and private health care providers to deliver the comprehensive package of benefits. While there can be no objection to these as hypothetical objectives of a health reform programme, it is critical that we understand the interactions between these objectives and the realities of our economic environment. Raising additional tax revenues for the health care system will have major impacts elsewhere in the economy, particularly in the context of a recession. While the levels of any proposed new payroll tax remain uncertain (levels of two to five percent have been suggested), any new payroll tax (to be shared between employers and employees) will undoubtedly have an impact on the cost of employment, and hence on the potential of the economy to create new jobs. It is also not clear that economic realities will allow an NHI system to provide a comprehensive package of benefits to all South Africans.

We have one of the world’s highest unemployment rates. This means relatively few employed taxpayers will have to carry the cost of providing the envisaged package of health care benefits to the entire population. Some simple examples illustrate this dilemma: if the NHI were to provide the current package of benefits obtained by the average member of a medical scheme to the entire population, this would cost about R497 billion, equivalent to 20.1 percent of gross domestic product (GDP).

Some have argued that South Africa needs to spend five percent of GDP on the public health care system, up from the current three and a half percent. If we were able to fund this dramatic 30 percent increase in funding for health care, when spread across the entire population, it would still buy a package of benefits equivalent to only about a quarter of the package now obtained by medical scheme members. So, at our stage of economic development, an NHI system will be able to provide only a limited package of benefits beyond what is already provided in our current public health care system.

The NHI proposals also assume that an NHI fund will be able to “purchase” the package of benefits from both public and private health care providers.

While this objective is again a laudable one, it seems to ignore the reality that the supply of health-care providers is highly constrained, and that there is little excess capacity to provide additional services to the entire population. This is certainly true for specialists, and for private hospital beds.

The proposals also seem to assume that a single NHI “purchaser” will be able to use its purchasing power to reduce prices charged by private doctors and hospitals. But this ignores the reality that our private specialists and GPs believe that they are underpaid by medical schemes, and that they should be paid more. They are thus hardly likely to contract with an NHI purchaser that aims to reduce the prices which they charge for their services.

Conversely, an improved public hospital system, which creates a more attractive working environment and pays doctors and nurses better, would no doubt attract some private practitioners back to the public sector, which would be of great benefit to the system as a whole.

South Africa’s sophisticated and world-class private health care system should be seen as part of the solution, not part of the problem. This is a national asset, and is critical to many key government objectives, including those of skills retention and foreign direct investment.

Proponents of the NHI seem to see the private health sector as the root of all problems, and many of the proposals seem aimed at damaging private health care, rather than improving the public system. Ironically, any weakening of the private sector to attempt to supplement the public sector will result in an increased burden on the public system, because people who have previously used the private system will invariably use more health care services in the public system than the available funding for them. This means that there is then less funding for the existing users of the public system – the opposite of what is required.

The fact is, while the private health-care system can be improved and made more efficient, it is an effective, high-quality, self-sustaining system, funded by the voluntary contributions of the public; it needs to be seen as part of the solution. Of the about R70bn spent by medical scheme members on health care each year, R57bn is purely private money, paid by employees and employers. The balance, R13bn, is provided by the National Treasury as a tax subsidy, in recognition that those who fund their own private health care are not a burden on the public sector. The implementation of an NHI system will thus not magically move the R57bn of private money from the private sector into the NHI. Even if an NHI tax is implemented, millions of people will continue to buy medical scheme cover, as they will be unwilling to depend on the NHI system to provide the quality of health care and access they believe they need. This should be viewed positively, as these people would otherwise consume scarce resources in the public sector.

We are at the beginning of a critically important health policy debate. How this progresses, and its final results, will affect our health care system and economy, for decades to come.

Dr Broomberg is the head of strategy and risk management at Discovery Health.

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