Elsevier

Health Policy

Volume 98, Issue 1, November 2010, Pages 27-38
Health Policy

Risk equalisation and voluntary health insurance: The South Africa experience

https://doi.org/10.1016/j.healthpol.2010.06.008Get rights and content

Abstract

South Africa intends implementing major reforms in the financing of healthcare. Free market reforms in private health insurance in the late 1980s have been reversed by the new democratic government since 1994 with the re-introduction of open enrolment, community rating and minimum benefits. A system of national health insurance with income cross-subsidies, risk-adjusted payments and mandatory membership has been envisaged in policy papers since 1994. Subsequent work has seen the design of a Risk Equalisation Fund intended to operate between competing private health insurance funds.

The paper outlines the South African health system and describes the risk equalisation formula that has been developed. The risk factors are age, gender, maternity events, numbers with certain chronic diseases and numbers with multiple chronic diseases. The Risk Equalisation Fund has been operating in shadow mode since 2005 with data being collected but no money changing hands.

The South African experience of risk equalisation is of wider interest as it demonstrates an attempt to introduce more solidarity into a small but highly competitive private insurance market. The measures taken to combat over-reporting of chronic disease should be useful for countries or funders considering adding chronic disease to their risk equalisation formulae.

Introduction

South Africa intends implementing major reforms in the financing of healthcare. While starting from a very different base compared to systems in Europe, the reforms are increasingly converging on a similar point: whereas Europe comes from a tradition of solidarity and is implementing increased competition in some healthcare markets, South Africa is coming from rampant competition in the private insurance market1 and is attempting to introduce greater solidarity.

This paper describes the health financing reforms in South Africa and the rationale and methodology for introducing risk equalisation. The experience with chronic disease as a risk factor in the risk equalisation formula is highlighted.

Section snippets

Background and structure

The South African health system has for many years been characterised by extreme inequalities in the allocation of financial and human resources. During the apartheid years (1948–1994) the inequalities were established on the basis of race but since 1994 are increasingly related to socio-economic class [1], [2], [3].

The health delivery system is a mix of strong private sector, struggling public sector and some non-governmental not-for-profit organisations. The majority of the population, 64% of

Development of the risk equalisation formula

Research work on risk equalisation mechanisms and risk factors was begun in 2000 at the University of Cape Town and in 2002 the largest administrator proposed and tested a first attempt at a risk equalisation formula [20]. The methodology for determining the risk factors in the initial formula is described in Appendix B.

The report formed the basis for the technical work of the Formula Consultative Task Team established by the Department of Health in July 2003. Stakeholders were invited to

Consumer mobility and competition between funds

A notable feature of the South African market for private health insurance is the aggressive competition between health insurance funds. In 1993 numbers in open and restricted funds were approximately equal but there has since been substantial growth of open funds at the expense of restricted funds [9]. Brokers began to operate in the market in about 1993 and aggressively moved people to open schemes in order to earn commission, often leaving older members behind in closed restricted schemes.

Partial implementation of proposed formula

There is no doubt that there are substantial differences in age and gender profile between options and between schemes. However, in this early phase of data collection on chronic disease, there is less evidence of substantial differences in chronic disease, after adjusting for age and gender. The differences in disease identification between administrators have over-shadowed any differences in disease profile between schemes.

The Council for Medical Schemes has considered that there may be a

Conclusions

This paper has discussed the development of a risk equalisation scheme between competing private health insurers in South Africa. It has illustrated a method by which chronic disease has been added as a risk factor and indicated the challenges of defining chronic disease across multiple funders.

The illustration of the net payment per scheme shows that in an environment of open enrolment and community rating without risk equalisation, there can be significant differences in risk between

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