Risk equalisation and voluntary health insurance: The South Africa experience.

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.

The role of risk equalization in moving from voluntary private health insurance to mandatory coverage: the experience in South Africa.

OBJECTIVE: The South African health system has long been characterised by extreme inequalities in the allocation of financial and human resources. Voluntary private health insurance, delivered through medical schemes, accounts for some 60% of total expenditure but serves only the 14.8% of the population with higher incomes. A plan was articulated in 1994 to move to a National Health Insurance system with risk-adjusted payments to competing health funds, income cross-subsidies and mandatory membership for all those in employment, leading over time to universal coverage. This chapter describes the core institutional mechanism envisaged for a National Health Insurance system, the Risk Equalisation Fund (REF). A key issue that has emerged is the appropriate sequencing of the reforms and the impact on workers of possible trajectories is considered. METHODOLOGY: The design and functioning of the REF is described and the impact on competing health insurance funds is illustrated. Using a reference family earning at different income levels, the impact on worker of various trajectories of reform is demonstrated. FINDINGS: Risk equalization is a critical institutional component in moving towards a system of social or national health insurance in competitive markets, but the sequence of its implementation needs to be carefully considered. The adverse impact of risk equalization on low-income workers in the absence of income cross-subsidies and mandatory membership is considerable. IMPLICATIONS FOR POLICY: The South African experience of risk equalization is of interest as it attempts to introduce more solidarity into a small but highly competitive private insurance market. The methodology for considering the impact of reforms provides policymakers and politicians with a clearer understanding of the consequences of reform.