Healthcare reform: Is the private sector a stumbling block for equity?

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Story Photo: Hein Van Eck
Hein Van Eck

These range from government’s commitment around the treatment of HIV/AIDS, as well as the Department of Health’s 10-point plan for turning around the healthcare system. The government is also considering the introduction of an NHI system to address some of the problems of the current health system. Presently, there is no government publication around the details of the NHI, although the most recent ANC NHI discussion paper provides some idea of the objectives of the NHI, and the likely structure.

The objectives of the proposed health reform in South Africa, through the NHI, are laudable and the central goal of universal access to quality care is spot-on - all South Africans should support this.

The reality is that the private sector provides first-world quality healthcare to a small proportion of the South African population, while the majority of South Africans depend on a struggling public sector characterised by long waiting lines and arguably lower quality of care. This inequality is very unfortunate and is the reason why the principles of solidarity and equity feature so centrally in health reform debates.

In essence, solidarity and equity means the rich subsidise the poor, no one is discriminated against based on their ability to pay or state of health - in short it encompasses ‘fairness’. In the context of the NHI reform it can be defined as contributing to health financing according to ability to pay and benefiting from healthcare services according to need for healthcare services. The principles of equity and solidarity are widely applied in most democratic societies, and I fully subscribe to these principles too. An important concept to grasp is that equity speaks to how the funding and benefits of healthcare are distributed, but not how much is available to be distributed. Achieving equity does not necessarily imply a comprehensive benefit package with high quality care. These are determined by the available resource envelop.

It is important to note that even in wealthy countries, where equity and solidarity principles prevail in a universal health system, the wealthy still opt to purchase private health cover despite levels and quality of healthcare that is ‘acceptable’ to the general public. This is because the wealthy can afford to pay for preferential access to the level of care they want, which is not available in the universal system. For example, the NHS of the UK commands a budget of £110 billion (2010) and provides good quality care. Nevertheless, those who can afford it (10% of the population) opt to purchase private health insurance. Our proposed NHI system should therefore aim to achieve equity with the understanding that the level and quality of care will still depend on the available resource to the health sector. Even after contributing to the NHI, the wealthy may still opt to purchase private insurance cover. This does not mean that the system is inequitable.

The scenario in the UK is not different from that in South Africa. Everyone contributes to a universal public health sector through general taxes, which are progressive (i.e. the higher income pay a larger proportion of income in tax). In essence South Africans are contributing to the financing of healthcare according to ability to pay. In South Africa, health financing is equitable! Private expenditure on healthcare is a response from those who prefer better healthcare, even after they have contributed to the public health system. It is unfortunate that in the NHI debate the lines between public and private money have blurred to such an extent that the existence of the private sector is being touted as the reason for needing an NHI.

Who has not heard the claims that 50% of healthcare expenditure in South Africa is for 16% of the population (i.e. medical scheme beneficiaries)? Seeing as roughly 85% of medical scheme contributions are private money, one should instead consider the state’s healthcare spend on medical scheme beneficiaries in order to understand the funding and solidarity issues. Government provides for a tax subsidy for medical scheme members, which is expected to be roughly 14.2bn in 2010 for a projected 8.2m people. The 2010/11 Department of Health budget of R104bn is used to provide healthcare services for roughly 42m people who make use of the system (this includes those roughly 10m people who do not have medical scheme cover, but do access private GPs by paying out-of-pocket). Put another way, the above government healthcare benefit to medical scheme members amount to roughly R1730 per annum, whilst the amount for those who are dependent on the public sector is almost R2500 per capita per annum.

One should further point out that medical scheme members represent most of the personal income taxpayers in South Africa and as such fund a large proportion of the public healthcare system, even though they hardly make use of that system. In terms of financing and benefit from the public system, this is equitable. This will then inform our assessment of how equitable the current system is and how much more equitable it can get.

This brings me back to the private sector, where first world care is provided at a very reasonable price compared to first world countries, but where affordability is a problem due to the skewed income distribution in South Africa. When discussing healthcare reform it is important to understand one or two things about the private sector:

1. The private sector should not be seen as a threat to the public sector, but rather a report card of sorts. The quality of public healthcare is a major determinant of the size of the private healthcare sector. The current quality problems in the public sector therefore explains why the average proportion of income that medical scheme members pay towards insurance is higher than in many other countries. This is due to many low income South Africans opting to purchase private healthcare.

2. It is further inaccurate to compare the per capita healthcare spend in the public and private sectors and draw the conclusion that because the private sector number is four times greater the private sector is ‘grossly inefficient’. I am not arguing that the private sector has no inefficiencies, but the extent thereof is not nearly as large as painted in policy debates.

Let me explain:

Firstly, there are between 1.5 and 2 million young and healthy high income individuals who opt not to have private insurance even though they can afford it. This makes private insurance more expensive. Prof Heather McLeod showed in an IMSA Policy Brief ( that if these people where mandated to have private insurance, the average contribution rate would decrease by almost 22%!

Secondly, the private sector provides a defined benefit package, whilst the public sector has to ration care in order to optimise every healthcare Rand spent. For example, it can easily cost R500,000 to save a premature baby that weighs less than 1kg at birth. The public sector has to weigh this up against (say) providing ARTs for 1,000 HIV patients. These are tough choices that government have to make. Medical schemes, however, have to provide the defined services and may not withhold care from one patient in order to provide care for others if the given treatment is scientifically appropriate.

Thirdly, the cost structures of private providers are different to public providers. For example, the public sector do not pay VAT, have access to drugs at state tender prices (which is anything between 50% and 70% cheaper than in the private sector), do not have to show a return on investment, etc.

Lastly, the underfunding in the public sector is hard to quantify. Once the capital infrastructure has been revitalised, an additional 80,000 healthcare workers appointed (over time) and the utilisation of healthcare services has increased by between 70% and 80% (all as per the ANC NHI discussion document), one would see far more comparable costs between public and private sectors.

In summary, the focus on healthcare reform, improved delivery of care and increased equity is a positive development for South Africa. Whatever the structure of the final government NHI plan, we should start with the highest level of equity we can afford and focus on increasing that over time. The private sector should be seen as an asset to the country and a sector that can positively contribute expertise to the turnaround plan in the public sector. But first, active steps must be taken to build trust between the public and private sectors.

Source: Health-e News

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