In South Africa, the sources of health care financing include general taxes, private medical schemes and out-of-pocket payments. In 2005 these sources accounted for an estimated 40%, 45% and 14% respectively.65
The South African private health care system is financed primarily through two main sources.
The prepaid funding method includes the voluntary private health insurance organisations i.e.
the medical schemes which are categorised as open, restricted or Bargaining Council schemes.
These schemes collect revenue, in the form of monthly contributions, from both employers and employees on a voluntary basis. Medical schemes are therefore the financing agents and accounted for 77.3% of the total private expenditure on health from 2003 to 2005.63 The second form of funding is out of pocket expenditure. The latter is probably the most regressive form of funding of health care since the household spends the proportion of income that would normally be used to purchase basic necessities, on health care interventions.66 These contributions do not flow via a financing agent since they are used to purchase health care services directly.
5.2.1 Contributions to Medical Schemes
The population of South Africans receiving health care from the private sector has remained fairly constant at approximately seven million people. These beneficiaries of private health care services, are equivalent, according to Statistics South Africa, 2006, to 14.0% of the total population.24 Despite this relatively small number of beneficiaries, private expenditure
employment but have the ability to pay, also contribute voluntarily to medical schemes. Of the seven million people benefiting from the private health care sector, an estimated 27.2% of those covered by medical schemes are formally employed and 13.5% are self-employed.24 The medical schemes offer a variety of benefit packages which are priced according to the package of care provided. These options are chosen depending on one’s ability to pay the required subscription. The usual scenario is that the greater a person’s income, the greater the likelihood that the person would choose the more expensive option providing a more comprehensive care package. The vast majority of beneficiaries, 81.2% and 78.3%, belong to the higher income brackets of between R20 000 – R30 000 per month and over R30 000 per month, respectively.24 Therefore it can be concluded that the beneficiaries of medical schemes originate from better socio-economic circumstances than the rest of the population and it’s this rich group that benefits from the majority of the country’s expenditure on health.
The total expenditure by the private sector on health has increased each year since 2003 from R57.5 billion to R69.2 billion (Table 2) but this amount is a conservative estimate since the out- of-pocket expenditure is likely to be underestimated as the only reliable data was available for the year 2006 while the data for 2003 to 2005 was determined based on the 2006 figures.
Medical schemes accounted for an average of 83.8% of total expenditure by the private sector.
This is greater than the World Health Organization’s estimated 77.3% but this is probably as a result of the missing data on other private health insurances.
The gross contribution to medical schemes has increased on an annual basis since 2003 by almost R3 billion each year. However, the population covered by medical schemes has remained almost unchanged throughout the time period except for the year 2006 when Government Employees Medical Scheme (GEMS) became operational. The rate of increase was 6.0% in 2004, 5.2% in 2005 and 6.3% in 2006. The average percentage increase of 5.8%
was consistently above the consumer price index. This rate remains significant but it is much lower than it was in the late 1980s and early 1990s when the real percentage increase was between 25.0% and 30.0%.12 These increases above the Consumer Price Index create difficulty for the population to maintain their membership since affordability becomes a problem as there
are other competing household priorities like paying for basic necessities. The benchmark set by the Office of the Registrar of Medical Schemes is CPIX + 3.0 %.24 Medical schemes which offer options with increases above this target have to provide a motivation for such a request.
This intervention is likely to protect members of medical schemes and could account for the narrowing between the Consumer Price Index and the contribution rate trend as seen in Figure 10.
5.2.2 Households
Out of pocket expenditure includes all the payments that households make from their
disposable income towards health care interventions. Both medical scheme members and non- scheme members that seek care from the public sector contribute to this source. The latter would include foreign nationals either visiting or residing in the country. Medical scheme members pay out of their pocket when co-payments are required for benefits from the medical schemes like acute medication or specialist consultation that is above the recommended tariff, when the service rendered is not covered by the scheme option and when the scheme is exhausted. Non-scheme households pay for any healthcare received by the private sector including pharmacists, general practitioners, other allied health professionals and traditional healers.
Households may also contribute to other short and long term health insurances which pay out a defined amount of money for selected defined major medical procedures, dreaded diseases, disabilities, accidents or hospital stays but due to the lack of data on these contributions, this has been excluded from the expenditure review. However, it is estimated that health insurance
Schemes’ (LIMS) specific national household survey which provided a biased assessment of out of pocket expenditure since the sample size of households covered by medical schemes was very small. The LIMS household survey sampled a total of 5.1 million non-rural households with an income of less than R6000 per month and just 7.3% of individuals were members of a medical scheme.51 However there was no other information available that allowed for the triangulation of the IES. According to other research reports, out of pocket spending accounts for almost 25.0% of the total expenditure in the private health care sector in South Africa.12, 23 According to the World Health Statistics 2008, from 2003 to 2005, out of pocket expenditure comprised 17.4% of private expenditure on health.63 This discrepancy in the percentages demonstrates that there are no accurate reports on out of pocket expenditure but that this nevertheless represents a significant funding source in South Africa.68
According to the 2001 NHA private sector report, household out-of-pocket expenditure comprised 22.4%, 18.9% and 22.5% of total expenditure on health in 1996, 1997 and 1998, respectively.33 Of these amounts, medical scheme members contributed between 65% and 70%
of the expenditure while those not covered by schemes contributed the rest. In this health expenditure review, out-of-pocket expenditure accounted for 15.5%, 15.9%, 16.7% and 16.8%
for total expenditure on health in the private sector for 2003, 2004, 2005 and 2006, respectively.
It was not possible to disaggregate the data on out-of-pocket expenditure according to medical scheme and non-medical scheme coverage as this data was not available for this health
expenditure review.
For the period 2003 to 2006, out-of-pocket expenditure was estimated to be from R8.9 billion to R11.6 billion (Table 2). It was acknowledged in the 2001 report that the data sources for these amounts were unreliable.33 Not much has changed since then. The same IES has been used to estimate out-of-pocket expenditure for both scheme and non-scheme members. The
methodology used in the survey has been changed to improve the reliability of the data.
According to the 2001 private sector report, medicines and medical practitioners accounted for the largest payments from households’ pockets, accounting for 55.0% and 38.0% respectively for medical scheme members and 48.0% and 26.0% respectively for non-scheme members.33
Amendments to the medicines regulations have resulted in a decrease in this component of out of pocket expenditure. According to the 2006 IES, consultations to medical practitioners accounted for the biggest payment i.e. 37.0%, followed by expenditure on pharmaceutical products which accounted for 35.0% for both medical scheme and non-scheme members (Figure 23).