Medical Savings Accounts in South Africa
Table of Contents
The South African Health Care System: The Private Sector
"About one-fifth of South Africans have private insurance and their number grows about 2 to 3 percent a year."
Partly in response to the problems that plague the public system, South Africa has a large and growing private health care sector. Unlike the public sector, the private sector offers care comparable to that offered by most first-world health care systems. Currently, the 20 percent of the population using the private sector has access to 85 percent of the country's pharmacists and at least 75 percent of all medical specialists.6 As real per capita spending in the public sector has decreased, spending in the private sector is rising dramatically.
Private Health Insurance. In contrast to the public sector, health care delivered in the private sector must be paid for by patients.
- In order to help meet these costs, approximately 20 percent of the population purchases private health insurance in a very competitive insurance market.
- Over the past decade the number of privately insured people has grown about 2 to 3 percent per year. [See Figure I.]
Within the last five years there also has been rapid innovation within the private insurance market, spurred in part by deregulation in 1994. Prior to deregulation, the South African market in many ways resembled the U.S. private insurance market before the advent of managed care.7 That is, it was dominated by nonprofit, bureaucratic organizations that did not function like typical profit-making enterprises.8
Coverage was generally provided at community-rated premiums (without even variation for age differences) and was guaranteed to all applicants regardless of health status. Fees earned by the insurers and/or administrators usually were a percentage of the premium, offering little incentive for cost control or plan innovation.9 The net result was a market dominated by traditional indemnity plans providing first-dollar coverage for most services. With few cost containment incentives in the system, private insurance costs increased dramatically during the 1980s and early 1990s.
"Competition and innovation reduced premium increases after insurance market deregulation in 1994."
Effects of Deregulation. Deregulation of the market removed a number of constraints on the system, including the requirements of community rating and guaranteed issue. In addition, for-profit insurers were allowed to enter the market. Given the freedom to innovate and experiment, insurers soon began offering a range of health plans: traditional indemnity plans, medical savings account plans, preferred provider plans and HMO-type managed care. Competition and innovation also reduced health insurance premium inflation. (See Figure II.) And it increased the solvency of insurers, as reflected in the growth of assets per enrollee. (See Figure III.)
Companies offering medical savings account products have enjoyed the greatest success. By contrast, U.S.-type managed care plans have not fared well. For example, United Healthcare entered the market aggressively in 1997, in partnership with a local insurance company and a large employer. The venture was unsuccessful. Recently, United Healthcare left the South African market and its operations were absorbed by a large local administrator.
The Threat of Reregulation. Despite the recent success of the market in increasing the number of people insured, reducing premium increases and improving solvency, regulations that became effective this year threaten to derail this progress.
"Despite success, there is the threat of reregulation."
The most troubling new rules are those reintroducing community rating and guaranteed issue (requirements to accept all applicants and charge one uniform premium). Under pure community rating and guaranteed issue, a healthy person would have no incentive to purchase insurance and pay premiums. The reason: The individual could buy insurance at the same premium paid by everyone else after getting sick. In recognition of this problem, the government is allowing insurers to apply preexisting condition exclusions and charge higher premiums to older enrollees. For example, insurers may exclude coverage for certain conditions for enrollees who join a plan after they have developed the condition. Furthermore when people join after age 35, the community-rated premium can be raised by 25 to 75 percent. These provisions encourage people to insure when they are young and healthy.
Many insurers are now designing products for the young and healthy. An example is the Vitality program described below.