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Six costing models, zero affordable solutions

21 June 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

During June and July 2010 soccer will dominate the discussion around South Africa’s dinner tables. We’ll discuss winning and losing teams, celebrate individual performances and whine bitterly about refereeing decisions. But once the cleaners sweep out Soccer City stadium on 12 July the country’s social services backlog will take centre stage once more. We’ll be forced to redirect our attentions to the poverty stricken, the homeless and the unemployed! How can we address the surfeit of social ills?

Politicians will take heart from the fact the country met its seemingly impossible infrastructure commitments for the FIFA 2010 World Cup ™, while taxpayers will rue the billions spent on rushing these project through. The successful hosting of the event proves that anything is possible when enough money is thrown at it. In much the same way six separate studies conclude government’s ambitious National Health Insurance (NHI) solution is possible, at a cost!

Six surveys can’t be wrong

The NHI has taken a back seat in recent months. Stakeholders in the healthcare industry are still waiting for government’s first official document covering the NHI proposal, and the public hasn’t had opportunity to comment. But this hasn’t prevented interested parties from taking the first tentative steps in costing a possible solution. They’re relying on information already in the public domain and leaning heavily on cost and pricing statistics available from the medical schemes industry. Econex (http://www.econex.co.za/) is the latest to join the fray. The group recently published the seventh in their series of NHI briefing notes titled Estimating the Financial Cost of the NHI Plan.

Government now has an impressive list of documents to consult when it comes to ‘ball park’ estimates of the cost of implementing NHI. These include:

1. The Cosatu Costing by Calikoglu and Bond
2. The HEU Costing by McIntyre, Ataguba and Cleary
3. ASSA / Deloitte / Discovery Health Model
4. McLeod-Grobler-Van der Berg Costing and Pricing
5. Costing and Evaluation by ECONEX
6. Costing and Evaluation by Alex van den Heever

Where to start

The African National Congress (ANC) wants to create a united, equitable and integrated national health system that benefits all South Africans. Econex started its costing exercise by considering universal and comprehensive coverage at a provider of choice and without co-payment. The report assumes a level of medical cover somewhere between the most generous private medical scheme and the Government Employee Medical Scheme (GEMS), an average of medical schemes contributions countrywide. The 2008 Council for Medical Schemes figure of R700 per person per month, once adjusted for inflation, suggests it would cost R443bn to extend this level of service to the entire population. Econex says this is the potential upper annual estimate of implementing NHI in South Africa.

There are three basic ways to estimate medical aid costs. The first is the so-called population-based method, which is simple but doesn’t account for differing healthcare needs across age. A second popular technique is known as actuarial costing and is already extensively used in South Africa’s private medical schemes environment. Econex concludes: “Applying this method to the public population has certain drawbacks as the same level of detailed data is not available and the profile and patterns of disease differ between the insured and uninsured populations.” It’s an interesting observation and casts some doubts on the appropriateness of procedures offered to insured individuals! The third method, and perhaps the most appropriate, is the demand-based costing.

The Cosatu Costing by Calikoglu and Bond (2008) makes use of a demand-based costing model. They conclude the shortfall between current and required government funding (at 2009 prices) is between R98bn and R194bn!

South African medical schemes NOT expensive

Econex also used a demand-based costing method. The group started with the uninsured population and estimates of medical service unit costs and then built this up to cover  the entire population. They publish their findings in a table titled: Estimated Total Cost of NHI Using a Demand-Based Disaggregated Model under Alternative Assumptions. This table concludes the additional burden on the state would be between R174bn and R287bn! “The proposed NHI in its current form, promising universal coverage, no co-payments, comprehensive cover and provider of choice, will be massively expensive,” they conclude.

Econex’s base case will cost R308bn (in 2009 prices) and require a ‘top up’ from government of some R287bn. The best case – though not necessarily for healthcare beneficiaries – is calculated after severe rationing and savings and still requires R174bn from the public coffers. The ‘best’ estimate is will commandeer 25% of all annual tax revenues, or 7% of GDP!

Editor’s thoughts: The Econex model is the latest to confirm the massive burden an NHI system would place on South Africa’s fiscus. Government is trying to push through a plan that in its most basic form will burn through 25% of annual tax revenue before a cent is spent on other social imperatives such as welfare, housing and education. Does it make sense for government to proceed with this plan? Add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Thommy, 17 Apr 2012
Please can you update on the current application of this costing model in South African Financial Services Sector.
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Added by PMB is NHI, 05 Aug 2010
Prior to 1994, public health care was free - in the new democratic SA, it isn't, which shouldn't surprise anyone who understands the BEE cost layering of incompetence. Politically incorrect or not, the problem is not just money - the Government excel in taxing the decreasing number of employed - it is resources and leadership, both of which are sorely lacking. Yet there is hope - the Council for Medical Schemes could show its DoH masters a thing or three about how to do their job;
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Added by Realist, 21 Jun 2010
Of course it doesn't make sense but when government starts shouting "Medical Aid for all" from the street corners like vendors, and the votes start pouring in, is anyone going to stop them? Least of all their own greedy, powerhungry selves? And will they themselves be utilising NHI? Oh no, they'll still be sitting in their exclusive private hospitals, having somehow wangled the system so that they don't have to use the severely over-burdend and under-resourced facilities involved in the scheme.
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Added by Medaid, 21 Jun 2010
Any government worth its salt, must see to the needs of its people. I cannot find any fault with govt if it wants to cover everybody for healthcare. However, this is not the realistic way to go. This will be like shooting yourself in the foot. A more realistic way will be to stick with the current system, but jack up the management and administration of the current system. It will be more affordable to do it this way AND there will be money left to provide the much needed other social services.
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