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

Business & Management

Arabian Journal of Business and Management Review

Author(s): McLeod H, Grobler P

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Abstract 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.
This article was published in Adv Health Econ Health Serv Res and referenced in Arabian Journal of Business and Management Review

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