An investigation of the efect of social solidarity reforms on the affordability of medical scheme cover for south African households

Shapiro, Daniel
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Medical schemes operate based on social solidarity, which is established through community rating, open enrolment and Prescribed Minimum Benefits. However, social solidarity is limited by adverse section, risk selection and limited income cross-subsidies among medical scheme numbers. Reforms consisting of a per-capita subsidy, risk equalisation and mandatory coverage have been proposed to increase social solidarity. This dissertation investigated the effects of these proposed reforms on the affordability of medical schemes for South African households. Publicly available data sources were used to investigate the household profiles of medical scheme beneficiaries, project contributions of medical scheme options under the reforms and assess the affordability of projected contributions for different household profiles. The dissertation found that medical scheme coverage is unaffordable for low-income members, especially pensioners. Coverage is affordable for members with higher incomes but affordability may depend on the option chosen and the threshold set for affordability. Affordability was found to not differ significantly for different household compositions. The current tax subsidy increases affordability for low-income members but not for members below the tax threshold. The replacement of the current tax subsidy with a per-capita subsidy would increase affordability for members below the tax threshold. Risk equalisation would introduce greater risk cross-subsidies between options but would decrease affordability for low-income households. Greater income cross-subsidies would thus need to accompany risk equalisation. Mandatory contributions related to incomes would introduce greater income cross-subsidies and make coverage affordable for low-income households. Increases in contributions would be relatively small for high-income households if coverage is mandatory only for taxpayers. Mandatory contributions for all income earners and for the full population would decrease affordability for members which may limit the extent to which mandatory coverage can be expanded. These results show that social solidarity reforms can increase the affordability of medical scheme coverage, which is relevant for current healthcare financing reforms.
A Dissertation submitted to the Faculty of Science, University of the Witwatersrand, Johannesburg, in fullfillment of the requirements for the degree of Master of Science Johannesburg, 2018