Social security and healthcare reforms

1. Social security and healthcare reforms MFP Professional Development Day November 2011

2. Agenda • Social security reform • Health care reform • Challenges to making reforms reality • Looking ahead

3. Social securityreform

4. Rationale: challenges with current system • Low coverage • Low income replacement • Low preservation • High costs

5. Employees with pension contributions from employer (by income, %) (%) Source: Statistics South Africa

6. Employees with pension contributions from employer (by industry, %) Source: Statistics South Africa

7. Members who have withdrawn their retirement funds in the past (%) Source: Sanlam

8. Use of retirement funds after withdrawal % of members who withdrew funds Source: Sanlam

9. Retirement fund costs by size of fund Cost (% of contributions) Source: Financial Services Board

10. Social Security Pillars • Social assistance: Pillar 1 • Non-contributory • Tax funded • Focused on the poor • Social insurance: Pillar 2 • Mandatory contributions • Focused on income earners • Voluntary insurance: Pillar 3

11. Proposals discussed in 2011 • Establishment of a National Social Security Fund (NSSF) • Mandatory contributions for retirement, death and disability • Sufficient unemployment protection to minimise withdrawal from retirement savings • Government guaranteed benefits • All workers to contribute up to income threshold – currently R157, 000 • Contribution subsidy for low income earners • Mandatory contributions to approved private funds for income >R157, 000 to R750, 000 • Voluntary savings for income above R750, 000 • Mandatory preservation

12. Proposed multi-pillar system Voluntary savings For income in excess of R750, 000 Main objective is to allow high income earners to save more Approved funds Mandatory contributions for income R157, 001 - R750, 000 Main objective is additional cover above NSSF NSSF +/- 8.3 million members (all employed South Africans) Targets income up to R157, 000 with co-contributions for low income earners Mandatory contributions for retirement, death, disability and unemployment Main objective is basic contributory benefits Social grants +/-15 million beneficiaries All individuals 60 and above will receive state pension Main objective is poverty alleviation

13. Potential positive impacts • Greater coverage • Lower costs • Improved preservation • Higher replacement ratios • National solidarity

14. Potential negative impacts • Contraction in size of private sector • Loss of jobs • Reduction in corporate and personal tax • Strain on national resources

15. International case study: Chile • Why reform ? • Corruption and insolvency led to collapse of public PAYG system • Falling coverage due to rising unemployment and evasion • 3 pillar system • Pillar 1: basic solidarity pension and solidarity complement for those who financed small pensions (introduced 2008) • Pillar 2: Fully funded mandatory DC system called AFP (introduced 1981) • Pillar 3: Voluntary DC • Pension saving education fund introduced in 2008

16. Mandatory DC pillar – most well known part of Chilean pension system • Fully funded mandatory DC system replaced public PAYG system in 1981 • Compulsory for salaried workers but voluntary for the self employed • Contribute 10% of income for retirement • 2-3% of income to cover admin costs, and health and survivorship insurance • Contributions based on income threshold • Large increase in pension funds under management– 10% of GDP in 1985 to 110% in 2010 • Increase in savings and investment rates • Challenges faced by DC pillar include: • Low density of contribution by salaried workers • Low coverage for the self-employed

17. Health care reform

18. Rationale: challenges with current system • High disease burden • Low coverage • Fragmented system • Escalating health care costs

19. Reasons for high disease burden • HIV/AIDS and TB • Maternal, infant and child mortality • Non-communicable diseases • Injury and violence

20. SA disease burden compared to other developing countries DALYs Source: Econex

21. Population covered by medical schemes (%) Source: Government Green Paper

22. Employees with medical aid contributions from employer (by industry, %) % of workers with medical aid benefits Source: Quarterly Labour Force Survey

23. Per capita expenditure in medical schemes and public sector Rands Source: Government Green Paper

24. Needs versus benefits by income group Source: Ataguba and McIntyre

25. Proposal • Establishment of National Health Insurance (NHI) • Objectives of NHI: • Provide access to quality healthcare irrespective of employment status • Pool risk and funds to achieve social solidarity and equity • Procure services on behalf of population • Efficiently mobilise and control financial resources • Strengthen under-resourced public sector

26. Features of NHI • NHI is a healthcare funding system aimed at providing universal coverage • Health services will be provided through accredited and contracted public and private providers • A defined comprehensive package of health services: primary, secondary, tertiary and quaternary • Will be phased in gradually over a 14 year period from 2012 • Funding model being considered: payroll tax, higher VAT rate and surcharge on individuals’ taxable income

27. Potential positive impacts • Greater coverage • Better health care for majority of population • National solidarity

28. Potential negative impacts • Will be clearer when more details are known • Contraction in size of private sector • Loss of jobs • Reduction in corporate and personal tax • Strain on national resources

29. International case study: Taiwan • Why reform ? • Fragmented public insurance system with 10 schemes • Low coverage – 41% of population uninsured • Seven years of planning from 1986 to 1993 • Move to democracy in 1987 served as a catalyst for reform • Pressure of elections led President to decree that NHI was to start operating by 1 March 1995 • NHI implemented after 2 decades of rapid economic growth

30. Features of the Taiwanese NHI • Enrollment into NHI is mandatory - by 2006 98% of population was insured • Administered by the Bureau of National Health Insurance (BNHI) • NHI funded mainly by premiums : 60% (employees), 30% (employers), 10% (government) • Direct government funding also used

31. Features of the Taiwanese NHI • Significant involvement by private sector – e.g. bulk of hospitals and hospital beds are privately owned • Co-payments for outpatient visits and co-insurance for inpatient services • Uniform fee schedule for contracted providers • Comprehensive benefit package

32. Challenges faced by the Taiwanese NHI • Financial sustainability • NHI was facing deficits by 1998 and by 2002 BNHI had to borrow from banks • NHI reserve depleted in February 2007 and financial gap was US$437 million in March 2008 • Quality issues – ‘fast food healthcare’ • High cost of drugs sold through hospitals

33. Challenges toreforms in SA

34. Challenges • Can SA finance NSSF and NHI at the same time? • How do we improve service delivery before implementation of NSSF and NHI? • How do we incorporate what is already working well? • How do we take on board views of all stakeholders? • What can we learn from the experience of other countries?

35. Looking ahead • Waiting for government paper on compulsory preservation • Waiting for government paper on latest NSSF proposals • Looking forward to robust debate on health care and social security reform with other stakeholders

36. Thank you