Health insurance in South Africa: an empirical analysis of trends in risk-pooling and efficiency following deregulation.
This paper reports an empirical investigation into the pattern of private health insurance coverage in South Africa before and after deregulation of the health insurance industry. More specifically, we sought to measure trends in risk-pooling over the period 1985-95, and to assess the impact of risk pooling on the costs of health insurance cover over this period. South African mutual health insurers (Medical Schemes) have existed for over 100 years, and have been regulated under a specific Act since 1967. Up until 1989, health insurers were required by law to community rate their premiums, and were not allowed to exclude high-risk enrolees from cover. In 1989 these regulations were removed, effectively allowing health insurers to risk-rate the cover which they provided, and exclude 'medically uninsurables'. Data were obtained from the office of the health insurance regulator (the Registrar of Medical Schemes) for the period 1985-95, and consisted of the statutory returns from all registered medical schemes for each year during the study period. Multiple regression methods were used to assess the determinants of changes in the risk pools of insurers, and their costs. Both cross-sectional and longitudinal models were estimated. Unadjusted data suggest changes in risk-pooling since the deregulation period after 1985. Health insurers with open enrolment had worse than average risk profiles in the 1980s, but this reversed by the early 1990s, leaving them with significantly better risk profiles by 1995. Worsening risk profiles were associated with decreasing fund size, higher loss-ratios and past premium increases. Most models showed that risk rating of premiums was consistently associated with higher premiums, after adjustment for risk, quality, scale and other environmental differences between insurers. Likely explanations include the additional costs required for marketing and underwriting risk-rated policies, insufficient incentives to use cost-control techniques, and higher levels of moral hazard associated with diminished risk-pooling. Current re-regulation of risk-pooling within medical schemes may thus improve both equity and efficiency of private health care cover.
Söderlund
N
N
Centre for Health Policy, University of the Witwatersrand, Johannesburg, South Africa. neil_soderlund@bigpond.com
Hansl
B
B
D000206:Actuarial Analysis; D004465:Economic Competition; D017598:Efficiency, Organizational / Q000639:trends*; D005249:Fees and Charges; D019981:Health Care Sector / Q000639:trends; D006801:Humans; D019458:Insurance Coverage / Q000191:economics; D015271:Insurance Pools / Q000639:trends*; D007348:Insurance, Health / Q000331:legislation & jurisprudence / Q000639:trends*; D015233:Models, Statistical; D013019:South Africa