126 and their clients. If there is a long delay between market entry and the enforcement of rules regarding market behaviour, experience suggests that the task of instituting those rules will politically very difficult(15, 16 A more moderate form of incentives for private sector involvement are represented by contracts between public purchasers and private providers In Lebanon, for example, 90% of hospital beds are in the private sector and nongovernmental organizations provide am bulatory care to about 10-15% of the population, particularly to the poor. Out of necessity, e Ministry of Health contracts with almost all private hospitals for a predetermined number of beds to serve public patients(17). But the government does not use this regulatory tool to its advantage. Reimbursement policies allow unnecessary hospitalizations and overuse of services, which result in cost escalation; and private hospitals operate in a largely unreg lated environment, which leads to uncontrolled investment. This in turn can lead to pres financial support, which will appear to justify further investment. Stewardship needs to ensure consistency in the incentive messages sent out by different levels of public policy. Regulation requires resources. Regulatory oversight and contractual strategies entail high transaction costs for both government and providers or insurers, which may reduce the potential cost savings of these strategies. High levels of awareness of these costs accompa nied the moves to separate the roles of purchasers and providers in the United Kingdom and New Zealand(18). Often, lack of commitment and funds hamper government capac- ity to carry out regulatory responsibilities, old as well as new. This suggests that capacity building in contracting skills and regulatory oversight is critically needed both via recruit ment of skilled staff and through training and technical aid to existing staff Box 6.5 South Africa: regulating the private insurance market to increase risk pooling The government which came to heightening the problem of in- sure that a greater proportion of team to prepare new regulations power in 1994 after South Africas equality contributions flows into the com for medical schemes the team first democratic elections found The new government's response mon risk po produced its first discussion docu- itself with a health sector which to these challenges was to enact Promoting lifetime coverage. Com- ment in 1996, and consulted mirrored the inequalities existing new legislation for medical schemes munity rating and guaranteed ac- widely with key stakeholders on in the wider society. A long-estab- to offer a minimum benefits pack- cess will be combined with its proposals. Discussion and de- lished and well-developed private age and increased risk pooling. The premium penalties for those who bate continued until mid-1997 health care industry accounted for fundamentalprinciples and objectives choose only to take out cover later when a formal policy paper re- 61 of health care financial re- the core of the Act are as follows. in life, to provide powerful incen- sulted. After a period of intense, ources, whi nly the affluent 20% of product or option, the only ive process, the new Medical the population. The vast majority grounds on which premiums may Prescribed minimum benefits. Schemes Act and its of the population had to rely upon be varied are family size and in- Every medical scheme must guar- Regulations came into force on 1 orly distributed, underfunded come Risk or age rating are pro- antee to cover in full the cost of January 2000, three anda halfyears and fragmented public services. hibited treating a specified list of condi- after the committee was formed st escalation in the private sec- Guaranteed access. No-one who tions and procedures in public fa- One important group will benefit tor typically exceeded inflation can afford the community rated cilities, thus greatly decreasing the immediately. HIV-positivemembers during most of the late 1980s and premium 1990s. The private sector re- sponded to this by limiting ben- c ns 8 o may be excluded on impact of dumping" patients of medical schemes now have ac- or health status. onto the state cess to subsidized care, induding risk pooling. Caps on the drugs for opportunistic infections, efits, increasing co-payments and sible contributions and ac- A committee of inquiry was ap. whereas previously they were ex- accelerating the exclusion of high- mulations through individual pointed by the health minister dur- duded or theirentitlementwas lim- risk members from cover, thereby medical savings accounts will en- ing 1995. It set up a small technical ited to very low benefit levels I Reforming private health financing in South Africa: the quest for greater equity and efficiency. Pretoria, Department of Health, 1997126 The World Health Report 2000 and their clients. If there is a long delay between market entry and the enforcement of rules regarding market behaviour, experience suggests that the task of instituting those rules will become politically very difficult (15, 16). A more moderate form of incentives for private sector involvement are represented by contracts between public purchasers and private providers. In Lebanon, for example, 90% of hospital beds are in the private sector and nongovernmental organizations provide am￾bulatory care to about 10–15% of the population, particularly to the poor. Out of necessity, the Ministry of Health contracts with almost all private hospitals for a predetermined number of beds to serve public patients (17). But the government does not use this regulatory tool to its advantage. Reimbursement policies allow unnecessary hospitalizations and overuse of services, which result in cost escalation; and private hospitals operate in a largely unregu￾lated environment, which leads to uncontrolled investment. This in turn can lead to pres￾sure for sustained public financial support, which will appear to justify further investment. Stewardship needs to ensure consistency in the incentive messages sent out by different levels of public policy. Regulation requires resources.Regulatory oversight and contractual strategies entail high transaction costs for both government and providers or insurers, which may reduce the potential cost savings of these strategies. High levels of awareness of these costs accompa￾nied the moves to separate the roles of purchasers and providers in the United Kingdom and New Zealand (18). Often, lack of commitment and funds hamper government capac￾ity to carry out regulatory responsibilities, old as well as new. This suggests that capacity building in contracting skills and regulatory oversight is critically needed both via recruit￾ment of skilled staff and through training and technical aid to existing staff. Box 6.5 South Africa: regulating the private insurance market to increase risk pooling The government which came to power in 1994 after South Africa’s first democratic elections found itself with a health sector which mirrored the inequalities existing in the wider society. A long-estab￾lished and well-developed private health care industry accounted for 61% of health care financial re￾sources, while providing for the needs of only the affluent 20% of the population. The vast majority of the population had to rely upon poorly distributed, underfunded and fragmented public services. Cost escalation in the private sec￾tor typically exceeded inflation during most of the late 1980s and 1990s. The private sector re￾sponded to this by limiting ben￾efits, increasing co-payments and accelerating the exclusion of high￾risk members from cover, thereby heightening the problem of in￾equality. The new government’s response to these challenges was to enact new legislation for medical schemes to offer a minimum benefits pack￾age and increased risk pooling. The fundamental principles and objectives at the core of the Act are as follows. • Community rating. For a given product or option, the only grounds on which premiums may be varied are family size and in￾come. Risk or age rating are pro￾hibited. • Guaranteed access. No-one who can afford the community rated premium may be excluded on grounds of age or health status. • Increased risk pooling. Caps on the permissible contributions and ac￾cumulations through individual medical savings accounts will en￾sure that a greater proportion of contributions flows into the com￾mon risk pool. • Promoting lifetime coverage. Com￾munity rating and guaranteed ac￾cess will be combined with premium penalties for those who choose only to take out cover later in life, to provide powerful incen￾tives for affordable lifetime mem￾bership. • Prescribed minimum benefits. Every medical scheme must guar￾antee to cover in full the cost of treating a specified list of condi￾tions and procedures in public fa￾cilities, thus greatly decreasing the impact of “dumping” patients onto the state. A committee of inquiry was ap￾pointed by the health minister dur￾ing 1995. It set up a small technical team to prepare new regulations for medical schemes. The team produced its first discussion docu￾ment in 1996, and consulted widely with key stakeholders on its proposals. Discussion and de￾bate continued until mid-1997, when a formal policy paper re￾sulted.1 After a period of intense, open debate during the legisla￾tive process, the new Medical Schemes Act and its accompanying Regulations came into force on 1 January 2000, three and a half years after the committee was formed. One important group will benefit immediately: HIV-positive members of medical schemes now have ac￾cess to subsidized care, including drugs for opportunistic infections, whereas previously they were ex￾cluded or their entitlement was lim￾ited to very low benefit levels. Contributed by T. Patrick Masobe, Department of Health, South Africa. 1 Reforming private health financing in South Africa: the quest for greater equity and efficiency. Pretoria, Department of Health, 1997