Feasibility assessment and financial projection results for a … · • Final report on the...

Annex

Report of the technical support mission for the

Feasibility assessment and

financial projection results

for a

Social Health Insurance Scheme in Lesotho

Exploring Possible Options

WHO, November 2007

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Annex 1:

Terms of Reference

Feasibility Assessment and Actuarial Analysis of the Proposed Social Health Insurance Scheme in Lesotho

I. Background

Lesotho is a small country in Southern Africa. It consists of 10 districts, with a population of about 2 million people. Its territory is completely enclosed by South Africa. Indeed, some of the health care needs of its population are met through medical referrals to South Africa, a problem that has motivated government decisions on two key areas:

• The upgrading of the Queen Elizabeth II Hospital (QEII) into a referral-care facility. This is being done under a public/private partnership arrangement using build-operate-transfer long-term concession. This initiative is being led by the International Finance Corporation with support from the World Bank.

• The formulation of a social health insurance (SHI) program initially to cover public servants under a medical aid scheme (MAS). To spearhead the effort of formulating the SHI, the MOHSW is organizing a Technical Working Group (TWG) on social health insurance consisting of representatives from relevant ministries (e.g., Finance, Health, Public Service, and Labor) and other stakeholders. From July 11-13, 2006, the government with support from the World Bank, USAID/East Africa, and the Tanzania National Health Insurance Fund, also organized an SHI orientation and planning workshop which attracted about 30 participants from MOHSW, the Ministry of Finance, and the Ministry of Public Service.

II. Objective of the Undertaking

The objective of this undertaking is to provide technical support to the SHI TWG revolving around the area of actuarial analysis of the planned SHI. This undertaking complements a parallel effort, the "Omnibus Study on Health Care Financing in Lesotho" which is aimed to generate basic data on public and private providers, their unit cost structures, and the utilization of health services, most of which will be used as inputs in the actuarial analysis. For this analysis, the Consulting Team is expected to be in possession of, or have access to, an actuarial software model that could be used for the study. This undertaking does not fund the development of such an actuarial software model.

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III. Components of the Undertaking

This undertaking consists of three parts: (a) Stakeholder consultations to generate additional information to formulate appropriate assumptions for the actuarial model. The stakeholder consultations are also meant as an opportunity to educate would-be members, providers, and supporters of the SHI. (b) Actuarial analysis of the proposed SHI program. (c) Local staff training on the actuarial model, and institutionalization plan. A. Stakeholder Consultations and Feasibility Assessment

The purpose of this component is to undertake a series of stakeholder consultations on various aspects of SHI design and operations so as to inform and educate would-be beneficiaries and providers, to advocate for their support, and to elicit information from them that could be used as data for the actuarial model. The tasks of this part of the undertaking are as follows: 1. Assist the SHI TWG undertake beneficiary consultations using an appropriate

approach (e.g., focus group discussions, simple surveys). In undertaking these consultations, the Consulting Team should ensure that a representative sample of beneficiaries from different age groups, ministries, offices, and geographic areas are consulted. The Team should also consult with unions and civil servants' associations. The beneficiary consultations should cover the following areas:

• Perceived risks and benefits of participating in the SHI as members;

• Desire to participate in the SHI; voluntary vs. mandatory contributions;

• Willingness to contribute, contribution rates, and appropriate ceiling on contribution rates;

• Preferred health service benefits to be covered under the SHI;

• Domestic vs. external (South Africa) referrals, and implications of personal preferences on contribution rates;

• Rules and procedures for entitlement;

• Concerns of potential members from rural or outlying areas with constrained access to providers;

• Other programmatic issues from beneficiary's perspective that impinges on the design of the SHI.

2. Assist the SHI TWG undertake provider consultations using an appropriate approach

(e.g., focus group discussions, simple surveys). In undertaking these consultations, the Consulting Team should ensure that a representative sample of providers from government and private (nonprofit and for-profit) sectors are consulted. The provider consultations should cover the following areas:

• Perceived risks and benefits of participating in SHI as provider;

• Desire to be accredited as provider of services and to receive payments from SHI for services rendered;

• Licensing and accreditation standards and phasing in of those standards;

• Quality assurance and utilization review;

• Preferred provider payment system;

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• Fee rates;

• Administrative issues including medical records and claims payment;

• Regulatory issues;

• Other programmatic issues from providers' perspective that impinges on the design of the SHI.

3. Assist the SHI TWG undertake appropriate consultations among key ministries and

other stakeholder groups, including but not limited to:

• The MOHSW as steward, provider, and regulator of health services;

• The Ministry of Finance;

• The Ministry of Public Services;

• The Ministry of Labor;

• The Christian Hospital Association of Lesotho (CHAL);

• The Central Bank as regulator of the fiduciary aspects of health insurance in Lesotho;

• Professional societies/bodies;

• Other organized groups that may be relevant. These consultations should cover the following areas:

• Perceived roles of each agency in the SHI;

• Regulatory issues, both for fiduciary and service quality areas;

• Governance, administration, and management of the SHI, including oversight structure and monitoring and reporting;

• Legal requirements;

• Administrative costs, and the feasibility (pros and cons) of contracting out some or all of the SHI administrative functions to a Third-Party Administrator (TPA) under an administrative services only (ASO) arrangement;

• Other programmatic areas that impinge on the design of the SHI.

B. Actuarial Analysis of the Proposed Lesotho SHI

The purposes of this component of the undertaking are: (a) To generate appropriate actuarial assumptions on the proposed SHI which the actuary will use in calculating the expected costs and revenues of the health insurance plan, including but not limited to: utilization rates, age and sex mix of enrollees, and costs of medical services. (b) To run the actuarial model using alternative scenarios on costs and revenues, administrative arrangements, and legal reserve requirements. The tasks of this component are:

1. Generate appropriate assumptions on the contribution revenues of SHI, based on the results of the consultations with beneficiaries and relevant ministries, the companion undertaking on "Omnibus Study on Health Care Financing in Lesotho," and other data sources:

• Number of potential contributing members, labor force participation rates, and forecasts of economic and demographic growth;

• Contribution rates and any appropriate ceilings on contributions;

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• Government subsidies to the proposed SHI;

• Legal reserve requirements and investment policies of the SHI fund;

• Inflation rates.

2. Generate appropriate assumptions on costs of health services, based on the results of the provider consultations as well as the companion undertaking on "Omnibus Study on Health Care Financing in Lesotho":

• Benefit package and entitlement to benefits;

• Utilization rates for various health services;

• Provider payment system to be adopted;

• Unit costs of health services and payment rates for providers;

• Inflation rates. 3. Generate appropriate assumptions on the administrative costs of the SHI program,

based on the results of consultations with key ministries:

• Assumed percentage of contribution revenues that will be used for administration;

• Estimation of the likely administrative costs of an SHI program of the size being envisioned for Lesotho; for this sub-task, it is useful to know the actual costs of similar SHI or other health insurance programs;

• Choice to be made whether the administrative functions will be performed in-house, or will be contracted out fully or partially to a TPA under an ASO arrangement.

4. Run the actuarial model, analyse results, perform sensitivity analyses and alternative

scenarios of costs and revenues, and discuss the findings with the SHI TWG. The sensitivity analyses/alternative scenarios could be:

• Alternative assumptions about the number of members and dependents;

• Changes in contribution rates and ceiling rates;

• Presence or absence of government subsidy;

• Alternative assumptions about the benefit package, especially pertaining to access to tertiary care and South African referral services;

• Alternative assumptions about utilization rates and provider payments;

• Phased roll-out of membership coverage and benefits;

• Other assumptions that the SHI TWG may want to explore.

5. Perform sensitivity analyses under alternative assumptions of administration of the SHI, and discuss findings with the SHI TWG.

• Scenario A, in-house administration;

• Scenario B, assuming ASO arrangement with TPA.

C. Local Staff Training and Institutionalization of the Actuarial Model

1. Train at least 5 local staff on the actuarial model.

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2. Assist the MOHSW and the SHI TWG think up ways of how to institutionalize actuarial analysis in the proposed SHI program.

IV. Level of Effort and Skills Needed

The undertaking requires a Consulting Team consisting of the following illustrative skill-mix:

• Health insurance actuary;

• Health systems specialist and/or health economist;

• Workshop facilitator. A total of __ consulting days are expected to be rendered for this undertaking, apportioned illustratively as follows:

• Component A: __ person-days

• Component B: __ person-days

• Component C: __ person days V. Deliverables and Schedule

The Consulting Team is expected to deliver the following outputs:

• Final report on the stakeholder consultations and feasibility assessment, to be delivered by _________________________.

• Final report on the results of the actuarial analysis, including sensitivity analyses and alternative scenarios, to be delivered by _____________________.

• Training of at least 5 staff on the actuarial model, to be completed by ________________________.

VI. Reporting Requirements

The Consulting Team is required to report and make briefings to the following:

• The Technical Working Group on Social Health Insurance; and

• The head of the Planning Department of the MOHSW. The Consulting Team may also be asked to make briefings to the Lesotho Cabinet, the Ministry of Finance, the MOHSW, donors supporting the SHI, and other stakeholders.

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Annex 2:

Feedback from stakeholders during the 2nd mission

This section outlines in detail the proceedings and discussions of the various meetings as well as the questions and comments raised during the 2nd mission.

1. SHI TWG workshop/meeting

On Monday the 17th of September 2007, a meeting was held with the TWG, staff members of HPSD, and Dr Chris Walker of the World Bank. The meeting was Chaired by Mrs Makhakhe (Director HPSD, MOHSW). She informed the meeting that the Cabinet was awaiting the final report and recommendations on the SHI feasibility study. Mrs Makhakhe indicated that the purpose of the second WHO team mission was to share the preliminary findings with various stakeholders and obtain feedback to facilitate finalization of the SHI feasibility study. She underscored that the objectives of the 17th of September 2007 meeting were: (i) to obtain feedback on the report of the first mission; and (ii) develop programme of work for the second mission. Preliminary findings of the SHI feasibility assessment were presented and discussed at the meeting. Issues that needed clarification In the discussions that ensued, a number of issues were raised:

(a) Would the newly 2006 national population census make a difference in the estimation of the SHI feasibility estimations, and would the team effect changes in the final report?

(b) Given that the farm workers change employers frequently, would there be implications on the feasibility of SHI?

(c) Would membership of SHI be mandatory or voluntary; and why? (d) What would be the implications of SHI of the fact that GOL has decided to

abolish user fees in both GOL and CHAL health centres? (e) The preliminary report recommends that SHI funds should supplement and not

replace the MOHSW budget. What is the definition of the MOHSW budget? Does it include donor funding?

(f) Given the fact that the proposed Scenario B (which proposes to cover only formal sector employees) may exacerbate health inequalities, why didn’t the team recommend only Scenario A (SHI for all Basotho)?

(g) Do the financial viability projections factor-in the cost of antiretroviral drugs for the people living with HIV/AIDS? And if not, would the SHI still be financially viable if that cost was to be factored-in?

(h) The report assumes that ‘Membership is family-based, including dependents’.

Given the large size of extended families, who are the family members that should be covered by SHI scheme?

(i) If the two spouses are working, would each make a contribution to the SHI?

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(j) The report says that in Scenario A ‘The formal sector is covered by half (e.g. the garment industry) in the first year, and reaches 100% after two more years… Coverage of the self-employed is extended across the country by one district per year, thus reaching universal coverage in the last year of the 10-year projection period.’ What criteria would be used to determine who will be among the first 50% group to be insured? With regard to the coverage of inform sector, what would be the criteria for determining the districts that should be covered first?

(k) Why should the pensioners be expected to pay premiums? (l) What would be the role of private health insurance, once SHI scheme is

introduced? (m) Is there a specific reason for a 50/50 split of the premium contribution between

employees and employers? (n) Would the SHI benefit package be the same as the existing Essential Health

District Package? The final report should c (o) Why are the private hospitals inpatient services not included in the proposed

benefit package? (p) Will the referrals to South Africa still go through QEII? (q) Are there countries in Africa that have introduced SHI? Which SHI schemes are

worth emulating in Africa? Suggestions from the meeting

The meeting suggested that the final report should: (a) clarify the contribution for various categories of potential beneficiaries. (b) spell-out the contents of the benefit package. (c) Include private hospital inpatient services in the benefit package. 2. Stakeholder feedback workshop with providers:

The workshop with providers took place on 19th September 2007 at the United Nations Board Room. It was opened and presided over by Dr Mutete, Director-General, MOHSW. In her opening remarks, she emphasized the GOL concern with how to improve access to quality health services for all the Basotho people. She apprised those in attendance that it was in that context that the GOL was exploring the feasibility of introducing a SHI scheme for Lesotho. She thanked the providers for having created time to meet with the WHO Team during its first mission and to attend the debriefing workshop. Dr Mutete explained that the purpose of the workshop were: (i) to explain the concept of Social Health Insurance and its importance; (ii) to share the findings from the first WHO Team mission; (iii) to inform about the SHI plans and how people can benefit from it; and (iv) to get feedback and views from workshop participants. She underscored that the aim of the workshop to build commitment and support for SHI scheme for Lesotho. She encouraged the workshop participants to feel free to input into the ongoing debate of the shape that the Lesotho SHI scheme should take. The MOHSW and WHO Team were invited to make an overview presentation of the findings of the SHI feasibility study. The presentation delved on basic characteristics of

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SHI; health financing functions; key design features of a SHI scheme in Lesotho; financial projection results; and conclusions. The workshop participants welcomed creation of a SHI scheme for Lesotho. They thought that creation of the SHI scheme would (i) help obviate the current practice of pushing inpatient cases to public hospitals by private health care providers; and (ii) encourage people to invest in the national health system to reduce need of referring patients to South Africa. Issues that needed clarification The following issues were raised in the course of the discussion:

(a) How come that Maseru Private Hospital inpatient services were not included in the benefit package?

(b) Can copayments be replaced with a ceiling on reimbursement (reimbursable amounts) to curb moral hazard?

(c) Would people without an income have access to SHI benefit package? (d) Will orphans be covered under the SHI? Is there a possibility of the orphans being

covered as dependents of the family members caring for them? (e) How come that the benefit package does not include traditional medicine

providers, and yet, many Basotho patronize them? Are there countries that have accredited traditional medicine providers among the providers of the SHI benefit package?

(f) Does the benefit package include treatment for chronic diseases, e.g. non-communicable diseases, HIV/AIDS? The workshop participants suggested that there may be need to liaise with organizations (e.g. www.Pharmaccess.org) may be willing to pay for ARVs.

(g) Will the SHI benefit package cover the Essential Health Package in the entire country?

(h) In the SHI context, will it be possible for members seek health care outside the country?

(i) If the capitation is chosen as the preferred provider payment mechanism, wouldn’t there be need to put a ceiling on the number of persons who can be registered with each accredited SHI benefit package provider?

(j) With the introduction of SHI scheme, what will happen to the existing Memorandum of Understanding between CHAL and GOL?

Suggestions from the meeting

The people interviewed during the first mission underscored that introduction of a SHI scheme should be preceded by improvement in the quality of health services provided by all providers. Thus, for group work the providers workshop participants were asked to discuss ways of improving quality of health services within a relatively short period of time. Their suggestions were as follows: (a) Increase the quality and quantity of human resources for health and retention.

� Quality: (i) Ensure appropriate ratios between doctors and nurses; (ii) regulated internship for health professionals from outside the country; (iii) ensure availability of continued education opportunities; (iv) strengthen health service management

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capacities; (v) develop and implement a Public Health Act; (vi) regulate set-up and operations of private health practice.

� Quantity: (i) in the short-term import human resources from countries with surplus; (ii) explore the feasibility of establishing a medical school to train family doctors in the long-term.

� Retention: improve salaries, working & living environment (e.g. heated houses with water, communication, security, medical insurance cover), hardship allowance for those working in rural areas, guarantee for mortgages and other loans.

(b) Ensure availability of essential medicines and diagnostic and other supplies. (c) Transport and logistics: (i) ensure availability of ambulances to transport patients

from health centres to hospitals; (ii) ensure availability of vehicles at hospitals to facilitate supervision and support of health centres.

(d) Infrastructure: (i) decent hospital beds and beddings; (ii) functional laundry and maintenance services, which may involve out-sourced to private sector; (iii) functional diagnostic equipment, which could be shared between facilities (expensive ones could be rented); (iv) functional health management information systems backed-up with up-to-date information, communication and technology in all health facilities and DHMT offices.

(e) Ensure availability of functional referral mechanism from the lower level to higher levels of the health system.

3. Stakeholder feedback workshop with beneficiaries:

The workshop with beneficiaries took place on 20th September 2007 at the United Nations Board Room. It was opened and presided over by Deputy-Director HPSD, MOHSW. The MOHSW and WHO Team made a joint presentation of the findings of the SHI feasibility study. The presentation delved on basic characteristics of SHI; health financing functions; key design features of a SHI scheme in Lesotho; financial projection results; and conclusions. 4. Meeting with Principal Secretaries of MoL, MoPS, MOHSW

In the course of the discussions with the Permanent Secretaries of the Ministries of Finance, Health, Labour and Public Service various issues were raised related to: whether there was need for a SHI legislation or to incorporate SHI in the legislation being prepared by the Ministry of Public Service; definition of the scope of benefit package and whether the existing essential health package may be a logical place to start; design of a decentralized SHI Agency and governance; collecting contributions; monitoring employers to ensuring that they register their employees and deduct contributions; coverage of the self-employed/informal sector members; accrediting and contracting providers (GOL, CHAL and private profit-making); and improvement in the quality of health services.

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5. Meeting with Minister of Health:

During the meeting, the Minister of Health underscored that the most important concern was to extend access to the for children and mothers (maternity care). She underlined the need to work together with Ministry of Labour consultants and to have discussions with the ILO; have something extra (in terms of quality of the benefit package) for the high-income policy-makers as an inducement for enrolment; and to use the same principles and mechanisms as funeral schemes for enrolling SHI members, especially in the rural areas.

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Annex 3:

Financial Projections - Scenarios A and B

Annex 3 outlines two financial projection scenarios that were produced on the basis of the stakeholder discussions during the first mission: Scenario A: "SHI for all Basotho" Scenario B: "SHI for the formal sector only" Scenario A and B are based on exactly the same input variables and figures, except that coverage rates of formal and informal sector workers differ between the two scenarios. As Scenario A+ was further revised and finetuned based on more detailed information and data collected during the second mission, it is important to keep in mind the key differences in data input between Scenario A+ on the one hand and Scenarios A and B on the other. Still, the overall results of these different scenarios are still comparable and thus represent different policy strategies. The key revisions made in Scenario A+ include: � increased average salary for civil servants � increased number of pensioners and increased average pensions. � revised workforce structure (in particular a lower growth rate among the public officers

workforce) � increased unit costs for the different health service categories, by projecting them all t0

2008 figures. � revised health insurance coverage rates as well as revised exemption rates � a slightly increased flat rate for informal sector workers' contributions � assumption that reserves are only used up by 50% in each year rather than by 100%. � provider remuneration rates are increased by 50% within 5 years (instead of 10 years as

before) to achieve substantial quality improvements � Scenarios A and B did not consider the use of the accumulated surplus from initial

years.

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Annex 3.1.

Scenario A: SHI for all Basotho

1. Description This simulation projects the financial results for a potential social health insurance system for Lesotho that covers the entire population (after an initial period of increasing coverage). We will refer to this scenario as "Scenario A". It has the following key characteristics: Coverage and contributions

� Everyone in Lesotho is eventually covered by the same social health insurance system, and universal coverage (i.e. 100% population coverage) is achieved within 10 years (see Figure 1 and Table 1 for SHI coverage).

� Coverage increases rapidly in this scenario: the entire government sector is covered immediately. The formal sector is covered by half (e.g. the garment industry) in the first year, and reaches 100% after two more years. Pensioners are assumed to be covered at the same rate as the formal sector. Coverage of the self-employed (which includes the rest of the population) is extended across the country by one district per year, thus reaching universal coverage in the last year of the 10-year projection period.

� In line with the recommendations concerning the values of policy variables during the 1st mission, a 5% contribution rate by the formal sector is applied. For (formal sector) pensioners, earning less than the formal sector employees, the contribution rate is assumed to be 3%. These contributions are assumed to be shared between employers (50%) and employees (50%). Thus, the deduction from a government employee’s salary would be 2.5%, whereas another 2.5% would be paid by the government.

� For the informal sector, a flat family contribution of M430 per year is applied. This figure equals half of what the Basotho households currently spend on average out-of-pocket for health services.

� To take account of poverty in Lesotho, Scenario A assumes that a large number of people especially in the rural areas would be covered for free, i.e. they do not pay contributions, and neither do they pay the small co-payments, but they can access the services covered by the SHI. These exemptions are extended to between 70 and 78% of the informal sector and reach just over half of the total population by the end of the projection period (i.e. after 10 years when universal coverage has been attained).

Benefits

� The same benefit package is made available to all members and beneficiaries, as outlined in Chapter 5.3.1.

� Utilization rates are assumed to increase relative to current levels due to lower co-payments. The co-payments as assumed in the simulation are in line with the planned co-payment policy by the MOHSW, which envisages that co-payments at GOL and CHAL facilities are the same and roughly half of the current GOL levels.

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� Utilization of private providers comes with a higher co-payment rate of M30 per visit, given higher remuneration rates at private health care providers.

Costs

� Unit costs for the different service categories are listed in Table 2. � Scenario A assumes that GOL and CHAL health services will cost 50% more in ten

years than they do now (in constant prices, i.e. not factoring in inflation). This increase is applied incrementally each year. Private sector facilities' unit cost will increase less over the 10 years.

� Importantly, this scenario assumes that the budgets paid to GOL and CHAL facilities from the MOHSW remain in place. That is to say, MOHSW maintains its funding of a large share of the running costs of health centres and hospitals through the current funding system – and this level of funding stays constant. The SHI is then expected to pick up the additional cost of providing health services resulting mainly from the substantial quality increases. Thereby the costs incurred by providing health services is initially funded entirely by MOHSW budgets and co-payments, whereas by the end of the simulation period, health costs are funded by the MOHSW budgets, co-payment and the SHI. As such, SHI will come to fund about a third of total health care costs (see the results for details).

Figure 1: Trends in SHI coverage

Table 1: Population coverage

2008 2009 2010 2011 2012 2013

Population covered 426,433 737,800 1,067,959 1,303,880 1,462,479 1,625,746

Population exempted 0 133,917 272,390 465,681 594,687 706,419

2014 2015 2016 2017 2018

Population covered 1,743,385 1,839,878 1,937,165 2,012,659 2,140,351

Population exempted 785,878 867,607 951,211 1,015,735 1,102,212

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Table 2: Health service costs and co-payments

Health service

Health service average cost (in 2008 Maloti) Co-payment

Quality increase (average costs at the end of the projection

period, in 2008 Maloti)

Health centre outpatient 53 0 79.5

Hospital outpatient 87 5 130.5

Hospital inpatient 350 per day 10* 525

QEII outpatient 106 10 159

QEII inpatient 337.5 per day 20* 553.33 per day

Private outpatient 106 30 120

RSA referrals 960.5 0 960.5

2008: paid for mainly by

government budgets and co-

payments

2018: paid for by government

budget, co-payments and social

health insurance

* per day

All input variables are listed and explained in Annex 4.2. 2. Results and implications

Equity and solidarity

Scenario A is designed with the goal of achieving universal coverage and assumes that the SHI can be extended to cover the entire population after a 10 year expansion period. It contributes in an important way to achieving equity in access and in financing (cf. WHO 2005) because � everyone is (eventually) covered with the same access to the same benefit package � exemption rates both from paying contributions and co-payments are high (exempting

up to 78% of the informal sector, or just over half of the entire population) � contributions are related to capacity to pay (the only exception being the flat rate

contributions for those informal sector workers that are not exempted). As such, health financing is characterized by a strong element of solidarity, as those with higher incomes pay more (in absolute terms) Financial feasibility

Scenario A charts a way to universal coverage of all Basotho with social health insurance that is financially feasible under the assumptions and requirements set out above. However, these requirements should be examined closely. As illustrated by Figure 2, Scenario A comes with a large surplus of the SHI in its first 9 years. Only the last two years of the projection period would run into a deficit under these circumstances.1

1 The deficit continues beyond the projection period,

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Figure 2:

There are various ways to react to this situation: One option is to speed up the necessary quality increases (through a cost increase of 50%). Rather than taking 10 years, this 50% cost/quality increase could be implemented within the first 5 years. It is assumed that the Basotho would probably prefer this option, as they wish to see better health care services as quickly as possible. This variant (see Section 6.1.3.) leads to a smaller surplus in the initial years, but the deficit in later years remain. It is important to note that as the surplus increases the reserves in the initial years, the deficit could be funded from these in the later years. One should also keep in mind that Government, as employer, is expected to pay half of the contribution rates for its employee. This amounts to roughly M 28.5 million in 2008 and increases to M75 million in 2018 (in constant prices), if it is assumed that the number of civil servants increases at the general population growth rate (Table 3a). It increases to only 60.5 million (constant prices), if the number of civil servants increases less, from currently 33,285 to 41,200 (Table 3b). The latter scenario seems more realistic than the former (cf. Annex 4.4. for the explanation of these assumptions). The increase in constant prices is due to the assumed salary increases. Table 3a: Government contributions for civil servants in Maloti * Year 2008 2009 2010 2011 2012

Payments 28,478,715 30,989,365 34,486,008 32,90,286 424,33,861

2013 2014 2015 2016 2017 2018

4,944,189 5,850,830 57,185,597 62,476,912 67,962,834 74,644,961

* With civil service numbers increasing at the general population growth rate

Table 3b: Government contributions for civil servants in Maloti* Year 2008 2009 2010 2011 2012

Payments 28,478,715 30,525,866 33,096,397 35,841,920 38,777,770

2013 2014 2015 2016 2017 2018

41,916,623 45,272,778 48,860,014 52,479,146 56,242,219 60,570,147

* With civil service numbers increasing at a lower rate than population growth

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In other words, the costs for government to pay contributions for its civil servants are 0.2% of total government revenue in 2008, increasing to 0.6% in 2018. The structure of health expenditure

Figure 3 below shows the resulting structure of total health expenditure in Scenario A. Figure 3:

It can clearly be seen that health insurance expenditure takes up an increasing proportion of total health expenditure over the simulation period, owing to the increasing coverage. However, the expenditure on health by the MOHSW remains the dominant pillar of health financing throughout. Resource flow

Another concern is where health insurance resources go to. It was emphasized during the first mission that additional resources mobilized through social health insurance must flow into the GOL and CHAL facilities in order to finance the required quality increases. In Scenario A, an important part of the additional funds for health through SHI flow to the private sector. This is basically due to the high share of the cost of government and CHAL facilities that is funded via the MOHSW budget. In another hypothetical institutional setting, where current MOHSW funding for personal curative care would be channelled through the SHI agency, this apparent (but not real) bias in favour of private health facilities would no longer appear.

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Yet, under the assumptions in Scenario A, over 90% of total health care costs are incurred in GOL and CHAL facilities. This is explained by the higher co-payment for private services (Maloti 30), which is assumed to maintain a utilization rate that is skewed towards the formal sector. I.e. we assumed that of the current private provider contacts, two thirds are from members / patients of the formal sector (formal sector employees, civil servants, pensioners). Should the informal and rural population’s utilization of private services increase rapidly, then larger amounts of the health expenditure from SHI would go into the private sector. 3. Sensitivity analysis for Scenario A A sensitivity analysis was done to validate the results of Scenario A. Utilization rates, administration costs and health care service costs were lowered and increased (see Table 4 for the variations). Table 4: Variations in variables for sensitivity analyses Variation relative to Scenario A values

High variant Low variant

A1: administration costs +13% -33%

A2: health care costs +5% for public, +10% for private facilities

-10%

A3: utilization rate +20% -20%

A4: faster quality increase Quality increase within 5 years instead of 10

A5: fewer gov’t employees Growth rate of number of government employees halved

A6: no private services for exempted Members exempted from payment are not covered for private OP services

A7: cumulative administration, health care costs and utilization rate

Variants A1, A2 and A3 put together

For more details on the variant scenarios, please refer to Annex 4.4.

Of these variants, the changes in utilization rates had the largest effect on the outcomes. Figure 9 below shows the results in terms of surplus or deficit by the SHI, expressed in percentage of total government revenue. The financial implications of higher or lower administration costs are marginal, and are therefore not depicted in Figure 9. In this figure, the surplus and deficit are expressed as a percentage of total government revenue to get a better idea of the scale and as subsidies would most likely come via government revenues. It would equally be possible to express the surplus and deficit as a percentage of SHI expenditure.

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Figure 4: Health insurance surplus / deficit before government subsidies as % of total government revenue – variations of Scenario A

The thicker (orange) line in the middle represents Scenario A, as described above. The dotted lines represent the same scenario, but with utilization rates increased or decreased by 20% respectively. The highest and lowest lines represent Scenario A with utilization rates, health service costs and administration costs lowered and raised, respectively. Thus, in the “high cost-case” scenario, the health insurance would begin to have a deficit in 2015, in principle equivalent to up to about 1.5% of total government revenues. Part of the accumulated reserves could be used to cover the deficits. However, a minimum level of reserves needs to be maintained. We added a further scenario, which sacrifices some equity with respect to the benefit package in return for a lower deficit: in this scenario, those health insurance members that are exempted from paying contributions and co-payments, are not covered for private outpatient services. I.e. the poorest would have to pay the full price, should they want to access private outpatient services. This scenario is represented by the thinner (green) line towards the middle. The money saved from this measure would be about 10 million Maloti after 10 years – or about 0.1% of total government revenue. Finally, it was analysed what effect it has when the number of civil servants does not increase with the same rate as the population growth rate. As this would imply fewer contributing SHI members, the accumulating surplus during the projected period would be lower, whereas the deficit thereafter would be higher. Table 5 summarizes the financial feasibility results of the different variants of Scenario A for the projection years 2008, 2013 and 2018 (see Annex 4.4. for comprehensive results)

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Table 5: SHI financial feasibility – Scenario A sensitivity analyses Balance of the SHI fund (deficit [-] / surplus [+])

Year 2008 2013 2018

Scenario A 73,524.006 59,258.844 -47,016.270

Variant of Scenario A:

A1.1: administration costs – low 73,880.137 63,446.868 -36,442.691

A1.2: administration costs – high 73,381.554 57,583.634 -51,245.701

A2.1: health care costs – low 74,378.720 69,278.219 -21,784.490

A2.2: health care costs – high 72,775.877 59,393.103 -31,712.654

A3.1: utilization rate – low 74,705.510 76,792.365 -130.077

A3.2: utilization rate – high 72,348.403 41,747.548 -93,873.618

A4: faster quality increase 73,524.006 43,351.896 -46,898.679

A5: fewer gov’t employees 73,524.006 52,633.132 -61,576.537

A6: no private services for exempted 73,524.006 62,857.319 -36,710.385

A7.1: cumulative: administration health care costs and utilization rate – low

75,718.285 88,168.135 28,161.384

A7.2: cumulative: administration, health care costs and utilization rate – high

71,327.922 32,285.124 -116,155.122

4. Conclusion for Scenario A In conclusion, this Scenario achieves universal coverage over a period of 10 years, where all people have access to the same comprehensive benefit package. As the poorer part of the population is exempted from contribution payments and co-payments (i.e. no out-of-pocket payments for the SHI benefit package), the likelihood for a Musotho of experiencing catastrophic illness expenditure, which constitutes one of the greatest risks of being impoverished, is substantially reduced. Achieving universal coverage requires government spending on health: The MOHSW budget needs to be maintained to pay for health care services at GOL and partly for CHAL services; in absolute terms, the MOHSW budget would increase in line with inflation, GDP growth and population growth. Yet, beyond the initial 9 years is used up, subsidies (either from tax revenue or potentially from donor funds) into SHI may be required. In this scenario, however, Basotho would have access to better health services than currently, if the additional resources mobilized through SHI are adequately turned into quality improvements in health care services. It is also important to note that with respect to the average out-of-pocket household expenditure on health, which was M55 in 2003 (projected to be M72 in 2008, current prices), the large majority of formal sector employees and civil servants will not pay more for health care than before (see Table 13 in Chapter 5.1). However, their out-of-pocket expenditure is turned into prepayment, which is one of the critical advantages of SHI. Since SHI relies on prepayment, households will no longer be forced to pay important sums out-of-pocket when illness strikes.

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Annex 3.2.

Scenario B: "SHI for the formal sector only"

1. Description Scenario B simulates the introduction of a health financing system with two components: � a social health insurance that covers the civil servants, formal sector employees and

pensioners only2, and � a tax-funded component providing services for the rest of the population. Including the latter in the coverage of the social health insurance remains an option for a future date beyond the projection period of this analysis, or alternatively, the health financing system may remain one with two components, based on tax-financing as well as SHI, i.e. coverage of the non-formal sector will be guaranteed via the MOHSW budget. The two components would need overall oversight by the MOHSW to ensure that they develop in harmony and in the interest of providing universal coverage for all Basotho even though it is provided via two separate schemes. In return for not having to support the funding of health service usage by the informal sector, the formal sector social health insurance is assumed to pay for the services accessed by its members entirely from contributions. This leaves the MOHSW budget to pay for health services for the rest of the population. Again, it is assumed that the MOHSW budget is maintained (i.e., only increasing through GDP growth and inflation). Scenario B is characterized by the following key aspects: Coverage and contributions

� The SHI will cover government employees, formal sector employees and pensioners only, while the rest of the population continues to access health care based on the current health financing system, i.e. MOHSW funds for GOL facilities and financial support from Government to CHAL facilities, for the time being.

� In this scenario, coverage of the formal sector increases at the same rate as in Scenario A (see Figure 5 and Table 6 on SHI coverage rates).

� As the only members of the insurance are from the formal sector, no one is exempted from paying contributions or co-payments.

� The formal sector contribution rates are the same as in Scenario A, i.e. up to a maximum of 5% of income for employees, and up to 3% for pensioners. The informal sector pays no contributions as they are not covered by insurance, but can access GOL and CHAL services that are tax-(co-)funded.

Benefits

� The same benefit package as in Scenario A is made available to all members and beneficiaries of the insurance, i.e. the formal sector.

� As in Scenario A, utilization rates are assumed to increase relative to current levels due to lower co-payments. The co-payments simulated are in line with the planned co-payment policy by the MOHSW, which envisages the same co-payments of government and CHAL facilities and that they are roughly half of their current levels. This applies to both the insured formal sector and the informal sector in public

2 The three groups are summarised and abbreviated as the "formal sector".

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facilities. Formal sector patients making use of private outpatient services are expected to pay a co-payment of Maloti 30 per visit, whereas informal sector patients would need to pay the full price charged by the provider.

Costs

� Unit costs for the different service categories are listed in Table 2; they are the same as in Scenario A.

� Co-payments for the insured will be the same as in Scenario A (see Table 2). � There is a zero government share of those services taken up by the insured. Figure 5:

Table 6: Population coverage

2008 2009 2010 2011 2012 2013

Population covered 426,433 546,489 678,831 682,972 687,138 691,330

2014 2015 2016 2017 2018

Population covered 695,547 699,790 703,429 707,087 710,764

Population

exempted:

zero

throughout

All input variables are listed and explained in Annex 4.3. 2. Results and implications Equity

Scenario B introduces two separate risk pools: one for the formal – and better off – population separate from that of the other pool for the rest of the population. It does not cross-subsidize from richer to poorer people, and as such universal coverage in Scenario B relies on the two subsystems each functioning well. However, if financially and politically feasible, the two pools could be connected through a transfer from the formal sector insurance to the health care funding for the rest of the population in order to enhance equity and solidarity. A precedent for such a feature is the health financing system of Colombia.

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Although Scenario B does not include an inbuilt solidarity mechanism across the whole society, it does require the formal sector to fund their own health care usage, leaving the rest of government funding to cater for those not employed in the formal sector. Thereby more government funds for curative health services will be available for the non-formal sector, which will hence also allow and call for quality increases in the GOL and CHAL facilities. In Scenario B, it is important that GOL and CHAL facilities do not differentiate their services according to the insurance status of their patients. Since GOL and CHAL facilities may wish to attract insured patients in order to increase their income through the SHI provider reimbursement mechanism, there may be an inherent incentive to make insured patients jump the line, provide more time with health professionals, prescribe less drugs to non-insured members in case of drug shortages, etc. Close monitoring is required to avoid the development of a two-class health care system. Financial feasibility

Figure 6 below shows the financial feasibility of the health insurance fund of Scenario B. Although the SHI covers only contribution-paying formal sector members, and thus has a higher income per member, it shows a deficit from the start, which stays persistent over the projection period. Figure 6:

The explanation is that in Scenario B, the health insurance is assumed to cover the full cost of health services accessed by its members, without any MOHSW budget-funding whatsoever. The average expenditure by the insurance per member is thus higher then the 5% contribution paid in by each. To balance out this deficit, there are several options. With the inputs and assumptions in Scenario B, the SHI would break even with the following measures:

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- Increasing contribution rates to 6% of formal and government employee salaries in the first two years, rising to 7% in the subsequent years, plus a contribution rate for pensioners of 4% from the beginning;

- Providing government subsidies to the SHI with an amount equivalent to 0.3% of total government revenue in the beginning, rising to 0.8% of total government revenue by 2017.

Other options include: - Sin taxes earmarked for such subsidies; - Lower provider remuneration (i.e., lower unit costs); - Increasing co-payments; - A mix of the above options.

The structure of health expenditure

Figure 7 below shows the resulting structure of total health expenditure in scenario B. Figure 7

SHI expenditure is somewhat higher than in Scenario A, as it covers for the incurred health care costs of all its members. The MOHSW expenditure is completely separate. Overall, private health expenditure (i.e., out-of-pocket payments) are much higher, since no-one among the non-insured is exempted from user charges.

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3. Sensitivity analyses The sensitivity analyses for Scenario A have shown that the overall health financing structure and financial feasibility do not change substantially (see SimIns file). 4. Conclusion for Scenario B Scenario B reveals that a SHI fund for civil servants and formal sector employees that fully covers their incurred health care costs is financially not sustainable with contribution rates of 5%. Experience from other countries, where this option of a separate SHI fund for the formal sector has been chosen, also indicate that their contribution rates are much higher. In Columbia, for example, contributions amount to 12%. Government subsidies, either from the MOHSW or general government revenues, need to be carefully assessed with respect to their equity implications. In Scenario B, the population in the formal sector would have access to a benefit package that is perceived as better, since outpatient care at private health care providers is included. Like in Scenario A, the majority of formal sector employees and civil servants will not pay more for health care than before (see Table 13 in Chapter 5.1). However, their out-of-pocket expenditure is turned into prepayment. This is particularly relevant for the lower grades and salary groups of the formal sector and the public service. They may have faced higher out-of-pocket payments before that may have put them in a situation, where they had difficulties to find the money. However, the remaining population outside the formal sector would still face out-of-pocket payments through the user fees charged at the various health facilities. If the additional resources that GOL and CHAL facilities receive through the SHI provider remuneration system are translated into health care quality increases for all patients, the non-insured population may also benefit from the introduction of a SHI fund. But we reiterate that it is important that the MOHSW ensures an effective monitoring to prevent the development of a two-class health care system.

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Annex 4:

Data Sources, Assumptions and Explanations for SimIns Financial Projections

for Scenarios A+, A and B

This Annex describes in detail the data sources and explains the assumptions made for the input variables used in the financial projections. It does so for the main baselines Scenario A+, Scenario A and Scenario B. Input variables for the variants and the sensitivity analysis are described and explained in the respective sections. Annex 4.1:

Scenario A+: "Phased SHI for all Basotho"

1. Introduction

1.1. Name of this simulation: Lesotho National Social Health Insurance (or “Scenario A+”)

1.2. Short description of this simulation: This simulation projects the financial results for a potential national social health insurance for Lesotho that covers the entire population (after an initial period of increasing coverage). We will refer to this scenario as “scenario A+”. Its key characteristic is that everyone is eventually covered by the same social health insurance system, achieving the best possible risk pooling and equity results. Owing to poverty and technical constraints, the scenario assumes that a large number of people would be covered for free (i.e. exempt from paying contributions and co-payments), especially outside of Maseru. The same benefit package is made available to all members and beneficiaries, i.e. the entire population once universal coverage has been achieved. The benefit package includes some private services and referral to South Africa when needed, although these services come with a higher co-payments than public services.

1.3. Base year: Year 1 (= 2008) Wages, prices, population figures etc. of earlier years have been projected to the year 2008 as the base year.

1.4. Type of health insurance analysis: Social health insurance for Lesotho

1.5. Health Service Categories: For the baseline the key health system levels of health centre (outpatient only), district hospital (in- and outpatient), and the tertiary Queen Elizabeth II hospital (in- and outpatient) are represented. As health centres and district hospitals are

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provided either by the state (GOL – Government of Lesotho) or the church (CHAL – Christian Health Association of Lesotho), a distinction is made between the two to allow for differential data input, if required. Furthermore, private outpatient services and referral to South Africa (RSA) inpatient services are included as health service categories. These are the resulting health service categories for this simulation:

- GOL health centre (outpatient (OP)) - CHAL health centre (OP) - GOL hospital (OP) - CHAL hospital (OP) - GOL hospital (inpatient (IP)) - CHAL hospital (IP) - Queen Elizabeth II (OP) - Queen Elizabeth II (IP) - Private (OP) - RSA referrals (IP)

1.6. Government entities: No other health relevant government entity modelled in this scenario.

2. Population Structure

2.1. Demography

2.1.1. Total population (thousands): Population and growth rate taken from United Nations, Department of Economic and Social Affairs (UN 2006). Data interpolated for yearly figures. For details, see file UNPop-LES.xls.

2.1.2. Growth rate: …same source as 2.1.1 Total population

2.1.3. Percentage of dependants: …same source as 2.1.1 Total population.

2.1.4. Of which children: …same source as 2.1.1 Total population

2.2. Workforce, wages and pensions

2.2.1. Structure of workforce & pensioners (non-dependants): Workforce defined as non-dependants from population figures. Number of government employees and pensioners taken from the Lesotho Treasury payroll proof sheet summary for September 2007, formal sector as estimated in Q2 referral study (Bicknell et al. 2002), p165. The rest classified as self-employed. For details, see file SimIns-data.xls > Pop & work

2.2.2. Average annual wage and pension: For public service officers and pensioners the data stems from the Lesotho Treasury payroll proof sheet summary for September 2007.

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Average formal sector wage based on garment factory worker salaries as described in the Garment Industry study (Salm et al. 2002). Figure from study inflation adjusted. For details, see file SimIns-data.xls > Workforce and SimIns-data.xls > GDP

2.2.3. Nominal growth rate: GDP deflator figure used.

3. Macroeconomy

3.1. Gross domestic product (GDP): Figures from Lesotho Bureau of Statistics. Data for 2005 projected to 2008 by using the average annual % change over the 5 year prior. See file SimIns-data.xls > GDP

3.1.1. Growth rate: Same source and calculation as 3.1 GDP

3.1.2. Percentage change in GDP deflator: Same source and calculation as 3.1 GDP.

3.2. External price index: Economist Intelligence Unit (EIU) forecast for US$ GDP deflator used (www.eiu.com)

3.2.1. Interest rate: Source: EIU forecast. See file SimIns-data.xls > Exchange rate

3.3. Exchange rate (NCU per US$): Source: EIU forecast. See file SimIns-data.xls > Exchange rate

3.3.1. Purchasing Power Parity: In the absence of batter data, PPP is being used.

3.4. Utilization of resources (national accounts)

3.4.1. Household & government consumption, gross fixed capital formation, exports & imports of goods and services: Source: International Monetary Fund (IMF) International Financial Statistics: 2005 figures used. GDB change and deflator applied to estimate 2008 figures.

4. Health care costs

4.1. For base year: All health centre and district hospital costs are based on a step-down costs analysis (Boston Medical Center 2006). Average costs calculated from the study and inflation adjusted are used. Queen Elizabeth II OP costs are assumed to be double the outpatient costs of a health centre. Queen Elizabeth 2 IP costs are based on the figures reported in the Q2 referral study (Bicknell et al. 2002) – starting immediately with a sizeable quality increase reportedly needed. Private OP costs are also assumed

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to be twice those of health centres. RSA referrals are again based on the figures reported in the Q2 referral study. See file SimIns-data.xls > Unit costs

4.2. For year-on changes: for this simulation the costs are assumed to go increase by 50% over 5 years, i.e. current costs (100%) at base year to 150% of those costs in year 5 (all in constant prices). This is to simulate a quality improvement in services. There are 2 exceptions: private OP costs are only modestly increased as there is not such a large need for improved quality. RSA referral costs are not increased, as the stated aim is to limit such referrals.

5. Utilization rate

5.1. All utilization rates for public sector health services are calculated from MOHSW Health Statistical Tables (2005). As the new system comes with a drop in user fees for all, all utilization rates are increased from the calculated figures from the beginning, including those of the uninsured. The new user fees are those currently envisaged by the MOHSW (see 6.4 Co-payment rates). The utilization increase is calculated assuming a price elasticity of demand of -0.32. This figures is an estimate for Swaziland (Yoder 1989) – which is the geographically closest available figure. Private OP utilization rates are calculated using information from interviews during the first mission. These interviews yielded an estimate of total patient contacts at private facilities. We then assumed that 2/3 of these contacts are by the formal sector (gov’t employees, formal employees and their dependants), and calculated average utilization rates based on that. Utilization rates for private OP for the uninsured are lower as the uninsured do not benefit from the drop in co-payments. Utilization for RSA referrals are based on the QE2 referral study (Bicknell et al. 2002, p.2). See file MOH stats util&cost.xls

6. Health insurance

6.1. Health insurance coverage (percentage insured, exempted included): This scenario simulates a phased increase in coverage. Everyone working in the government sector is covered immediately, as are (formal sector) pensioners. Formal sector employees outside government are covered rapidly, i.e. over a period of 2 years, starting with half (e.g. the garment industry) in the first year. Coverage of the self-employed is extended across the country at a much slower pace, assuming that more administrative and logistic hurdles have to be overcome. 10% of the informal sector is assumed to join the insurance in Year 3 (2010) as a pilot scheme for 2 years, then another 10% are added for a further 2 years in Year 5 (2012), effectively adding a second pilot scheme. Starting in 2014, the simulation assumes that coverage is then rapidly extended to include everyone else within 5 years in Year 11 (2018).

6.1.1. Percentage insured that are exempted: Throughout the projection, it is assumed that 75% of the informal sector members of the health insurance are exempt from paying contributions and co-payments. During implementation this may be somewhat varied according to the poverty

29

rate in different areas, but overall this results in an exemption rate of just over 50% of the total population at universal coverage, which corresponds with other literature on poverty in Lesotho.

6.2. Health insurance contributions

6.2.1. Insurance contribution rate as a percentage of the wage and pension (%): As outlined in the mission report and in several interviews, 5% is seen as an acceptable contribution rate for the formal sector. Thus, scenario A uses this as the contribution rate for the formal sector throughout. (Formal sector) pensioners are assumed to pay only the “employee” part of the contribution. Consequently their contribution is at half the level of the rest of the formal sector.

6.2.2. Average contribution rates per self-employed adult: As a flat contribution rate for self-employed households, half of the current average health expenditure per household was used, as reported by the Household Budget Survey (KOL 2006a). The given figure for 2003 was inflation adjusted to arrive at a 2008 rate. It was then adjusted to a round figure and increases added every three years to keep it roughly in line with inflation. See file SimIns-

data.xls > Poverty & exemptions

6.2.3. Average contribution rate per adult dependant in self-employed category: This simulation assumes that dependants are included for no extra contribution, i.e. it is a family insurance. Therefore this figure is at zero.

6.2.4. Average contribution rate per child in self-employed category: This simulation assumes that dependants are included for no extra contribution, i.e. it is a family insurance. Therefore this figure is at zero.

6.3. Government subsidies: The initial scenario calculates results before any extra government subsidy. See main text for details on government subsidies required to reach financial equilibrium.

6.3.1. …other contributions (grants, etc.): It is assumed that 50% of each year's reserves will actually be used for unexpected (higher) expenditures. The other 50% of the previous year's reserves are therefore remaining and are considered as income in the following year.3

Co-payment rates (%)

6.3.2. …in government facilities: Scenario A simulates the currently envisaged flat GOL user charges, which are lower (mostly half) than currently applied user charge. With the agreed harmonization of user fees and government subsidies between GOL and CHAL facilities, the same figures are used for both. The average length of stay for inpatient visits is assumed to be 6 days (See file MOH stats util&cost.xls): - Health centre OP (GOL & CHAL): Maloti 0 - District hospital OP (GOL & CHAL): M 5

3 For SimIns technical reasons, the use of reserves for SHI income purposes is entered as "other contributions" (to the SHI)

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- District hospital IP (GOL & CHAL): M 10 per day or M 60 per stay - Queen Elizabeth II OP: M 10 - Queen Elizabeth II IP: M 20 per day or M 120 per stay Note that CHAL facilities are classified as government facilities, because they receive a large amount of their revenues from government budgets and perform similar roles within the health system.

6.3.3. …in non-government facilities: Private outpatient treatment is assumed to be subject to a M 30 co-payment. RSA referrals incur no co-payment, however their utilization is strictly controlled as a referral has to be initiated by QE2 hospital.

6.4. Reserves, administrative costs and other non-health care costs

6.4.1. Reserves (%): This simulation uses a 5% reserve rate (calculated as a percentage of health care costs to the insurance).4 Please see 6.3.1. for usage of these funds.

6.4.2. Administrative costs (%): This simulation uses a 15% administrative cost rate (calculated as a percentage of health care costs to the insurance).5

6.4.3. Other non-health care costs (%): None specified.

7. Governments share in financing and provision of health care

7.1.1. Government-funded share of average cost per health service (%): Scenario A simulates that current budgets from the MOHSW are continued at current levels (in constant prices) for the simulation period, and that they continue to be used to fund or subsidize the provision of services. Thus, as a percentage of health care costs, the government funded share starts at almost 100% (all cost apart from user fees) and then decreases as a percentage because at the same time average costs increase. In essence the SHI is expected to fund the cost (and quality) increase whereas the MOHSW budgets to public health facilities continue at their current rate. With the agreed harmonization of user fees and government subsidies between GOL and CHAL facilities, the same figures are used for both. Roughly, the government funded part of public services starts from just under 100% and goes down to about 66% within 5 years, since costs (quality) increases by 50% over the same period. See file MOH stats util&cost.xls

7.2. Estimated share of total services provided by government facilities (%): Public services are provided 100% by government, private and RSA referrals are classified as private services.

4 This results in reserves amounting to 4% of total SHI expenditure. 5 This results in administration costs amounting to 12.5% of total SHI expenditure.

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7.3. Timeline and extent for financial autonomy of government facilities (%): As scenario A assumes that the current government spending on services is maintained, this figures stays at 0 throughout.

8. Public finance

8.1. General government revenue

8.1.1. Taxes on income, profits, and capital gains, on goods and services, on international trade and transactions, other fiscal revenues, non-fiscal revenues, grants: Source: IMF Government Finance Statistics Yearbook. 2008 figures are based on the provided figures for 2004 and then projected with GDP change and deflator data. See file SimIns-data.xls > Public finance

8.2. General government expenditure

8.2.1. General public services, defence, public order and safety, economic affairs, education, social protection, and other functions: Source: IMF Government Finance Statistics Yearbook. 2008 figures are based on the provided figures for 2004 and then projected with GDP change and deflator data. See file SimIns-data.xls > Public finance

9. Ministry of health expenditure

9.1.1. Inpatient, outpatient and other personal care, prevention and public health services, health administration and health-related functions: National health accounts data used. As these data are not available in the subcategories given, the full figure is entered as “Other personal care”. See file SimIns-data.xls > NHA

9.1.2. …growth rate: GDP growth rate is used.

9.2. Other general government health expenditure: No entities entered.

10. Private health expenditure

10.1. Total private health expenditure: National health accounts data used. See file SimIns-data.xls > NHA

10.2. growth rate of residual: This simulation applies no growth rate.

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Annex 4.2:

Scenario A: "SHI for all Basotho"

2. Introduction

10.3. Name of this simulation: Lesotho National Social Health Insurance (or “Scenario A”)

10.4. Short description of this simulation: This simulation projects the financial results for a potential national social health insurance for Lesotho that covers the entire population (after an initial period of increasing coverage). We will refer to this scenario as “scenario A”. Its key characteristic is that everyone is eventually covered by the same social health insurance system, achieving the best possible risk pooling and equity results. Owing to poverty and technical constraints, the scenario assumes that a large number of people would be covered for free (i.e. exempt from paying contributions and co-payments), especially outside of Maseru. The same benefit package is made available to all members and beneficiaries, i.e. the entire population once universal coverage has been achieved. The benefit package includes some private services and referral to South Africa when needed, although these services come with a higher co-payments than public services.

10.5. Base year: 2008

10.6. Type of health insurance analysed: Social health insurance for Lesotho

10.7. Health Service Categories: For the baseline the key health system levels of health centre (outpatient only), district hospital (in- and outpatient), and the tertiary Queen Elizabeth II hospital (in- and outpatient) are represented. As health centres and district hospitals are provided either by the state (GOL – Government of Lesotho) or the church (CHAL – Christian Health Association of Lesotho), a distinction is made between the two to allow for differential data input, if required. Furthermore, private outpatient services and referral to South Africa (RSA) inpatient services are included as health service categories. These are the resulting health service categories for this simulation:

- GOL health centre (outpatient (OP)) - CHAL health centre (OP) - GOL hospital (OP) - CHAL hospital (OP) - GOL hospital (inpatient (IP)) - CHAL hospital (IP) - Queen Elizabeth II (OP) - Queen Elizabeth II (IP) - Private (OP) - RSA referrals (IP)

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10.8. Government entities: No other health relevant government entity modelled in this scenario.


11.1. Demography

11.1.1. Total population (thousands): Population and growth rate taken from United Nations, Department of Economic and Social Affairs (UN 2006). Data interpolated for yearly figures. For details, see file UNPop-LES.xls.

11.1.2. Growth rate: …same source as 2.1.1 Total population

11.1.3. Percentage of dependants: …same source as 2.1.1 Total population.

11.1.4. Of which children: …same source as 2.1.1 Total population

11.2. Workforce, wages and pensions

11.2.1. Structure of workforce & pensioners (non-dependants): Workforce defined as non-dependants from population figures. Number of government employees as noted in cabinet memo on SHI/MAS, formal sector as estimated in Q2 referral study (Bicknell et al. 2002), p165. Pensioners assumed to be 1% of the workforce (data needed). The rest classified as self-employed. For details, see file SimIns-data.xls > Population

11.2.2. Average annual wage and pension: For civil servants, data on salary adjustments and number of posts provided by the Ministry of Public Service (see file SimIns-data.xls > Gov emp 2). For teachers, the salary data was from the same source and the number of teachers were provided by the Ministry of Education. Average calculated based on above sources (see file teachers.xls). Average formal sector wage based on garment factory worker salaries as described in the Garment Industry study (Salm et al. 2002). Figure from study inflation adjusted. (Formal sector) pensions assumed to be M 10,000 – actual data needed.

11.2.3. Nominal growth rate: GDP deflator figure used.

12. Macroeconomy

12.1. Gross domestic product (GDP): Figures from Lesotho Bureau of Statistics. Data for 2005 projected to 2008 by using the average annual % change over the 5 year prior. See file SimIns-data.xls > GDP

34

12.1.1. Growth rate: Same source and calculation as 3.1 GDP

12.1.2. Percentage change in GDP deflator: Same source and calculation as 3.1 GDP.

12.2. External price index: Economist Intelligence Unit (EIU) forecast for US$ GDP deflator used (www.eiu.com)

12.2.1. Interest rate: Source: EIU forecast. See file SimIns-data.xls > Exchange rate

12.3. Exchange rate (NCU per US$): Source: EIU forecast. See file SimIns-data.xls > Exchange rate

12.3.1. Purchasing Power Parity: In the absence of batter data, PPP is being used.

12.4. Utilization of resources (national accounts)

12.4.1. Household & government consumption, gross fixed capital formation, exports & imports of goods and services: Source: International Monetary Fund (IMF) International Financial Statistics: 2005 figures used. GDB change and deflator applied to estimate 2008 figures.


13.1. For base year: All health centre and district hospital costs are based on a step-down costs analysis (Boston Medical Center 2006). Average costs calculated from the study (eliminating data outliers) are used. Queen Elizabeth II OP costs are assumed to be double the outpatient costs of a health centre. Queen Elizabeth 2 IP costs are based on the figures reported in the Q2 referral study (Bicknell et al. 2002). Private OP costs are also assumed to be twice those of health centres. RSA referrals are again based on the figures reported in the Q2 referral study. See file SimIns-data.xls > Unit costs

13.2. For year-on changes: for this simulation the costs are assumed to go increase by 50% over 10 years, i.e. current costs (100%) at base year to 150% of those costs in year 10 (all in constant prices). This is to simulate a quality improvement in services. There are 2 exceptions: private OP costs are only modestly increased as there is not such a large need for improved quality. RSA referral costs are not increased, as the stated aim is to limit such referrals.

14. Utilization rate

14.1. All utilization rates for public sector health services are calculated from MOHSW Health Statistical Tables (2005). As the new system comes with a drop in user fees for all, all utilization rates are increased from the calculated figures from the

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beginning, including those of the uninsured. The new user fees are those currently envisaged by the MOHSW (see 6.4 Co-payment rates). The utilization increase is calculated assuming a price elasticity of demand of -0.32. This figures is an estimate for Swaziland (Yoder 1989) – which is the geographically closest available figure. Private OP utilization rates are calculated using information from interviews during the first mission. These interviews yielded an estimate of total patient contacts at private facilities. We then assumed that 2/3 of these contacts are by the formal sector (gov’t employees, formal employees and their dependants), and calculated average utilization rates based on that. Utilization rates for private OP for the uninsured are lower as the uninsured do not benefit from the drop in co-payments. Utilization for RSA referrals are based on the QE2 referral study (Bicknell et al. 2002, p.2). See file MOH stats util&cost.xls

15. Health insurance

15.1. Health insurance coverage (percentage insured, exempted included): This scenario simulates a rapid increase in coverage. The government sector is covered 100% immediately. The formal sector is covered by half (e.g. the garment industry) in the first year. Coverage is then extended to 100% over two more years. Pensioners are assumed to be covered at the same rate as the formal sector. Coverage of the self-employed is extended across the country by one district per year, thus reaching universal coverage in the last year of the projection period. See file SimIns-data.xls > Coverage

15.1.1. Percentage insured that are exempted: Using poverty figures from the Lesotho Household Budget Survey (KOL 2006a / Table 6.2.7.1, p.65), the districts where classed into three levels of poverty. Informal sector exemption rates were then applied according to poverty level of either 70%, 83.6 or 90%. Relative to the total population, this results in an exemption rate of just over 50% of the total population at universal coverage. See file SimIns-data.xls > Poverty & exemptions


15.2.1. Insurance contribution rate as a percentage of the wage and pension (%): As outlined in the mission report and in several interviews, 5% is seen as an acceptable contribution rate for the formal sector. Thus, scenario A uses this as the maximum contribution rate for the formal sector. (Formal sector) pensioners, earning less than the formal sector, are assumed to pay a lower contribution: up to 3%.

15.2.2. Average contribution rates per self-employed adult: As a flat contribution rate for self-employed households, half of the current average health expenditure per household was used, as reported by the Household Budget Survey (KOL 2006a). The given figure for 2003 was inflation adjusted to arrive at a 2008 rate. See file SimIns-data.xls > Poverty & exemptions

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15.2.3. Average contribution rate per adult dependant in self-employed category: This simulation assumes that dependants are included for no extra contribution, i.e. it is a family insurance. Therefore this figure is at zero.

15.2.4. Average contribution rate per child in self-employed category: This simulation assumes that dependants are included for no extra contribution, i.e. it is a family insurance. Therefore this figure is at zero.


15.4. Co-payment rates (%)

15.4.1. …in government facilities: Scenario A simulates the currently envisaged flat GOL user charges, which are lower (mostly half) than currently applied user charge. With the agreed harmonization of user fees and government subsidies between GOL and CHAL facilities, the same figures are used for both. The average length of stay for inpatient visits is assumed to be 6 days (See file MOH stats util&cost.xls): - Health centre OP (GOL & CHAL): Maloti 0 - District hospital OP (GOL & CHAL): M 5 - District hospital IP (GOL & CHAL): M 10 per day or M 60 per stay - Queen Elizabeth II OP: M 10 - Queen Elizabeth II IP: M 20 per day or M 120 per stay Note that CHAL facilities are classified as government facilities, because they receive a large amount of their revenues from government budgets and perform similar roles within the health system.

15.4.2. …in non-government facilities: Private outpatient treatment is assumed to be subject to a 30M co-payment in scenario A. RSA referrals incur no co-payment, however their utilization is strictly controlled as a referral has to be initiated by QE2 hospital.


15.5.1. Reserves (%): This simulation uses a 5% reserve rate (calculated as a percentage of health care costs to the insurance).6

15.5.2. Administrative costs (%): This simulation uses a 15% administrative cost rate (calculated as a percentage of health care costs to the insurance).7

15.5.3. Other non-health care costs (%): None specified.

6 The reserves amount to 4% in terms of total SHI expenditure. 7 The administration costs amount to 12.5% in terms of total SHI expenditure.

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16.1.1. Government-funded share of average cost per health service (%): Scenario A simulates that current budgets from the MOHSW are continued at current levels (in constant prices) for the simulation period, and that they continue to be used to fund or subsidize the provision of services. Thus, as a percentage of health care costs, the government funded share starts at almost 100% (all cost apart from user fees) and then decreases as a percentage because at the same time average costs increase. In essence the SHI is expected to fund the cost (and quality) increase whereas the MOHSW budgets to public health facilities continue at their current rate. With the agreed harmonization of user fees and government subsidies between GOL and CHAL facilities, the same figures are used for both. Roughly, the government funded part of public services starts from just under 100% and goes down to about 66%, since costs (quality) increases by 50% over the same period. See file MOH stats util&cost.xls

16.2. Estimated share of total services provided by government facilities (%): Public services are provided 100% by government, private and RSA referrals are classified as private services.

16.3. Timeline and extent for financial autonomy of government facilities (%): As scenario A assumes that the current government spending on services is maintained, this figures stays at 0 throughout.

17. Public finance

17.1. General government revenue

17.1.1. Taxes on income, profits, and capital gains, on goods and services, on international trade and transactions, other fiscal revenues, non-fiscal revenues, grants: Source: IMF Government Finance Statistics Yearbook. 2008 figures are based on the provided figures for 2004 and then projected with GDP change and deflator data. See file SimIns-data.xls > Public finance

17.2. General government expenditure

17.2.1. General public services, defence, public order and safety, economic affairs, education, social protection, and other functions: Source: IMF Government Finance Statistics Yearbook. 2008 figures are based on the provided figures for 2004 and then projected with GDP change and deflator data. See file SimIns-data.xls > Public finance


18.1.1. Inpatient, outpatient and other personal care, prevention and public health services, health administration and health-related functions: National health accounts data used. As these data are not available in the

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subcategories given, the full figure is entered as “Other personal care”. See file SimIns-data.xls > NHA

18.1.2. …growth rate: GDP growth rate is used.

18.2. Other general government health expenditure: No entities entered.


19.1. Total private health expenditure: National health accounts data used. See file SimIns-data.xls > NHA

19.2. growth rate of residual: This simulation applies no growth rate.

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Annex 4.3:

Scenario B: "SHI for formal sector only"

1. Introduction

1.1. Name of this simulation: Formal Sector Insurance (or “Scenario B”)

1.2. Short description of this simulation: This simulation projects the financial results for a potential social health insurance for Lesotho that covers the formal sector population only. We will refer to this scenario as “scenario B”. Its key characteristic is that the health insurance will cover government employees and formal sector employees, while the government is expected to continue tax-funding health services for the rest of the population. In contrast with scenario A, the insurance would in scenario B is expected to finance 100% of the services accessed by its members with all government funds going towards the provision for the rest of the population. There is no risk pooling between these two sections of the population. However, if financially feasible a cross-subsidy from the formal sector insurance to the health care funding for the rest of the population should be envisaged. The insurance would make available private treatment to its members with some copayment. Referral to South Africa, when needed, is expected to be funded by the insurance for its members.

1.3. Base year: 2008

1.4. Type of health insurance analysed: Social health insurance for Lesotho

1.5. Health Service Categories: …identical with Scenario A.

1.6. Government entities: …identical with Scenario A.


…identical with Scenario A.

3. Macroeconomy




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5. Utilization rate


6. Health insurance

6.1. Health insurance coverage (percentage insured, exempted included): This scenario simulates a rapid increase in coverage of the formal sector. The government sector is covered 100% immediately. The formal sector is covered by half (e.g. the garment industry) in the first year. Coverage is then extended to 100% over two more years. Pensioners are assumed to be covered at the same rate as the formal sector. Coverage by the social health insurance part of the health financing system of the self-employed remains at zero throughout the projection period.

6.1.1. Percentage insured that are exempted: …identical with Scenario A. However, as the self-employed coverage is 0, these

figures have no bearing on the result.


6.2.1. Insurance contribution rate as a percentage of the wage and pension (%): As outlined in the mission report and in several interviews, 5% is seen as an acceptable contribution rate for the formal sector. Thus, scenario A uses this as the maximum contribution rate for the formal sector. (Formal sector) pensioners, earning less than the formal sector, are assumed to pay a lower contribution: up to 3%.

6.2.2. Average contribution rates per self-employed adult: …identical with Scenario A. However, as the self-employed coverage is 0, these


6.2.3. Average contribution rate per adult dependant in self-employed category: …identical with Scenario A. However, as the self-employed coverage is 0, these


6.2.4. Average contribution rate per child in self-employed category: …identical with Scenario A. However, as the self-employed coverage is 0, these



6.4. Co-payment rates (%)




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7.1.1. Government-funded share of average cost per health service (%): Scenario B simulates that current budgets from the MOHSW are continued at current levels (in constant prices) for the simulation period, and that they continue to be used to fund or subsidize the provision of services. However, these funds

are used to pay the costs of health services to the general population that is

not covered by the SHI, i.e. the informal sector. Thus, as a percentage of health care costs for the formal sector, the government funded share is zero and remains so. In essence the SHI is expected to fund the full cost of the health services incurred by its members (the formal sector).

7.2. Estimated share of total services provided by government facilities (%): …identical with Scenario A.

7.3. Timeline and extent for financial autonomy of government facilities (%): …identical with Scenario A.

8. Public finance






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Annex 4.4:

4.4.1. Detailed results of sensitivity analyses for Scenario A+

4.4.2. Detailed results of sensitivity analyses for Scenario A

Variations in variables for sensitivity analyses Variation relative to Scenario A values

High variant Low variant

A1: administration costs +13% (Administrative costs have been set

to 17% instead of 15% of health

care costs incurred.)

-33% (Administrative costs have been set

to 10% instead of 15% of health

care costs incurred.)

A2: health care costs +5% for public +10% for private facilities

(Public facility costs have not been

increased as much, because the

initial figures are believed to be on

the high side. They were calculated

using the findings of a costing

study that included several high

data outliers (Boston Medical

Center, 2006).)

-10%

A3: utilization rate +20% -20%

A4: faster quality increase Quality increase within 5 years instead of 10 (The cost increase of health services by 50% that represents a quality

increase, has been applied over 5 years instead of 10.)

A5: fewer gov’t employees Growth rate of number of government employees halved (The growth rate of government employees has been halved relative to

scenario A, assuming that the number of government employees does not

grow as fast as the overall population. As a result the proportion of

government employees as part of the workforce decreases over the

simulation period.)

A6: no private services for exempted

Members exempted from payment are not covered for private OP services

(Self-employed utilization rates have been adapted to approximate the

effect of not covering private (OP) services for those members of the

insurance that are exempted from paying contributions, by reducing the

rate by the same proportion as the proportion of exempted members.)

A7: cumulative administration, health care costs and utilization rate

Variants A1, A2 and A3 put together (This variant simulates the cumulative effect of variants A1, A2 and A3,

i.e. and increase or decrease respectively of administration costs, health

care costs and utilization rates.)

Health insurance expenditure and income

The following tables show the detailed results for the SHI for each of the above listed variations. The figures are in Maloti (2008 constant prices / thousands). The incomes and expenditures listed here are specifically for the SHI. The line “actual required government subsidies…” lists the amount that would be needed extra for the SHI to break

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even in those years. This may be a subsidy, but it may also come from other sources. Notably, reserves from surplus years can be used to pay for deficits at least in the initial years. In those columns where this figure is negative, it means that the SHI is operating at a surplus, so no extra income (from subsidy, reserves, etc.) would be needed.

A1.1: administration costs – low

A1.2: administration costs – high

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A2.1: health care costs – low

A2.2: health care costs – high

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A3.1: utilization rate – low

A3.2: utilization rate – high

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A4: faster quality increase

A5: fewer gov’t employees

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A6: no private services for exempted

A7.1: cumulative administration, health care costs and utilization rate – low

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A7.2: cumulative administration, health care costs and utilization rate – high

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