van den Heever BMC Public Health 2012, 12(Suppl 1):S5 http://www.biomedcentral.com/1471-2458/12/S1/S5 Page 2 of 13 requirements; and a prohibition on setting contributions or premiums on the basis of health status. After a two- year lag, dramatically reduced cost trends and contributions became evident. Aside from generally tighter regulation across a range of fronts, this appears related to the need for schemes to compete more on the basis of healthcare provider costs than demographic risk profiles. Despite an incomplete reform improved equitable coverage and cost-containment was nevertheless achieved. A more complete regulatory regime is consequently likely to deepen coverage by: further stabilising and even decreasing costs; enhanced risk pooling; and access for low income groups. This would occur if South Africa: improved the quality of free public services, thereby creating competitive constraints for medical schemes; introduced risk-equalisation, increasing the pressure on schemes to compete on the cost and quality of coverage rather than their risk profile; and through the establishment of improved price regulation. Conclusions: The objective of universal coverage can be seen in two dimensions, horizontal extension and vertical deepening. Private systems play an important role in deepening coverage by mobilising revenue from income earners for health services over-and-above the horizontal extension role of public systems and related subsidies. South Africa provides an example of how this natural deepening occurs whether regulated or unregulated. It also demonstrates how poor regulation of mature private systems can severely undermine this role and diminish achievements below attainable levels of social protection. The mature South African system has demonstrated its sensitivity to regulatory design and responds rapidly to changes both positive and negative. When measures to enhance risk pooling are introduced, coverage is expanded and becomes increasingly fair and sustainable. When removed, however, the system becomes less stable and fair as costs rise and people with poor health status are systematically excluded from cover. This susceptibility to regulation therefore presents an opportunity to policymakers to achieve social protection objectives through the strategic management of markets rather than exclusively through less responsive systems based on tax-funded direct provision. This is especially relevant as private markets for healthcare are inevitable, with policy discretion reduced to a choice between functional or dysfunctional regimes. Definitions and terms used Administrators: Refers to third-party administrators who contract with medical schemes to perform all major operational functions. This includes member manage- ment, claims processing, and provider negotiations. Medical schemes: The regulated health insurance vehi- cle responsible for providing health insurance in South Africa. Non-price competition: Refers to hospital competition with other hospitals for specialists to achieve patient demand targets. This is to be distinguished from price competition whereby hospital would compete with other hospitals for patient volumes by offering volume-related rice discounts. Occupational scheme: Refers to an employer-sponsored medical scheme which by law is now a “restricted mem- bership scheme”. Historically these were the first coher- ent health insurance arrangements in South Africa. Open scheme: A type of medical scheme required by law, from 2000, to accept any applicant for enrolment as a member. Restricted membership scheme: A type of medical scheme able by law to limit membership to a specified group associated with a specific employer, industry, pro- fession or trade union. A scheme can only be permitted to restrict membership where it will enhance risk pool- ing and social solidarity. Risk equalisation fund: A statutory mechanism pro- posed but never implemented in South Africa to trans- fer funds from schemes with a risk profile below the market average to schemes with a risk profile above the market average in order to achieve system-wide risk pooling across multiple funds. Scale of benefits: The tariff schedule used by medical schemes to reimburse hospitals and health professionals. Prior to 1994 this was statutory with providers charging according to the schedule. From 1994 this became a refer- ence price schedule with both schemes and providers able to set their own reimbursement levels and tariffs. Background South Africa is an upper-middle-income country with a population of roughly 50.6 million (2011 mid-year esti- mate) [1] and a per capita Gross Domestic Product (GDP) of US$7,612 (2010). Overall population growth is 1.10% (2010-2011) which has declined from 1.33% (2001-2002) [2]. The urban population reached 57% in 2001 and is increasing steadily [2]. It is probable that the 2011 census will reveal a level well in excess of 60%. Due largely to high structural unemployment rates, which for a narrow definition of unemployment stood at 25% in the 3rd quarter of 2011 [3], income inequality is high with an estimated gini coefficient for 2008 of 0.67- 0.68 [4]. This is to some degree mitigated by an extensive