van den Heever BMC Public Health 2012, 12(Suppl 1):S5 http://www.biomedcentral.com/1471-2458/12/S1/S5 of social solidarity. Contributions were differentiated on the basis of income, with higher income groups paying more. Differentiation on the basis of health status was prohibited by law. Schemes also needed to comply with a system of mandatory minimum benefits based on the scale of bene- fits, which specified the proportion of reimbursement required of a consultation, procedure, or tariff. From 1980 schemes were required to pay in full any invoice submitted directly by registered medical practitioners compliant with the scale of benefits. Where an invoice exceeded the scale of benefits schemes reimbursed the member only after they had initially settled the account. This mechanism served as an incentive for healthcare service providers to comply with the scale of benefits as members could be slow and irregular in settling accounts [15]. Over this period medical schemes primarily reim- bursed the expenses of private health professionals and hospital services located in the public sector. Access to public hospitals was, and still is, subject to a means test affecting everyone over the tax threshold and quite a few below [15]. For anyone over the tax threshold a medical scheme was therefore essential to avoid cata- strophic health expenses associated with private specia- list and public hospital services. To encourage employers to provide medical scheme coverage a tax subsidy was available where an employer paid the medical scheme contribution. This has since been altered to an allowable deduction in the hands of an employee to cater for the self-employed. All low-income groups have always had access to a free public health ser- vice which, apart from a few exceptions, was formally segregated on the basis of race from 1948. Interestingly, due to this configuration white taxpayers did not have free access to public services, although they did have a portion of their contribution indirectly subsidised through the tax rebate. The emergence of private hospitals International sanctions, together with the financing of wars in Angola and Mozambique, reduced South Afri- ca’s economic growth rate from 1982 with a negative impact on government finances. Roughly from that per- iod the tax-based funding of public health services began to worsen. This coincided with the emergence of private hospitals owned largely by medical specialists already working in the public sector. Many specialists working part-time in the private sector during the 1980s were also in a position to divert medical scheme covered patients into their private practices and associated pri- vate hospital services. By the end of the 1980s the decline in the quality of public hospitals together with the financial incentives of private specialists had helped the rapid creation of a fairly substantial private doctor- owned hospital system. Page 5 of 13 From 1986 to 1989 private hospitals increased from 65 (6,125 beds or 5% of the total) to 101 (10,908 beds or 9% of the total). By 2010 private hospitals had increased to 216 with 31,067 beds or 26% of the total. The number of public hospital beds have however always far exceeded the private sector with 117 842 (91% of all beds) available in 1986. They have however declined to 88 920 beds (or 74% of the total) by 2010. The decline in the number of public sector beds was consequently matched by increased beds in the private sector (Table 1). The shift of treatment into private hospitals dramati- cally increased the cost of medical schemes as public hospitals did not charge full cost recovery (implicitly subsidising medical scheme members) and had no incentives to over-service. Private hospitals however priced for both cost-recovery and profit, and benefited from the incentives of private specialists to over-service. The resulting cost changes during the 1980s began to alter the market dynamics of medical schemes. They also increased the turnover and complexity of funders, incentivising increased commercial interest in the provi- sion of health insurance. The emergence of commercial competing open schemes During the 1980s medical scheme administrators, who contracted with occupational medical schemes to manage their operations, developed sufficient expertise in health insurance to expand into commercial insurance models independent of employers. Coverage was offered to multi- ple employers reflecting a natural evolution of the system. However, they were constrained by the occupational- scheme orientation of the legislative framework. Commer- cial schemes consequently lobbied for the ability to design contribution tables for different employers and even indi- viduals, while keeping benefit arrangements common. For this to happen the strict legislative regime, which limited the manner in which contributions could be set, came under pressure from the commercial arm of medical schemes, the third-party administrators contracted to schemes to perform their operational functions. Proposals to liberalise the health insurance market surfaced from Table 1 Private and public hospitals and bed estimates from 1976 to 2010 Year 1976 1986 1989 19984 20105 Private Hospitals 251 651 1011 162 216 Beds 2 3461 6 1252 10 9361 20 908 31 067 Public Hospitals 343 410 Beds 117 8423 107 634 88 920 1 Hospital Association of South Africa [32], 2 Estimated using the bed to hospital ratio for 1976 from the other data in the table, 3Estimated from Zwaranstein et al [33], 4Health Systems Trust [34], 5Health Systems Trust [35].