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You could pay 23 percent less to belong to a medical scheme if scheme membership were mandatory. And your contributions could be lowered still further if schemes did not have to hold hefty reserves, if they could negotiate prices and if prices were regulated – in particular, those for prescribed minimum benefits (PMBs).
This is according to experts in healthcare financing who spoke at the annual conference of the Board of Healthcare Funders (BHF) earlier this week.
The BHF, which represents most of the country’s medical schemes and administrators (with the notable exception of Discovery Health), is advocating all of these changes. When asked what stance government would have towards the proposals, Dr Anban Pillay, deputy director-general of health regulation and compliance management at the Department of Health, said they are all in the offing.
With National Health Insurance (NHI) 14 years from being implemented, schemes say these changes need to be made as soon as possible to bring down the cost of medical cover.
Barry Childs, actuary and chief executive of Lighthouse Actuarial Consulting and CareGauge, says the opportunity costs of waiting for NHI are enormous.
The medical schemes industry is losing R13.5 billion a year (in 2010 terms) due to the anti-selection pressures on the industry, because healthcare cover is not mandatory, Childs says.
If membership of a medical scheme were mandatory, contributions would be on average 14 percent lower across the board (for members of open and restricted schemes), and as much as 23 percent less for members of open schemes, he says.
Dr Humphrey Zokufa, managing director of the BHF, told the conference that mandatory cover should be introduced as a precursor to NHI, but “the PMB issue” is more pressing.
The BHF has engaged with 43 of its 73 members since January, and all have raised concerns about regulation eight and the PMB issue, he says.
“They all agree that it is the biggest threat to the viability of medical schemes in this country,” Zokufa says.
Regulation eight of the Medical Schemes Act deals with the costs related to the diagnosis, treatment and care of PMBs, which must be covered at cost by your scheme.
There are 270 medical conditions and 25 chronic conditions listed as PMBs, but there are no cost or tariff guidelines.
The aim of the regulation is to protect medical scheme members, but the inadvertent consequence has been its abuse by service providers who charge exorbitant fees, Neil Nair, principal officer of Samwumed, says.
In November last year, the North Gauteng High Court ruled that schemes have to pay “in full” at whatever is invoiced for the treatment of PMBs.
At the conference, Minister of Health Dr Aaron Motsoaledi described the judgment as “a terrible ruling” that doctors have interpreted to mean “anything I charge”, which will result in increased health inflation forcing schemes to raise contributions.
“It is Joe Citizen who will suffer,” he says.
The BHF is appealing the ruling, but Motsoaledi told conference delegates that Parliament needs to amend the Act.
He also says the Competition Commission’s ruling of 2004 has made private healthcare “unaffordable” and that medical schemes cannot carry the cost.
“In 2001 there were 180 medical schemes; today we have less than 100,” he says.
In 2004, the Competition Commission ruled that it was uncompetitive for industry bodies to negotiate tariffs and hence schemes may not enter into collective bargaining arrangements with healthcare providers.
Pricing is now governed by the “law of the jungle”, the minister says. “There is no fairness. It’s survival of the fittest.”
Another “impediment” to the growth of medical schemes is the solvency ratio of 25 percent – the statutory requirement that they hold 25 percent of their annual gross contributions as reserves.
Christoff Raath, an actuary and chief executive officer of The Health Monitor Company, says the magnitude of the catastrophe that would have to occur in order to deplete the reserves of large schemes is “akin to the Black Death – unimaginable”.
“The origin of the figure is a mystery. The general consensus is that there is no scientific basis for it. It would not be unfair to call it a thumbsuck,” he says.
Raath says “a simplified, risk-based capital approach” would be preferable, because it would release significant funds and still ensure sufficient reserves.
The current solvency model rewards loss-making schemes and penalises surplus-making schemes, Raath says.
“It’s effectively a tax on the members, as contributions are invariably increased to maintain the solvency level,” he says.
New medical schemes face a significant cost as they build their reserves.
South Africa’s two biggest schemes are each obliged to hold close to R11 billion in reserve to meet the solvency requirement of 25 percent.
‘HEALTH MINISTER FAILING TO TAKE THE LEAD ON PRICING’
The Minister of Health needs to exercise “more decisive leadership – and not just promises at conferences”, Neil Nair, principal officer of Samwumed, says.
Nair addressed the annual conference of the Board of Healthcare Funders (BHF) the day after Minister of Health Dr Aaron Motsoaledi told delegates that he intends setting up an independent commission to look into “abnormal and unacceptable” pricing.
But the form, content and timing of the commission remain unclear, Nair says.
“We cannot fathom why the minister, via the Council for Medical Schemes, has been opposing efforts by medical schemes, under the umbrella of the BHF, to seek guidance from the courts on the intended definition of PMB [prescribed minimum benefit] costs.
“Surely the minister must be at the helm of providing leadership direction on the critical matter of cost – because cost determines everything in the sound delivery of care. We must therefore demand more decisive leadership from our honourable minister – and not just promises at conferences.
“It is equally important that the minister clarify what his intentions are regarding the pricing commission. If health care is indeed to be de-commercialised, as Motsoaledi has asserted, then the answer must surely be price regulation via the Department of Health.
“Price negotiation, even if via a pricing commission, would result in the market dictating cost based on supply and demand, and may perpetuate current imbalances in the provision of care. The enforceability of such agreements is also tenuous – as they are by and large based on voluntary participation,” Nair says.
The Council for Medical Schemes is a delegated authority under the custodianship of the Minister of Health. It would be logical for the minister to intervene if he disagrees with key policy interpretations that the Registrar of Medical Schemes may have, Nair says.
‘SA NOT GETTING BANG FOR ITS BUCK’
Increased expenditure on health does not necessarily result in better-quality health care.
South Africa spends almost double what the World Health Organisation (WHO) recommends countries should spend on health and in spite of this our health outcomes remain poor compared with similar middle-income countries, according to Minister of Health Dr Aaron Motsoaledi.
Addressing delegates at the annual conference of the Board of Healthcare Funders, Motsoaledi said the WHO recommends that countries spend at least five percent of their gross domestic product (GDP) on health care. South Africa spends 8.5 percent of its GDP on health care, yet has relatively poor health outcomes. “This has been attributed mainly to the inequities between the public and private sector. The 8.5 percent is distributed as follows: five percent goes to 16 percent of the population (eight million people) and 3.5 percent goes to 84 percent of the population (42 million people),” he says.