Medical schemes need more members
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The growth in membership of medical schemes has stagnated, and because the industry needs continually to recruit younger members to remain sustainable, the Council for Medical Schemes has put the development of a legal framework for low-income medical schemes (Lims) back on its agenda.
The council this week released its annual report for 2013, showing that last year membership growth had slowed to 1.1 percent.
Allowing low-income schemes that are exempt from providing all the prescribed minimum benefits (PMBs) – benefits that all schemes must by law provide – may be an answer for people currently unable to afford a medical scheme.
Hundreds of thousands of these people have turned to what are known as combination health insurance plans, typically provided in conjunction with short-term insurers. In these products, insurers have bundled access to private primary healthcare services with hospital cash plans that pay an insured sum for each day spent in hospital.
But these products are under threat of being closed by regulations under the Insurance Acts that aim to demarcate health insurance from medical schemes. These “demarcation regulations” are in their second draft, and National Treasury says it expects to finalise them by November this year.
The Council for Medical Schemes has confirmed that it is working with some bargaining council schemes, set up by unions and employers, to find a way to register their healthcare cover as low-cost medical schemes, which may be permitted some exemptions from the Medical Schemes Act.
Meanwhile, three insurers offering combination products have appealed to the Competition Commission, which is holding an inquiry into the private healthcare sector, to urgently intervene and liaise with Treasury to prevent “a distortion in the market for financial provision of private health care”.
In their submissions to Treasury, the insurers have also outlined consumers’ constitutional right to use their combination products to access health care.
Comments on the second draft of demarcation guidelines include those from a bargaining council representing truck drivers, which offers a combination plan for R95 a month that includes visits to general practitioners, basic dentistry and emergency hospital cover after an accident.
The Council for Medical Schemes argues that allowing health insurance products to operate alongside medical schemes undermines medical schemes’ risk pools. Schemes need young and healthy members to subsidise the cost of providing benefits to older, sicker members.
But the insurers’ counter-argument is that no evidence has been provided to show that scheme risk pools are being undermined, and they say that medical schemes are in any case too expensive for users of the combination products.
Council data released in its annual report this week provides evidence of the need to maintain risk pools, as well as the high cost of membership (see “You pay over R500 a month for PMBs”, below).
In the absence of a legal framework exempting qualifying low-cost medical schemes from certain provisions of the Medical Schemes Act, the council is trying to find solutions for consumers covered by combination insurance products.
Paresh Prema, the head of benefit management at the Council for Medical Schemes, says the council does not know how many bargaining councils offer combination healthcare packages to the employees they represent. However, currently five bargaining council schemes enjoy exemptions from the Medical Schemes Act, and the council is aware of others that may be affected by the demarca-tion regulations.
The council will have to consider the merits of each case and determine whether an exemption from the Act is applicable.
Prema says the combination plans on offer vary widely. Some include funeral insurance and some insurance for loss of income. Some are controlled by for-profit companies and some are not-for-profit entities controlled by independent boards of trustees.
The Medical Schemes Act prohibits schemes from doing anything other than the business of a medical scheme, which is essentially limited to financing or providing healthcare services.
Prema says combination plans also face difficulties initially in meeting the requirements of the Medical Schemes Act to, for example, hold certain reserves, hold elections for boards of trustees and regularly submit financial information.
The council, the Department of Health, the Financial Services Board and Treasury are consider-ing the comments on the demarcation guidelines.
Reshma Seoraj, a director at Treasury, says 461 comments were received, of which 411 were from brokers objecting to the proposal to limit commissions earned on health insurance policies to what brokers that sign up medical scheme members receive. This rate is three percent of contributions, to a maximum of R69 a month plus VAT.
In its first draft of the demarcation regulations, Treasury proposed, among other things, banning gap cover insurance. This is another short-term insurance product, which pays the difference between what a private doctor charges to treat you in hospital and what your medical scheme reimburses you for the doctor’s services.
The second draft proposed that gap cover benefits be based on an insured sum capped at R50 000 a year.
The initial draft also proposed severely limiting hospital cash plans, while the second draft proposed that they be allowed, but that the benefits be limited to R3 000 a day for each day in hospital.
This proposal was severely criticised at the recent Board of Healthcare Funders conference for schemes and their administrators by Professor Alex van den Heever, the chairman of Social Security Systems Administration and Management at the University of the Witwatersrand School of Governance. Van den Heever said this would allow scheme administrators and insurers to work together to design products that effectively charged you premiums in line with your health risk.
Van den Heever also pointed out that, with short-term products such as cash plans, there is no guarantee that your cover will be renewed when you are old or sick.
Treasury said this week that the demarcation regulations touched on complex health and financial challenges and there were disagreements on the best way to improve healthcare cover for all. It also defended its consultation process, saying it had made every effort to meet all the stakeholders but had not been unduly influenced by any of them.
You pay over R500 a month for PMBs
Claims data shows that the average cost of providing the prescribed minimum benefits (PMBs), which all medical schemes must provide, is R513 per beneficiary per month, the Council for Medical Schemes says.
The high cost of the PMBs is one |of the biggest problems facing schemes and a barrier to introducing low-cost schemes.
Dr Anton de Villiers, the head of research and monitoring at the council, says this average cost varies across medical scheme beneficiaries, according to their age.
The average PMB cost for babies less than a year old is about R860 per beneficiary per month, but it declines to just a few rand a month during childhood. The figure rises again mildly when beneficiaries are in their twenties and thirties, reaching an average of anout R500 a month for beneficiaries in their mid-forties. Thereafter, providing PMBs just gets more expensive, reaching R2 548 per beneficiary per month for those over the age of 85.
This explains why schemes need continually to recruit younger members, and why, when scheme membership stagnates, the age of beneficiaries rises year after year, along with the cost of providing health care.
The PMBs are largely focused on health services in hospital, but the council said this week it had been requested by the Department of Health to include primary and preventative health services in the PMBs. De Villiers says the council is working with the department to define and cost the services to be included in the PMBs.
While the council continues to revise the PMBs, it has drafted an amendment to the Medical Schemes Act to include the PMBs in the Act, and to rename them “mandatory minimum benefits”. The council submitted the amendment bill to the Department of Health last year, but it is highly unlikely the bill will go to parliament this year.
The data in the annual report, as in previous years, demonstrates the |need to cross-subsidise the cost of providing the PMBs for all scheme members, rather than just within a scheme or scheme option. The cost varies from an average R332 per beneficiary per month on the scheme with the youngest and healthiest members to R1 150 on the scheme with the oldest and least healthy members, the annual report says.
However, after running a trial, in 2011 the council said the introduction of a risk equalisation fund for schemes was highly unlikely and this proposal is not back on the agenda, De Villiers says. Instead, a fund to which all scheme beneficiaries could contribute and which could protect you against a financially catastrophic life-threatening illness is being explored.
The country’s two largest medical schemes were the main contributors to the growth in the number of people covered last year.
But while Discovery Health Medical Scheme boosted the number of people it covers by a strong 3.9 percent last year, to 2.6 million, growth in the Government Employees Medical Scheme (Gems) has slowed.
Gems has injected new life into the number of South Africans enjoying private healthcare cover since 2006, but the needle is slowly being withdrawn. After years of rapid growth, it grew by just 2.3 percent last year, to 1.85 million, and this has dampened the overall growth of schemes. Last year, overall growth was just 1.1 percent.
At the end of last year, open and restricted schemes offered cover to some 8.8 million people, compared with 8.7 million at the end of 2012.
The growth in membership of open schemes – those that must admit anyone – exceeded that of restricted schemes for 2013: the number of beneficiaries increased |by 1.8 percent to 4.8 million. However, if Discovery, an open scheme, is excluded, the number |of open scheme beneficiaries declined by 0.4 percent, Dr Anton de Villiers, the head of research and monitoring at the Council for Medical Schemes, says.
Gems’s slower growth resulted in virtually flat year-on-year growth (0.2 percent, to 3.9 million) in the number of people covered by restricted schemes, which offer membership to employer or industry groups.
If Gems is excluded, the number of beneficiaries covered by restricted schemes declined by 1.6 percent, |De Villiers says.
The council’s annual report shows that the average age of beneficiaries decreased slightly to 31.9 years last year, from 32 years at the end of 2012. The average age in open schemes was 33.5 years and would be higher at 34.8 years were it not for Discovery. The average age in restricted schemes was 30 years and would be higher at 31.1 years were it not for Gems.
Professor Yosuf Veriava, the chairman of the Council for Medical Schemes, says in the annual report that the number of medical scheme beneficiaries who require treatment for chronic illnesses continues to rise.
Daniel Lehutjo, the acting chief executive and registar, says this trend may be attributed to improved data management, an increase in the number of beneficiaries with the illnesses, the higher average age of beneficiaries, an increase in awareness of benefits for chronic illnesses and changes in the way beneficiaries seek treatment.