The phrase co-payment is quite familiar to medical scheme members and the thousands of healthcare brokers that advise them. In fact, the mere mention of the rand amounts that members might have to pay out-of-pocket when their schemes fall short is enough to convince them to sign up for comprehensive gap cover, which is only available to medical scheme members. This may sound like harsh judgement and an unfair ‘stab’ at the gap cover market; but the fact that South Africa’s private medical insurance solution fails so consistently at providing full coverage that a second cover is necessary bears investigating.
Cover or not, this is going to cost you!
This writer, having recently taken his mountain bike downhill at World Championship speed without the requisite skills, has some first-hand and first-time experience of the costly interplay between hospitals, specialists and third-party medical services providers versus medical aids. As such, he was not surprised to find out-of-pocket expenses or so-called co-payments featuring strongly on the 2022 GEMS Symposium programme. GEMS, or the Government Employees Medical Scheme, is a restricted medical scheme that caters to government employees and their families only. Barry Childs, joint CEO at Insights Actuaries and Consultants, kicked off his presentation to the symposium by conceding that the co-payments topic was a bit of a ‘hot potato’.
A co-payment or out-of-pocket payment is the money that a medical scheme member has to take out of his or her own pocket over and above what the medical scheme is paying to settle the bill for healthcare services. It is almost impossible to calculate the total out-of-pocket payments made by all South Africans across the private and public healthcare sectors each year; but medical schemes have a reasonably good idea of co-payments at scheme level. This writer appreciated Childs’ honesty in labelling out-of-pocket payments as “the most regressive form of healthcare funding”. Childs also noted that this type of cost represented a failure in risk pooling and tended to affect lower income households or those in ill health far worse than others.
Always under regulatory scrutiny
The Council for Medical Schemes (CMS) keeps a close watch on the portion that medical scheme members are expected to chip in following medical expenditures, dedicating an entire portion of the CMS Industry Report 2021 to the phenomenon. Not only do they offer a breakdown of the healthcare services that gobble up the most in co-payments; but also illustrate how much of the cash comes directly from members’ pockets versus from members’ Medical Savings Accounts (MSA). It is easy for stakeholders to forget that the cash in a member’s MSA actually belongs to that member, having been squirreled away via the scheme’s ring-fencing of a portion of the member’s monthly medical aid premium.
For 2021, the co-payment culprits include medicines dispensed (35%) followed by all specialists (26%) and supplementary and allied professionals (15%). And we are not talking chump change. The CMS writes that the total out-of-pocket payments increased from ZAR29.8 billion in 2016 to ZAR36.7 billion in 2021 at a consolidated scheme level, meaning both open and restricted schemes. This total is split between out-of-pocket payments of ZAR16.7 billion and MSA payments totalling ZAR20 billion.
The CMS also makes the important observation that “out-of-pocket payments are lower in restricted schemes which, by design, tend to be more comprehensive”. In other words, a member of GEMS, all else being equal, is likely to face lower co-payments than someone who is a member of one of the open medical schemes. Restricted schemes tackle the problem by introducing cross-subsidies across their memberships and actively monitoring the level of co-payments in the scheme each year. They tend to offer fewer options than open schemes, with consolidated lists of benefits that reduce the ‘choice’ problem.
The counterintuitive co-payment ‘shock’
Childs then shared this shocker: South Africa’s co-payment crisis is not that bad by global measures. It is desirable to have a low out-of-pocket payment in a healthcare system, he explained, because that would indicate that there is good risk pooling. “South Africa has very low out-of-pocket payment compared to other countries, below 10% by the latest measures, which is considered good by international standards,” Childs said. The caveat is that this apparent outperformance is distorted by the country’s low household disposable income and high financial barriers in access to healthcare.
Unfortunately, the complexities of disparate private and public healthcare system, combined with household income constraints, have resulted in co-payments being used as a tool to ensure the sustainability of local medical schemes. Put another way, co-payments cut both ways. On the one hand, they are dismissed as regressive and unfair to the poor or sick; on the other, they are an important tool to smooth over some of the difficulties in health system access and efficiency.
Over time, schemes have used co-payments as a management mechanism to incentivise behaviours. “There is a duty for patients and providers to mitigate the third-party payer risks in the insatiable drive for healthcare,” said Childs, adding that there was too much entitlement from those paying the medical schemes contributions “to have all the tests and go to all the providers” they wanted. Co-payments were also useful in preventing the destabilisation of the medical schemes’ funding pool by combating anti-selection.
Reducing overall healthcare expenses
There are many practices aimed at reducing overall expenses to a medical scheme, including rationing of healthcare services through clinical protocols; management of members’ access; constraining supply formularies; and managed-care protocols, to name a few. But wherever schemes implement benefit limits, or encounter costs outside of the regulated Prescribed Minimum Benefits (PMBs), co-payments become inevitable. South Africa’s woes are further compounded by affordability issues, especially in the private sector. “We do not have an embedded mandatory income cross subsidy policy within medical schemes, which means that if you have lower income, you generally have to buy lower cover and have lower access to benefits … if you need to access more expensive benefits, out-of-pocket payments are inevitable,” said Childs.
The major issues are identifiable, but solutions are hard to design and implement. An obvious hurdle is the growing differential between the price that specialists charge and the base rate of scheme tariffs, creating a breeding ground for the Gap cover or medical shortfall products mentioned earlier. “These products are like a plaster on the system; they do not really solve the underlying problem of this divergence between charging and paying,” commented Childs. “Why not just increase medical scheme contributions by the amount of the gap?” To make matters worse, there is a BREAK five- or 10-times downstream cost multiple associated with many specialist visits, ranging from medicines, to scans and other tests, which are also often paid for by members, out-of-pocket.
Seek advice, and shop around
How does one fix the problem? Medical scheme members should not be shy to seek advice about their medical scheme, the benefit options within that scheme, and even other schemes if they are disappointed with their current ‘home’. However, the complexity of the medical scheme environment, and the risks associated with changing from one scheme to another, make it an imperative that they seek advice from a healthcare brokers and / or their employer before doing so. As for the wider medical schemes sector, an obvious starting point it to address the trust issues that exist between funder and provider, and the private and public healthcare sectors.
From there, the solution is for all stakeholders in the healthcare product and services value chain to adopt an aligned approach with patient-centricity or improved patient outcomes at the core. “At the moment, patients are bearing the brunt for an inefficient system through high contributions, non-ideal outcomes and high out-of-pocket payments,” concluded Childs. “The system is complex: you need capabilities such as benefit comparability and tools for alternative reimbursement models; analytics and patient stratification, among others”.
Writer’s thoughts:
Offering advice in the medical schemes environment is tough, with the advice remuneration caps imposed by regulation often considered insufficient to compensate for the ongoing client servicing needs that result. As such, the extra commissions from Gap cover and ‘hospital cash back’ insurance products are a welcome relief. Agree or disagree? And what long-term health insurance outcome would you like to see for your clients? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.
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Added by Gareth Stokes, 01 Nov 2022