Private Health Insurers Roles to Expand

Private Health Insurers Roles to Expand as National Healthcare Costs Soar, Projects PricewaterhouseCoopers Global Report Examines Drivers of Trends Reshaping Health Insurance Business Model

Governments around the world are looking to expand the role of private insurers as a source of funding for the delivery of healthcare, according to a global report issued by PricewaterhouseCoopers.  The report entitled "Healthy Choices:  The Changing Role of the Health Insurer," forecasts that the threat to governments' fiscal objectives from rising public sector health expenditures will drive the expansion of private sector contributions.

"We are seeing a worldwide trend to expand the role of private insurers. Taxpayers are losing faith in the ability of governments to fund and provide healthcare," said Jannie Prinsloo, SA healthcare industry leader, PricewaterhouseCoopers. 

The PwC report explores in detail the existing health insurance systems around the world, including South Africa, Australia, China, France, Germany, Ireland, the Netherlands, Switzerland, the United Kingdom and the United States.  A full copy of the report is available at http://www.pwc.com/globalhealthcare.

Highlights of the report include:

* PwC forecasts that healthcare spending will rise to a median of 16 percent of gross domestic product (GDP) among the OECD countries (Organisation for Economic Co-operation and Development) by 2020. In South Africa, government spends approximately 10.5% of its annual expenditure on healthcare, presently equating to 3.2% of GDP. But as government expenditure on healthcare has historically amounted to only 40% of total healthcare spend, this means that South Africa currently spends closer to 8% of GDP on healthcare.

*  The duplicative insurance scheme where private and publicly funded systems operate parallel to each other is being replaced by a substitutive scheme (such as Germany and France) in which private health insurance replaces publicly funded insurance. South Africa currently sees approximately 7 million people insured by the 131 private registered medical schemes in operation. Our local model follows a largely substitutive approach, but schemes have the option of appointing public facilities as the designated service provider for the provision of certain benefits. The Department of Health has clearly indicated its intention of introducing a mandatory national social health insurance system for all people in formal employment but there are numerous obstacles to overcome, especially the need to improve the quality of public health facilities.

*  The PwC survey also indicates that scale will become increasingly important, and bigger is better, with the large scale providers enjoying a stronger bargaining position with healthcare providers. This trend is likely to drive consolidation in the health insurance industry.

* Risk-sharing will become more important as consumers take on a heavier cost burden. Efforts to control health costs will focus on the reduction of frivolous healthcare claims and over-use.  The challenge will be to carefully design risk-sharing plans in a way that promotes preventive care and does not discriminate or jeopardize access. Discovery Health Medical Scheme is quoted by the report as substantially basing its business model around preventative care.  Community-rated markets that require health insurers to charge a flat premium rate to all policyholders and guarantee policy renewal and acceptance of claims without exclusions, was introduced in South Africa in 1998. While it may reduce administrative costs, it can be a disincentive as the younger healthier members cross-subsidise older less healthy members.  Community rating requires mandatory membership in order to work effectively.

*  Longer-term contracting, funded schemes such as level premium systems and ageing reserves are evolving and will reshape the health insurance business model in many markets. Many private insurers are considering long-term coverage for ten years and longer or for life, but must be careful to manage the associated risks.  The funding of post-retirement healthcare expenditure in South Africa is an ongoing debate and there are suggestions that retirement fund benefits should be complementary to those to be covered by a national social security fund and could include post-retirement medical aid subsidies.

*  Healthcare access policies will drive premium regulation in markets where health insurance achieves high penetration. In South Africa, our constitution sets out the right of each citizen to have access to healthcare services. Premium regulation is evident through the Registrar's intervention in annual premium rate increases. However, this intervention only affects the 15% of the population who are members of registered medical schemes.

"In South Africa, private health insurers are not just interested observers of the national debates over healthcare financing," said Deborah Flannery, healthcare industry specialist, PricewaterhouseCoopers. "The business of health insurance is ntegrally linked with our social policies.  Reform is on the agenda, in SA and elsewhere, and will redirect and redefine the role of health insurers. "