The key objective of the Council for Medical Schemes (CMS) is to protect the interests of medical schemes beneficiaries. Since its establishment the council has worked tirelessly to promote “non-discriminatory access to privately funded healthcare.” This process included removing barriers to entry to private medical schemes and creating primary and catastrophic cover through the implementation of Prescribed Minimum Benefits (PMBs).
Each year the CMS Annual Report provides a comprehensive assessment of the country’s medical schemes environment. The organisations 2008/2009 Annual Report, released to the media last week, provides valuable insight into cost, operational and membership trends in medical schemes. At 31 December 2009 the body reports there were 37 open medical schemes and 82 restricted medical schemes operating in South Africa. These ‘not for profit’ entities were supported by so-called commercial intermediaries, including 23 administrators, 55 managed care facilities and 7 755 brokers (in 2 081 brokerages).
Latest trends in the medical schemes environment
The trends discussed in the annual report point to stability in the medical schemes space. One of the CMS’s first observations is that the number of operational medical schemes is in decline. The more than 140 schemes reported in 2000 have been whittled down to 119 schemes today. The council expects more consolidation in the sector in coming years. Despite the decline in medical schemes the total number of beneficiaries has remained relatively stable. There was a 3.5% improvement in total beneficiaries in the latest year, from 7.605m to 7.874m. This situation is largely attributed to the success of the restricted Government Employee Medical Schemes (GEMS) which reported a 90% growth in average beneficiaries for the year!
The council reports that the significant shift of previously open medical scheme members to GEMS has altered the demographic profile of medical schemes beneficiaries. The average age in open schemes has increased slightly, offset by a slight decrease in restricted schemes. The percentage of pensioners in open schemes has also increased slightly (from 6.3% to 6.7%), again offset by a decline in restricted schemes (from 6% to 5.5%). These trends are noteworthy as healthcare costs increase significantly with age.
Private medical schemes have to balance the cost of providing healthcare with the contributions received from their members. In 2008 total member contributions increased by 13.2% to R74bn. But before you get uptight about the above inflation increase you must consider the 13.6% spike in relevant healthcare expenditure, which reached R64.9bn. The CMS further assesses these numbers under the risk and savings headings. Risk contributions increased 13.5% (healthcare expenditure in this category increased by 14%) and savings contributions were 9.7% higher (medical savings account claims were 10.6% higher. Clearly the above inflation increases in medical aid contributions are required to offset rising “relevant” healthcare expenditures!
Getting less for more
One of the major tasks of the CMS is to determine whether medical schemes are diluting benefits to the detriment of members. An analysis of utilisation of services certainly suggests members received less for more in the latest year. And if members are getting less despite the 13.2% increase in contributions then we must assume that healthcare expenditure inflation is even more severe than the previously suggested 13.6%. The CMS reports that the number of beneficiaries (per 1000) visiting a GP at least once per year declined from 731.8/1000 in 2007 to 721.5/1000 in the latest year. It’s quite interesting to observe that GP visits in the open schemes are a mere 706.6/1000 compared to 746.2/1000 in the restricted schemes. Visits to dentists fell from 222.5/1000 in 2007 to just 213.3/1000 in the latest year. And the number of admissions to private hospitals also tapered off significantly.
Although the CMS expressed alarm at the steady decline in admissions to private facilities they also noted the inability of the public sector to integrate with medical schemes. Public hospitals cannot be efficiently utilised to the benefit of medical schemes members due to poor availability of services and incompatible administration systems. It’s an interesting observation given the CMS’s supportive stance on the proposed national health insurance (NHI) implementation.
On solvency and non-healthcare expenses
The CMS requires all medical schemes to maintain solvency levels of 25%. Industry solvency declined slightly in 2008 to 36.6%. Acting registrar (and chief executive) of medical schemes, Patrick Matshidze, said the main reason for the decline was the decision by some of the larger restricted schemes to utilise excess solvency to offset contribution increases. The majority of open schemes fly much closer to the 25% statutory level than their restricted scheme peers!
Moving to the topic of non-healthcare expenses the CMS was quick to raises its concerns over spiralling broker fees. They noted that broker costs increased 11.6% (to R1.2bn) in the latest year, with commissions up 13% to R1.1bn. This means the ‘per average beneficiary per month’ (pabpm) contribution to broker fees increased by 12% to R42.40. Overall non-healthcare expenditure increased at less than inflation (or 8.1%) to R9.7bn. A slight increase in the number of beneficiaries meant the ‘pabpm’ contribution to this expense class increased by just 4.3%, though the open schemes registered an 8.2% increase to R128.80 pabpm as opposed to the restricted scheme’s 0.7%, to R65.20 pabpm.
The burning question is how the CMS evolves through the implementation of NHI? In his review in the 2008/2009 Annual Report, Matshidze says “the CMS supports a healthcare reform process that seeks to broaden access to all South Africans and is eagerly awaiting the publication of discussion documents in order to develop an understanding of the proposed reforms, and where possible to participate in the process.” We felt the body was conflicted in upholding medical scheme member’s rights while expressing open support for a system which might erode them. There’s no doubt a full NHI implementation will leave little space for private medical schemes. In the interim the CMS will provide ongoing support to the Department of Health in developing the Risk Equalisation Fund (REF) model and reviewing PMBs. We expect the council’s expertise in REF development will prove invaluable in the NHI development too.
Editor’s thoughts: Casting our eye over the latest CMS report we got a feeling the industry was going nowhere slowly. Without a genuine ‘least cost’ option the system remains tied to the country’s taxpayer base. And that means rising employment is the only solution to stagnant medical schemes membership in the current environment. Do you think medical schemes will survive alongside the National Health Insurance (NHI)? Add your comments below, or send them to gareth@fanews.co.za
Comment on this post