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Shaking up a key industry

31 July 2017 Jonathan Faurie

The medical scheme and medical insurance industry has been in the headlines a lot lately. This shows that while the industry is vibrant and poised for significant changes, it is not without its fair share of controversy.

The whole dynamics of the industry is busy changing; the National Health Insurance (NHI) will see medical schemes providing supplementary care (if government has its way) and the recent Genesis ruling has caused a few waves in the industry. This has seen some medical schemes sharing their own views on the topic.

These were some of the topics that were discussed at the recent Momentum Health roadshow.

Work together

Just like RDR and Twin Peaks, the release of the NHI White Paper caused quite a stir within the medical schemes industry. Not only has there been controversy around the funding of the programme, but the fact that medical schemes will only offer supplementary care is a far cry from the powerful schemes we see today.

While many have bemoaned this saying that there is no way that this can be a good thing for the industry, Damian McHugh – Head of Marketing at Momentum Health – says that this is not necessarily a bad thing.

“Yes, medical schemes will play a significantly smaller role, but we will simply need to redefine our role in the industry. Government is not out to get us and they are taking a more measured and matured view than the one that they presented five years ago,” said McHugh who added that government has had a lot of consultations with various parties to come up with its present standpoint.

Opportunistic times

Like other sectors within the financial services industry, the medical industry is going to change, whether we like it or not. We can either embrace this change or we can stand in the corner and cry about it.

“The NHI presents a perfect opportunity for interested parties to put their hands up and work alongside government to make NHI a success. Our roles will change; we just need to establish (define) what this role will be,” said McHugh.

McHugh also reiterated that medical scheme liquidation is not an option. “The one thing that we are sure of about the future of the medical schemes industry is that we cannot afford to let private medical schemes fail. None of them can afford to fail. We need to focus on our solvency in order to ensure that credibility is maintained and that schemes can stand on their own two feet, head held high,” said McHugh.

Taking pot shots

The next issue that McHugh discussed was the recent court ruling in favour of Genesis. We recently published a newsletter discussing the issue; in summary, Genesis was including private medical savings accounts (PMSA) in their solvency calculations. The Council for Medical Schemes took exception to this and raised the issue in court. However, the Constitutional Court found nothing wrong with Genesis’ actions.

This has had some significant ramifications for the industry. “We need to look at the recent ruling in favour of Genesis Medical Scheme with caution. If this issue occurred ten years ago, there wouldn’t be any worries about the practice. However, there is a strong focus on medical scheme solvency at the moment, and it is alarming if PMSAs are being used to calculate solvency,” said McHugh.

The issue raises key questions, if PMSAs are used in solvency calculations, is it a true reflection on the financial position of the company? Will it also have implications on future activities in the merger and acquisition space? If a large company is interested in acquiring a medical scheme in order to become a diversified insurer, will this interest in the scheme be as significant if the insurer knew the true financial position of the medical scheme?

Our take

The NHI will be rolled out in the coming years, we cannot stop this. Like with the adoption of technology, companies who have a positive frame of mind and are prepared to embrace this change will flourish. Those who fight this change may find their lives being made significantly difficult by government.

Time will tell whether the NHI will be a success or a failure. If it is a failure, there will be a flurry of people flocking back towards medical schemes. So it is therefore important that schemes remain profitable. No medical scheme can fail.

With regards to the use of PMSAs in solvency calculations, the fact that the Constitutional Court (the highest court in the land) ruled in favour of Genesis means that the practice is not illegal. However, other schemes are entitled to their opinion and I am sure we haven’t heard the last word in this debate. 

Editor’s Thoughts:
One of the biggest things that people fear in life is change. However, it has been proven that the greatest pastures of opportunity lay on the other side of change. Dare we embrace this? Do we have a choice? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Gavin Came, 31 Jul 2017
The last two paragraphs cannot be taken lying down. National Health finance has not been implemented successfully in any country with massive wealth discrepancies. Unless significant improvements are made to the provision of health care in the public sector, which does not look likely, the public currently using private healthcare will be extremely resistant to moving. Early NHI pilot schemes are producing worse results that the rest of the institutions. Healthcare professionals will be very reluctant to serve in the toxic public sector institutions. The Implementation of NHI could see the total destruction of the last vestiges of world class care in South Africa. We should insist that the public healthcare is properly managed and committed to providing care to those that cannot afford medical aid. If the level of care reaches parity with the private sector the NHI will be unnecessary as people will abandon expensive medical aids in droves.
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Added by kenn, 31 Jul 2017
if the NHI fails... schemes must be ready for the flurry of people?? Sounds like a fait accompli already decided?
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