The continued battle for our souls

An important development has occurred in the subplot of the journey towards reinvigorating the medical scheme industry as we work towards the implementation of the National Health Insurance scheme.

The practice whereby short term insurers sell products that assist with possible credit shortfalls when it comes to medical care has been a sore point in the industry for a number of years. The Department of Health has been threatening to release its Demarcation Regulations for a number of years and has finally done so when it recently tabled a draft version of this.

A matter of record

According to the release by government, the regulations would specify which types of contracts are regulated under the Long Term Insurance Act and the Short Term Insurance Act as health policies and accident and health policies, and accordingly excluded from the Medical Schemes Act, No. 131 of 1998 (MSA), despite such contracts meeting the definition of the business of a medical scheme.

The regulations seek to clearly demarcate the responsibility for supervision of medical schemes and health insurance products, and ensure that health insurance products do not undermine the medical scheme environment, resulting in better protecting for consumers.

This is all good and well; but do we need to remind government that if medical tariffs were introduced into the industry whereby the cost of medical care could be affordable, there would be no need to buy insurance against inflated costs?

The three focal points

Three categories of health insurance products are of particular relevance to the
abovementioned demarcation, namely:

-       Medical Expense Shortfall policies (Gap cover plans);

-       non-medical expense cover as a result of hospitalisation policies (Hospital cash plans); and

-       primary healthcare insurance policies.

The draft Regulations allow insurers to continue to provide Medical Expense Shortfall policies (Gap cover plans) and Non-medical expense cover as a result of hospitalisation policies (Hospital cash plans) in a manner that complements medical schemes, subject to strict underwriting and marketing conditions.

The draft Regulations do not allow insurers to continue to provide Primary healthcare insurance policies. These types of benefits will, going forward, have to be provided in accordance with the Medical Schemes Act. In this regard, the Minister of Health has requested that the CMS grant a two year exemption, subject to certain conditions, for primary healthcare insurance policies, while further research is being led by the Department of Health into the development of a Low Cost Benefit Option (LCBO) guideline. It is envisaged that the existing primary healthcare insurance policies will be required to transition into a LCBO framework once finalised.

The opposition

Predictably, this has been met with opposition in the market.

Michael Settas, Director – Kaelo Xelus, says that the joint release by National Treasury and the Department of Health has simply replicated the inflationary and unsustainable provisions of the Medical Schemes Act within the health insurance market.

According to Settas, the Demarcation Regulations would dictate what healthcare products insurers can market and under what conditions. The conditions under these regulations are these onerous provisions:

-       Open enrolment, anyone can join, age or health aside;

-       the removal of any underwriting ability for insurers; and

-       the elimination of premium rating in accordance with risk (everyone must pay the same premium regardless of claims).

Fighting from the trenches

“Healthcare costs are almost always higher than inflation. However, replicating the medical scheme provisions outlined will push them to levels way beyond what consumers can afford. This indicates that there remains unjustifiable denial from regulators that the private healthcare sector is in an unsustainable cost spiral,” says Settas.

He adds that an analysis of private hospital costs from 2000 to 2012 show that in real terms, cost doubled. The cost trajectory tells us that by 2028, they will have doubled again. “Medical schemes, which carry the bulk of these costs, rank within the top five highest household expenses for many South Africans. And next year they will be increasing contributions by double Consumer Price Inflation and, very importantly, benefits will simultaneously be declining,” says Settas.

He adds that the decline in benefits means that consumers carry a double cost burden; the medical scheme contributions that rise at double CPI and the mounting out-of-pocket healthcare costs they carry because medical schemes are forced to reduce or carve out benefits.

A blind vanguard

Settas says that neither medical schemes nor providers are the problem in this framework – the over-regulation in some parts and under-regulation in other areas of the healthcare market are.

“What is curious is that the Department of Health commissioned an inquiry into the unsustainable cost increases in private healthcare through the Competition Commission (CC). The CC has undertaken substantial work thus far but has not yet released its findings and recommendations. However, looking at the Inquiry’s wide-ranging and comprehensive proceedings thus far, there can be no doubt that fundamental restructuring of the private healthcare sector will be submitted by the CC as necessary to arrest rampant costs. This begs a question - why do the powers that be not wait to see what recommendations are made by the Inquiry before enacting any changes to the healthcare market?” concluded Settas.

Editor’s Thoughts:
Healthcare is often an important and emotional topic to discuss. The points made by Settas regarding the results of the CC enquiry are valid. Why is government pushing ahead with this without these results being made public? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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