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LCBO medical schemes like watching paint dry!

12 January 2023 Gareth Stokes

The slow grind to a low-cost benefit option (LCBO) medical scheme framework looks set end some time in 2023, if the message in the latest Council for Medical Schemes (CMS) media release can be trusted. In a statement issued just three days before Christmas 2022 the medical schemes regulator promised that draft LCBO Guidelines will see the light of day early in the New Year, which the writer assumes will mean before the end of June.

The latest attempt to formalise this sector kicked-off in 2019 with the publication of CMS Circulars 80 and 82. These circulars were met by significant pushback from the industry, who demanded that the regulator engage with all stakeholders to develop the long-overdue LCBO Guidelines. The regulator responded by setting up Advisory Committees to include representatives from insurers, medical schemes, industry bodies, officials from the National Department of Health, the National Treasury, the Financial Sector Conduct Authority and the Prudential Authority. The process was delayed by the 2020-21 COVID-19 pandemic but gathered pace through 2022. Even so, almost eight years will have passed since the CMS’ 2015 LCBO framework was rejected by the then Minister of Health for being ‘not comprehensive enough’ among other failings. 

Meanwhile, a whopping 18-years ago…

To give meaning to the phrase ‘watching paint dry’ we need to wind the clocks back even further. It turns out that the regulator embarked upon the journey to provide regulated medical benefits for low-income workers as early as 2005. Per the executive summary of the LCBO Framework Advisory Committee Report, issued May 2022, a ministerial task team on social health insurance launched the low-income medical scheme (LIMS) consultative process a staggering 18-years ago. The 2005 process resulted in plenty of recommendations, but little by way of implementation. It took 10-years for the 2015 LCBO Framework to see the light of day, and another eight for the next iteration of the process. 

The 2015 Framework was supposed to make it possible for medical schemes to introduce LCBOs “in response to the growing number of working South Africans who did not have medical scheme coverage due to affordability constraints”. At the time, the regulator intended approving LCBOs as part of the registered medical schemes environment by means of exemptions as contemplated in section 8(h) of the Medical Schemes Act (MSA). But to this day, insurers that offer primary care products do so with an exemption from the MSA, as set out in the April 2017 demarcation regulations. The exemption has been repeatedly extended and, per the latest communication, will remain in force until at least 31 March 2024. 

The popularity of the LCBO products offered by insurers under this exemption explains why the regulators have been unable to pull the plug. The Advisory Committee Report notes that the broad acceptance of this type of solution is “supported by the proliferation of primary care products that short-term insurers offer … providing cover to more than one million beneficiaries”. So, regardless of where we find ourselves in the regulatory wrangle, it is clear that low-income households will be negatively impacted if these solutions are simply withdrawn. 

What is all the fuss about?

The CMS describes LCBOs as medical scheme benefit options tailored to meet the affordability constraints and pressing healthcare needs of lower-income families who wish to purchase private healthcare cover… In the days when National Health Insurance (NHI) was little more than a pipedream, they argued that such products were non-negotiable to allow South Africa to progress towards universal health coverage (UHC) and enhanced healthcare accessibility. Per the Advisory Committee Report, LCBOs still have the potential to “alleviate pressure in the public healthcare system and allow resources to be redirected to the poor”. Unfortunately, despite its good intentions, the regulator has repeatedly failed to bring LCBOs into the medical schemes regulatory framework. 

Will the 2023 ‘push’ prove successful? And why the sudden rush to get LCBOs off the ground given that the long-awaited NHI solution is nigh? In a perfect world, NHI would render LCBOs obsolete by offering primary healthcare for all South Africans regardless of their financial means. The explanation offered by the Advisory Committee is that introducing LCBOs within the MSA was “the option most complementary to the NHI transitional framework, as it ensures that products operate within the principles of social solidarity; LCBOs also intend to focus on providing access to primary care, which is consistent with NHI objectives”. Ironically, if LCBOs had been formalised back in 2005, or even 2015, we may not have needed NHI at all. 

The lowdown on the draft LCBO Framework

The Advisory Committee Report considered the LCBO Framework under four workstreams including market and affordability; benefits and pricing; legislative and compliance; and risk and implementation. The main recommendation from the market and affordability workstream was that “LCBOs should be targeted toward employed individuals who cannot afford medical scheme cover in its current form … ideally under group cover to limit anti-selection”. Under the second workstream it was proposed that “LCBOs focus exclusively on primary healthcare, thus, exempting [them] from covering PMBs and private hospitalisation”. 

The main recommendation under the ‘legislative and compliance’ workstream was that “the proposed reforms must be implemented in a way that does not limit consumer choice or reduce their financial risk protection”. And finally, consideration had to be given to “the risks inherent to the movement of products from the insurance industry to a medical scheme environment” including the financial risks associated with implementing the LBCOs. 

What does it mean for brokers?

The LCBO framework offers some early insights into how healthcare brokers will be affected by the move. Under the heading ‘Accreditation of Brokers and Broker Fees’ the report reflected on the administrative impact of requirements for accreditation according to Section 65 of the MSA and the implications of a lower premium commission structure. Proposals include that broker commissions are subject to a rand cap rather than a commission percentage; that consideration be given to a sign-on fee to facilitate member education; that a once-off marketing fee be allowed for signing up new members due to the high initial cost to the broker; and that these fees be paid to the broker not the medical scheme. 

The report further notes that the “the above solutions reduce the impact of the management of the broker fees on the broker; [but that] discussions with brokerages should also be conducted to identify further complications that may occur from the solutions provided by the stakeholders and workstreams”. Although this newsletter does not intend going into the specifics of the current LCBO framework, it is interesting that in the context of the affordability of medical cover we already have various non-healthcare stakeholders queuing up for a slice of the action, with proposed fee caps including administration (R30-R50); managed care (R20-R40); marketing and distribution (R5-R10); commission (R30-R50); and a once-off sign-on fee. 

What happens next?

As indicated in the opening paragraph, the CMS is currently “consolidating and analysing stakeholder and public comments received on the LCBO Advisory Committee’s proposed guideline, risk and implementation plan”. The medical schemes regulator is referring here to documents published in May and July last year. It adds that the draft LCBO Guideline, which will be based around numerous workshops and workstream sessions with industry, will be further ‘tweaked’ to accommodate comments that were requested via Circulars 53 and 57 of 2022. Once the draft copy is finalised it will, once again, be submitted to the Minister of Heath for consideration and approval. 

Writer’s thoughts:
I recently read an insightful piece by RW Johnson, published on biznews.com, in which NHI was dismissed as ‘about as serious as a South African manned mission to Mars’. His comment resonates given that it has taken 18 years and counting to integrate primary healthcare insurance into the MSA. Do you think LCBO has the potential to ‘replace’ NHI? And are SA’s healthcare brokers behind the inclusion of LCBO solutions in the medical schemes environment? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

Comments

Added by Gareth Stokes, 25 Jan 2023
Yes, indeed @Stephen. Useless is too kind a word!

There must be some way for the powers that be to make critical decisions within tighter time frames. We cannot have important decisions around energy supply; healthcare; and road and rail languish in limbo for decades. It is counterproductive and has massive costs, both social and economical.
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Added by STEPHEN ROBERT POVERELLO, 12 Jan 2023
It does not take a rocket scientist to look at who are the decision makers in politics, government, energy and municipal issues in this country to realize that that is the biggest failure of this country. Useless is a timid word to use!
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