Medical schemes out of reach for low income earners
Private medical schemes coverage in South Africa has flat-lined since 1994. At the time approximately 16% of the country’s citizens were private medical scheme beneficiaries – and the same percentage held at the end of 2008. This membership stagnation persists despite numerous attempts by medical schemes to make benefit packages more affordable.
Can more be done? A recent study commissioned by FinMark Trust and managed by the Centre for Financial Regulation and Inclusion (Cenfri) concludes there are a number of steps medical schemes could take to reduce health insurance costs. Research was conducted by Elixir Health and Fifth Quadrant Actuaries and Consultants. They note that “the study’s objective was to understand the role that medical schemes could play in helping to achieve [affordable healthcare insurance] within the present market and regulatory structure.” The question is whether medical schemes will make the effort in the shadow of National Health Insurance (NHI).
Healthcare cost inflation too steep
The study considered medical schemes expenditure between 1997 and 2007 and concluded that medical schemes costs grew at a rate of 5% in excess of CPIX. A more interesting finding is that medical schemes expenses grew on average 4% per annum more than general medical price inflation. This won’t come as a surprise to the average medical schemes member who nervously waits for the annual inflation-plus premium increase announcement. Why are these costs outstripping inflation by such a margin?
To answer the question we need to consider the make up of medical schemes expenditure and recent regulatory interventions. The Council for Medical Schemes (CMS) 2008/2009 Annual Report provides detailed breakdowns of various cost drivers including hospital fees, medicine and specialist fees. These fees are lumped together as healthcare costs. A second category of fees, referred to as non-healthcare costs, include broker and acquisition costs and medical scheme administration costs. It appears healthcare costs are the main culprit when it comes to inflation-plus increases in medical schemes expenditure. But one has to be careful when assessing these increases.
We aren’t comparing the increase in price on specific medicines and medical services, but rather the increase in total expenditure across the country’s medical schemes industry. When the CMS and other affected parties complain about inflation-plus increases they forget the overall expenditure includes the provision of additional regulated services. The study concluded that growing awareness of Prescribed Minimum Benefits (PMBs) resulted in a significant increase in claims, contributing to making medical schemes unaffordable.
Winning the war against medical cost inflation
“The experiences of some medical schemes show that medical schemes can be delivered at a lower cost,” says Anja Smith, FinMark Trust’s health co-ordinator. Savings stemmed from closer relationships between medical schemes and healthcare providers and were most notable where the provider took some responsibility for overall costs. “Simply paying the healthcare provider what they charge each time a service is delivered (a fee-for-service) is unlikely to be the best way to control costs,” said Smith. Although Smith suggests the service provider should take more responsibility for controlling costs we feel the responsibility should be that of the medical scheme!
The study offered a few suggestions for reducing costs. These include restricting members’ choice of approved service providers and managing lifestyle diseases through wellness programmes. The ‘wellness’ concept has been employed by some of the country’s leading medical schemes for some time in recognition that smoking, excessive weight and physical inactivity result in increased incidence and severity of disease. “In the long-term, medical schemes may even have to consider limiting their members’ access to treatment for lifestyle-related conditions if members are not willing to make the necessary lifestyle changes,” says Smith. Although medical schemes would love to make this distinction we doubt such proposals would fly with the CMS!
What else can schemes do to stop the expense rot?
Expanding medical schemes membership to low income groups remains problematic. The study concludes that the South African mine employer’s medical scheme achieved significant savings “by providing access to benefits mainly at its own medical centre!” Of course the mines employ enough people to make the provision of medical centres with mine-employed (or contracted) nurses, general practitioners, optometrists and dentists feasible. Would medical schemes be able to follow a similar path and bring service providers into their stables? Legislation would have to change, as “medical schemes are not allowed to directly employ medical practitioners…” The study also concludes that the scope of benefits medical schemes must provide is largely responsible for poor medical scheme coverage. NHI backers should pay close attention to the study findings. They have a clear choice. More benefits for a few – or less benefits for all!
Editor’s thoughts: Medical schemes have had limited success in extending healthcare benefits to South Africa’s low income earnings. If they succeed medical schemes coverage would remain limited due to the country’s dismal employment statistics. Is it worth continuing the debate around access to medical schemes for low income earners under the shadow of the NHI? Add your comments below, or send them to [email protected]
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