Wide aray of challenges facing SA's Medical Schemes

South Africa's open medical schemes are facing a wide array of regulatory, structural and cost challenges which are likely to impose significant changes on the industry over the next two years, says Dr Lenny Modisane, principal officer of Johannesburg-headquartered Resolution Health Medical Scheme.  

He identifies the major "hot button" issues for medical schemes as: the proposed Risk Equalisation Fund, the Government Employees Medical Scheme (GEMS), medical schemes non-healthcare funding costs, the Council for Medical Schemes' "Circular 8" proposals, consolidation of medical schemes and medical inflation.

While there is uncertainty over when the Risk Equalisation Fund will be introduced - most probably in 2009 - Modisane believes it will present a big challenge for young, "healthy" schemes which will have to pay into the fund to subsidise older, "sicker" schemes.

"This fund is aimed at levelling the playing fields between schemes with different membership and solvency profiles, but it does mean that schemes with a young average membership age will have to raise premiums to offset their increased costs," says Modisane.

Now in its second year, GEMS has caused Resolution Health and other open medical schemes to more actively canvass new members from the private sector even though public sector employees are still allowed to be members of private schemes.

Resolution Health, one of the country's fastest growing medical schemes, has more than 46,000 principal members and over 100,000 beneficiaries. About 50% of its members are currently in the public sector.

"A challenge for a scheme such as ours would be if it became compulsory for all government employees to join GEMS. Our strategy now is not to actively canvass any new government employees, placing our focus fully on the private sector."

On the debate between the Council for Medical Schemes and medical schemes over non-healthcare funding costs - mainly administration and marketing activities - Modisane says it is an ongoing challenge for schemes, "but we feel we are making progress in this regard. The challenge is to do it cheaper, faster and more efficiently."

Meanwhile, Modisane believes the Council for Medical Schemes' "Circular 8" proposal - which will force all medical schemes to provide a minimum level of cover - will cause service rather than products to become the biggest differentiating factor between schemes.

"We are not sure when this is going to be enforced, but while it may be an unintended consequence, this development is definitely going to drive up the cost of medical cover. Currently, schemes design products and options and then market them. In terms of Circular 8, schemes will all have to offer similar entry level products, so the differentiating factor will become service, service, service," he says.

On the subject of consolidation within the industry, Modisane believes mergers and rationalisation is inevitable as too many schemes chase too few members.

"The small to medium schemes are talking to each other and mergers will definitely take place this year. It's also likely that the top 10 schemes will get bigger through acquisitions of smaller schemes.

Commenting on medical inflation, Modisane said medical schemes have to have their premium increases vetted by the Council for Medical Schemes, ensuring that affordability can be maintained.

"A major problem for medical schemes is that our premium increases are regulated, but one of our biggest cost components - namely hospitals - goes up in excess of the increases we can levy."