A grudge purchase

03 November 2014 Heidi Kruger, BHF

As another year draws to a close, and consumers are faced with higher than Consumer Price Index (CPI) premium increases from their medical schemes, it is important for consumers to know how their hard-earned premiums are being allocated, and to take stock of the factors which influence these increases.

While it may be argued that increases in healthcare costs outstrip inflation in most parts of the world, there are a number of contributing factors which are particular to South Africa and could, if rectified, lead to private healthcare becoming more affordable.

Community rating

Unlike insurance products, medical schemes must accept anyone who applies to join a scheme. These potential members’ premiums may not be based on factors such as members’ age or health status. This means that young and healthy people cross subsidise the elderly and sick.

Healthcare experts suggest that younger people are becoming less willing to accept that they need to subsidise older, sicker people when they join a scheme, with the result that the 20 to 30 year olds are increasingly leaving or not joining medical schemes, resulting in an increase in costs.

However, if membership was compulsory, especially for those in certain income brackets, and costs of providing the Prescribed Minimum Benefits (PMBs) were equalised, indications are that premiums could reduce by between 17 and 23%.

A key driver of costs

While other essential services such as water and electricity all have regulated tariffs attached to them, there are no regulated tariffs or charges for private healthcare professionals and facilities.

Unlike commodities, healthcare is not discretionary. Therefore, the lack of a tariff is most certainly a key driver of costs, particularly within the realm of the Prescribed Minimum Benefits (PMB) and within certain specialist services.

On this subject, Dr Anton de Villiers, Head of Research and Monitoring at the Council for Medical Schemes wrote in the March edition of CMS News that “The PMB cost as a percentage of Net Healthcare Expenditure grew from 38.96% in 2005 to 53.07% in 2012, which is an indication that, over time, the PMB package has been crowding out other risk benefits ...”

The need for a review

The structure of the PMBs – a basket of conditions which must be covered by each option on all medical schemes – also contributes to the cost spiral as the focus is on the higher cost, referred based conditions, rather than primary and preventative care.

This lack of emphasis on prevention and early treatment of conditions may be inadvertently causing members to wait until a condition is severe before seeking medical attention. This is also a contributor to the cost spiral, as hospitalisation and referred care is generally more costly than intervention at the primary or preventative stage.

Coupled with the lack of a tariff, PMBs are therefore fast becoming a primary cause of the cost spiral being experienced by schemes. A review of the structure of the PMBs and the introduction of a tariff are required if cost escalation is to be curbed.

Going the specialist route

In most health systems across the globe, patients are referred to a specialist only when necessary, after consulting a primary care provider. However, in the South African private sector environment, unless medical schemes have a rule to the contrary, members are at liberty to consult directly with a specialist.

If one considers that the average cost of a pap smear done by a registered nurse at a clinic costs R350 or R450 if performed by a GP, there is no doubt that the same test by an ObGyn (Obstetrics and Gynaecology specialist) at R1 500 (including a sonar) will have an influence on medical scheme premiums.

There is no doubt that policy makers, leaders and consumers within the private healthcare environment must take a critical look at the contributing factors to escalating costs and to introduce the changes necessary to enable growth through affordability.

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