Real challenges for administrators and medical schemes
01 November 2012 | Magazine Archives FAnews & FAnuus | Healthcare | Blum Khan, Metropolitan Health
Medical schemes and administrators face fundamental challenges as the South African healthcare industry evolves. Administrators have to deal with increasing margin pressures while individual schemes must address member concerns over affordability.
A major challenge facing medical scheme administrators is their ability to generate sufficient earnings to remain attractive propositions for investors. They are required to make ongoing investments in technology to remain competitive despite overall fund membership remaining static for the past 10 years.
The rising expense tide
Costs – unlike memberships – are rising steadily. Non-healthcare costs, of which administration fees are the main component, have come under close scrutiny in recent years. The Regulator wants non-healthcare costs to be capped at less than 10% of monthly contributions.
Industry statistics suggest this "cap” is achievable as non-healthcare expenditure has been declining over the past 5 years. However, this is largely due to the rapid growth of the Government Employees Medical Scheme (GEMS) – administered by Metropolitan Health. The scheme’s administration costs have remained below industry norms since inception.
The increasing margin pressure is felt most acutely by smaller administrators. Over time the high-volume/low-margin healthcare administration environment will drive consolidation amongst smaller administrators, while large administrators face the challenge of balancing the ongoing cost and complexity of medical scheme administration with the Registrar’s desire to rein in costs.
Fragmentation drives costs
Fragmentation is also a notorious cost driver. It is no coincidence that the US, where the healthcare sector is among the most fragmented worldwide, has some of the costliest solutions.
The challenge lies in how we use technology as well as clinical and actuarial expertise to reduce unnecessary complexity, streamline processes and create an efficient, integrated health administration system. Overall we must aim to reduce costs and improve quality!
Technology is already driving integration. Home-grown examples include the Patient Health Record pioneered by Metropolitan Health and the GEMS central administration service centre that provides a seamless interface with various GEMS service providers.
Measuring value against outcomes
One of the major challenges facing our healthcare system is to move beyond a cost focus to a value-based system, where value is measured according to the outcomes achieved. This is difficult due to the entire industry being in a state of flux.
Medical schemes are doing business at a time when South Africa migrates from partially implemented Social Health Insurance (SHI) to a National Health Insurance (NHI) system. Schemes have been forced to adapt their operating models accordingly.
In recent years the Registrar has introduced community rating, open enrolment and prescribed minimum benefits (PMBs) without the protections afforded by risk equalisation or mandatory membership. This environment exposes all schemes to adverse selection while high-risk schemes receive no relief from risk equalisation.
Poor growth drivers
Offering younger, healthier, lower income earners an attractive medical scheme proposition remains a major challenge. Although the latest Council for Medical Schemes Annual Report shows an increase of 3.3% in principal members (from 2010 to 2011), this growth is largely due to GEMS, as previously uninsured government employees join the scheme.
Without GEMS, growth is static. Smaller open schemes face viability challenges going forward as the loss of lower-claiming government employees impacts negatively on their claims experience and they fail to attract younger, healthier members.
Consumerism is a further challenge. Medical schemes can expect activism from a more informed consumer community, fuelled by the Consumer Protection Act. In the past, the tendency was to think of members as ‘patients’, disengaged and dependent.
From member to consumer
Going forward, it is wiser to view members as people who also happen to be ‘consumers’. They will be actively involved in decisions about their care and the costs associated therewith. This change will be driven by social media.
The greatest challenge facing industry stakeholders is our willingness to discard the old ways of thinking. We must embrace change and adopt new strategies to remain successful in the emerging healthcare landscape.
