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What’s driving scheme premium hikes?

01 November 2016 Dr Brian Ruff, PPO Serve

“In order to sustain the private medical care industry, a change in the way we purchase medical care is necessary.”

The premiums for South Africa’s top medical schemes for 2017 are out, and most are up by 10 to 15% - the highest increase for many years. The public outcry has been vocal and warranted; scheme premiums have increased at double the inflation rate since 2005.

An imbalance in the system

Confirming trouble in the sector, the Council of Medical Schemes (CMS) reported that the country’s schemes collectively suffered a net loss of R1.2 billion in 2015, and this year is set to be even worse. Taking the heavily subsidised government Employee Medical Scheme (Gems), which itself is showing high increases in claims spend and declining membership numbers, out of the equation, the industry has shown negative growth rates since 2008.

While premium hikes have been attributed to aging memberships, a lack of regulation and new technologies - the underlying drivers of the affordability crisis create an imbalance between in- and out-of-hospital benefits and services. There is an oversupply of private hospital beds in metros and there is a fragmentation in the way that medicine is practiced and paid for throughout the system.

Changes in the way doctors are organised and how medical schemes buy medical services for their members are key to bringing the cost of cover down, therefore ensuring the sustainability of private care in South Africa.

Drivers of affordability crisis

In South Africa, there are four private hospital beds per 1 000 medical scheme members, at least twice the ratio of developed countries with efficient, community-based systems.

Unlike other goods where costs go down if there is an oversupply, in healthcare oversupply leads to cost increases. When an insurer foots the bill, money is often spent without seeing the value – but the consumer ultimately feels the crunch.

Due to premium increases, members have over time been buying down to hospital plans. This has placed doctors under pressure to book tests and procedures in-hospital for patients who cannot afford to pay cash. The associated costs to schemes pushes premiums up.

Exacerbating the problem is that private doctors work alone rather than in teams, with little to no communication between specialists, family practitioners and the allied health workers who share patients. This fragmented and uncoordinated care leads to gaps in treatment and costly duplication. Patients are often not connected to the professional best suited to the job or the most cost effective treatment. Doctors are under financial pressure to attract and keep patients, and their income is determined by the number of services they provide, rather than the quality of care they produce.

The way forward?

The solution is to facilitate the reorganisation of the system in a way that incentivises and compensates doctors for working in integrated multi-disciplinary teams. Their contracts with schemes should provide fair remuneration for services rendered and reward for value produced. Through this, teams gain the opportunity to earn more for delivering higher value measures - reducing hospital use for care that should be provided in the community, for example. This aligns clinician and scheme priorities and results in lower overall cost and premiums to members.

While this process will be driven by medical teams themselves, the push for schemes to purchase their products will be increasingly driven by a consumer class unable to afford rising premiums.

Understanding the systematic challenges is required in order to guide investment in medical insurance products. Simply put, schemes need to be purchasing products that deliver real quality, and are not driven by skewed incentives.

The cost savings will allow for more competitive rates and the supply of more benefits, attracting a greater percentage of the growing consumer classes to purchase cover and reinvigorating a system in crisis.

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