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Will brokers survive NHI?

02 February 2021 Gareth Stokes

South Africa’s healthcare brokers and medical schemes will come under increasing pressure during 2021 as the combined impact of COVID-19 pandemic and the fast-tracking of an un-costed National Health Insurance (NHI) hits home. The CMS Annual Report 2019/20, which was launched on 7 December 2020, confirmed the regulator’s commitment to being a significant player in the implementation of the NHI. This, or so it is written, is in keeping with its mandate to protect medical scheme members’ interests. The irony is that a full implementation of NHI will have negative outcomes for many of the businesses operating in the private healthcare industry, including the CMS.

The CMS Annual Report provides a snapshot of South Africa’s private healthcare sector that allows us to analyse trends and reflect on the future of various stakeholders, including the 76 medical schemes, 19 administrators, 41 managed care organisations, 1078 broker organisations and 6053 individual brokers that the CMS oversees. The outlook for each of these stakeholder groups depends almost entirely on the key policy developments and legislative changes that will take place between now and 2025. These include the promulgation of the NHI Bill; the promulgation of the Medical Schemes Act Amendment Bill; actions taken in response to the Health Market Inquiry Report; and a review of the Financial Sector Regulation Act and pending COFI Bill. As for the 8.9 million medical scheme beneficiaries, the writing could already be on the wall. 

Is the writing already on the wall?

The subtext in both the foreword to the CMS Annual Report 2019/20 and the chief executive’s overview suggest that the CMS’ days are numbered. Adv Harshila Kooverjie SC, deputy chairperson of the CMS, noted that the CMS would “continue with its role as the regulator of the medical schemes industry until this has been changed by legislation and other policy considerations”. Her reference to section 33 of the NHI Bill, which states that “medical schemes are expected to provide only the cover that is not compensable under the NHI Fund” hinted at an uncertain future for healthcare brokers, medical schemes and medical scheme members alike. 

Chief executive and registrar of the CMS, Dr Sipho Kabane, compounded this uncertainty when he observed: “It is our belief and considered view that the CMS will continue operating as a regulator for this industry for as long as medical schemes exist and there is legislation supporting its regulatory activities, irrespective of the time it takes to fully implement universal health coverage in this country”. This appears to be an admission that the CMS has no place in a post-NHI world. 

Time will tell; but given the current economic and regulatory paradigms one could imagine a future where healthcare brokers and medical schemes are absorbed into the insurance sector and regulated by the Financial Sector Conduct Authority and Prudential Authority. Under the most likely scenario, South African citizens will belong to a mandatory NHI that will replace their existing medical scheme and offer a revamped set of prescribed minimum benefits (PMBs). The well-to-do will then be able to buy additional medical insurance, assisted by insurance brokers, from a handful of medical insurers who previously operated as either medical schemes or medical schemes administrators. 

On conflicts and contradictions

It could be argued that the CMS’ decision to back NHI conflicts with its mandate to serve medical scheme members. As currently proposed the NHI will result in many medical scheme members being forced to give up their existing comprehensive medical cover for an as-yet-undocumented solution that the state deems adequate. The additional personal taxes needed to fund NHI will not leave much in mid-income household budgets to buy additional medical insurance. Unfortunately, a proper assessment of NHI outcomes is impossible due to the unavailability of costs and covers. 

The CMS’ latest annual report is a hotbed of conflict and contradiction. It identifies the long-term decline in the number of accredited brokers, medical schemes and medical schemes administrators as a negative trend; yet openly advocates a regulatory approach that delivers such outcomes. “The consolidation of schemes is supported by the CMS as it ensures risk pooling and encourages social solidarity and affordability of scheme costs to members,” they write. Given that the number of scheme beneficiaries grew by only 0.8% between 2018 and 2019 we can conclude that consolidation does not make schemes more affordable. Dr Kabane noted that lacklustre economic growth, junk status and rising poverty and unemployment had all contributed to the poor take-up of medical scheme membership. 

We were quite taken aback by the chief executive’s position on the CMS’ income. The pull-quote introducing his overview reads: “The capacity constraints and challenges faced by the CMS have to be understood in the context of the reality that we are allocated a budget of R174 million in 2019/20, and yet we regulated entities that collected in excess of R192 billion in member contributions that year”. He argued that his budget was insufficient given the R60 billion in reserves by medical schemes. What humbug! The CMS cannot argue for additional funding based on the valuations or assets held by the organisations it oversees. If anything, the CMS’ income, which derives from fees charged to the entities it regulates, should decline in line with the decline of the industry. 

What happens next?

The CMS outlined the big picture projects that would keep it busy over the coming years, including implementing the Health Market Inquiry recommendations; supporting the implementation of the NHI Fund Bill; implementing amendments that will be accepted to the Medical Schemes Act; and revising and implementing a new funding model for the CMS. You can bet the new funding model will require regulated entities to chip in more! “The CMS will continue with its broad plans to become an effective and efficient regulator while playing a key role in the implementation of the National Health Insurance Fund,” noted Dr Kabane. It promised to press forward with its mandate despite the serious sustainability challenges facing the medical schemes industry. 

Although late in the game, it would be wonderful if the CMS could change course and adopt the following mantra: ‘Government’s universal healthcare policy is commendable; but we will fight tooth-and-nail to ensure that the rights of our medical schemes beneficiaries, who we are mandated to protect, are not eroded by NHI’. We can only dream… 

The human cost of pandemic

The CMS Annual Report 2019/20 deals with medical schemes’ statistics up to 31 December 2019 and with other aspects to the end of its financial year, being 31 March 2020. As a consequence, there was little mention of the impact of pandemic on medical schemes. But the disease exacted a terrible toll on the CMS’ governance structures. Chairperson of the CMS, Dr Clarence Mini and his successor, Prof Lungile Pepeta, succumbed to the coronavirus during the first half of 2020. Our belated sympathies to their colleagues, families and friends. 

We conclude this newsletter with one of Dr Kabane’s closing thoughts: “The full impact of the COVID-19 pandemic on the CMS, on the lives of scheme members, on the general public and on the economy and the entities that we regulate, will be felt for decades to come”. 

Writer’s thoughts:
There are some commentators who believe that NHI will be put on hold due to the fiscal challenges facing the South African government; but we think government will power ahead regardless… This means that all stakeholders in the medical schemes environment, especially medical scheme members, will face significant change over the next five years. Do you see a future for medical scheme brokers under NHI? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

Comments

Added by Gareth Stokes, 03 Feb 2021
Few would argue with Cynical Simon’s conclusion. The true economic impact of lockdown will take 12 to 18 months to filter through. It will take years to rebuild the SME segment against a backdrop of administrative red tape and higher employee costs.

Private firms will, inevitably, have to compensate employees for the higher tax burden that arises due to NHI, basic income grants and other social programs.
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Added by Gareth Stokes, 03 Feb 2021
Your response is noted Adam Samie. There is nothing wrong with NHI in principle. The concern centres on whether or not South Africa is adequately resourced to deliver the solution as intentioned.

We do not have the requisite infrastructure, we are short doctors and nurses, and we have a proven track record of financial mismanagement of ‘big ticket’ projects, which NHI will certainly be.

We would also prefer that all stakeholders, especially consumers, have a clearer understanding of the benefits and costs before being asked to welcome NHI as a solution.
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Added by Gareth Stokes, 03 Feb 2021
Thank you for sharing your views, Peter Dexter. The shift from private medical insurance to a state-funded solution will certainly not be a zero sum game! It will be interesting to see what impact lockdown had on emigration; it seems many of the 'well to do' got stuck in SA, midway their emigration processes!
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Added by Peter Dexter , 02 Feb 2021
The lockdown response to the Covid pandemic has had a far more severe economic impact than the government is acknowledging- yet. Tax revenues have and will continue to plummet as the waves of cost cutting by businesses continues. NHI will require more taxes just when the money runs out. The largest taxpayers also happen to be the medical aid beneficiaries who want private healthcare. When the state decides to simultaneously remove their right to choose their health care provider, and simultaneously increase what they pay, I suspect that a lot of the wealthiest, and thus most mobile, will emigrate. This will decimate tax collections causing not only NHI to collapse but push SA over the fiscal cliff.
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Added by Adam Samie, 02 Feb 2021
This transformation will be challenging for all the stakeholders but the NHI concept does work and will benefit customers in the long run. The fact that there is an acknowledgement of a role for private sector companies is to be welcomed as a positive step that will offer support for those customers that can afford it.
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Added by cynical simon, 02 Feb 2021
Quite frankly, I see a very bleak future for private enterprise; PERIOD!!
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