Medical schemes, better the devil you know
One of the greatest gifts an employer could have offered you over the past three decades is lifetime medical scheme cover. A handful of fortunate South Africans benefitted from this arrangement over time, though many were forced by those same employers to give up an even more valuable gift, by resigning from their defined benefit (DB) pension funds.
A ‘planning for retirement’ windfall
Imagine, dear reader, planning for retirement knowing that your basic contributions to private medical insurance, including the inevitable above inflation increases, are covered for life. You could potentially lower your targeted replacement ratio (RR) at retirement by a thousand basis points or more.
Your RR is the percentage of your pre-retirement income that is replaced by your pension. It is commonly used as a benchmark for whether someone can maintain their standard of living after they stop working. The likes of Alexforbes and Sanlam Employee Benefits suggest aiming for a RR of 60-75%, though this target may vary widely from one individual (or household) to the next. To illustrate, if your take-home pay pre-retirement is R100,000 per month, and assuming the above RR, you will aim for a take-home pension of R60-R75,000.
The reality for most South Africans who belong to defined contribution (DC) retirement funds, or who are self-funding their retirement through a retirement annuity (RA), is that they will have to cover their medical aid premiums from their pension. So, Instead of retiring with a pension equal to Final Salary × RR you enter retirement with [Final Salary × RR] less Medica Scheme Contribution. And that is just the beginning of the problem.
History supports that your monthly contribution will go up by well over inflation each year, eroding your pension significantly. To make matters worse, your medial scheme is likely to demand that you co-fund a significant portion of your healthcare costs throughout retirement, a stage of life when healthcare needs rise sharply. This, dear reader, is the private healthcare insurance devil you have come to know.
The devil wears a suit and tie (apologies to Colter Wall)
The trigger for today’s article was a conversation between your writer and a couple of attendees at the Health Funders Association (HFA) Scenario Planning Symposium, held in Johannesburg recently. Attention quickly turned to South Africa’s National Health Insurance (NHI) ambitions and the long queue of court challenges being brought against it. This, dear reader is the health insurance devil they have asked you to let in, wearing a suit and tie ‘nogal’.
All those around the table agreed that there were significant obstacles that made the Department of Health (DOH) vision for NHI impossible. Specifically, South Africa does not have enough cash, infrastructure or medical professionals to implement the uncosted universal healthcare solution being used to tempt (or taunt) voters. Your writer has bleated about this problem before in an article penned for FAnews. The title of the piece explains the problem thusly: ‘NHI leaves you with 43% less cover at 1.5 time your current tax burden’. In it, an independent research firm, Genesis Analytics, declared the “implementation of the NHI Act as fiscally impossible”.
Those cheering for NHI often reference the United Kingdom’s National Health Service (NHS) as the poster child for centrally funded and managed healthcare. But they neglect a few important facts, most notably that UK citizens are free to purchase private sector health insurance alongside their NHS contributions, no strings attached. And you can be sure, dear reader, that many of them are forced to use this cover as the NHS bursts at the seams. Anecdotally, many UK citizens find it more difficult than ever to actually get in front of a GP, let alone a specialist, with long waits for ambulances and emergency care commonplace.
Not enough doctors, nurses in the boat
Incidentally, one of the biggest issues facing these government-controlled behemoths is that they become admin heavy.
Here is an analogy to help explain the problem. Imagine a rowing race between the government’s NHI and the private healthcare sector. In the private healthcare boat, most of the rowers are doctors and nurses, pulling hard at the oars, with a lean crew of administrators steering the course. In the state-run boat, by contrast, administrators outnumber the rowers, all shouting instructions while few oars actually touch the water. The NHI boat comes in way after the private healthcare crew; but things get worse at the rematch.
The government responds to its loss by hiring more administrators, forming new committees and writing fresh strategy documents. Meanwhile, the number of rowers actually pulling the oars shrinks further. The result is inevitable: the gap widens with every race, and no amount of shouting from the coxswain can make up for the lack of people on the oars doing the real work. Sorry to be that naysayer, but NHI cannot work. It does not need to be tweaked, but abandoned and redesigned from the bottom up, preferably by competent capitalists.
As an aside, your writer is staggered by how most South Africans are lapping up the social engineering that is taking place in front of their eyes. The Department of Employment and Labour has just pushed through sector-specific employment equity tables to stipulate exact employee head counts, down to the decimal point, that firms must employ across various levels of management. Not a peep from the people; perhaps nobody has given thought to what this jelly-bean sorting of every layer of society means. There is a blue one, quick, eat it.
Excessive state control
The NHI is another example, and its diabolical design is illustrated beautifully in a current matter before the Constitutional Court (CC). Thanks to Mike Settas, MD of gap-cover provider Cinagi, for his detailed explainer on LinkedIn, titled CC to hear challenge to the NHI (sic) Act. As Settas explains, the matter in front of the court actually stems from regulations 36 to 40 issued under the National Health Act (NHA).
“These five sections of the NHA’s regulations relate to what is known as the ‘Certificate of Need’, an attempt by government to implement a host of rules under which private doctors and other medical service providers must operate,” he wrote.
This legislation stipulates what areas doctors may operate in, what type of facilities they can operate and what medical equipment they are allowed to use. “These regulations provided significant power to the Director General of the DOH, including forcing doctors and medical providers to ‘share’ their resources with the state in treating public sector patients,” Settas explains.
South Africans can thank Solidarity for standing up for their rights. The organisation voiced concerns about the impact these regulations would have on members in the medical fraternity and challenged their constitutionality, taking the matter to the High Court. The High Court has since ruled that “the certificate amounts to nothing more than the arbitrary deprivation of property and impairment of the right to freely practise a trade, occupation or profession”. To paraphrase Settas’ piece: this matter gets referred directly to the CC for ratification.
GP 2030: Cash-only or barter please
The NHA is one of the legal mechanisms that makes the NHI workable (sic, again). Used together, these Acts allow the DOH to “dictate which doctors would be accredited to treat patients covered by the NHI and then also the level of reimbursement for doctors for such treatment”. Doctors will have to contract to the NHI, see the patients they get sent, charge what they are told to and be paid from a central NHI Fund. And doctors who fail to obtain NHI accreditation will end up running cash-only practices, changing vocations or going out of business.
To link back to my opening rant, the NHI will eventually prevent your medical scheme from paying for anything that the NHI already makes provision for. And you need to read that as ‘makes provision for’ rather than ‘actually provides’ because you can be sure that you will end up waiting months, years or until death for some of the services on the list. Yes, this state-run health insurance devil wears a suit and tie, but you should probably resist inviting him in.
The body-positive lady has not sung yet, dear reader, and some have begun the resistance for you. “As it stands currently, there are nine separate legal challenges before the courts against NHI, including from medical scheme associations, medical service providers, Solidarity, Sake Liga and, most recently, the Western Cape provincial government,” Settas said.
“The challenge from the Western Cape government is before the Constitutional Court since it raises irregularities in the legislative process of the NHI Act when it went before Parliament’s National Council of Provinces for approval.”
The health insurance devil we know
So, for now, the grateful folks who have medical benefits for life can breathe a sigh of relief. And so can those of us who are using the formula [Final Salary × RR] less Medical Schemes Contribution. Because yours truly would rather pay a big sum to the private sector, including co-payments, to guarantee a medical service that will help him reach the mortality curve predicted by his preferred healthcare and insurance partners.
Follow the writer on
LinkedIn: https://www.linkedin.com/in/gareth-stokes-media/
X: @stokesmedia
