Fancy footwork needed
The regulatory environment makes extremely high demands.
MEDICAL SCHEMES in SA once again face great challenges this year. On the one hand, members’ expectations must be met and medical insurance made more accessible and affordable to more people – especially those in the lower income groups – while remaining within the regulatory framework. On the other, the schemes have to keep costs under control and stay competitive.
“First there are the ‘normal’ cost increases that have to be taken into account, such as the trend to higher consumer and service patterns by members and doctors, the increasingly older pool of insured lives, the higher costs associated with tariff increases, the weakening rand, the cost of service inflation – systems, salaries, specialised services, such as actuarial, financial, IT and compliance – in a very service-intensive industry, and the effect of HIV/Aids and related illnesses,” says Louis Botha, MD of Absa Healthcare Consultants and chairman of the Financial Planning Institute’s (FPI) healthcare committee.
At the same time, medical schemes constantly face regulatory challenges, with new prescriptions for maintaining solvency levels and the structuring of benefits. They also have to make plans to prevent the outflow of members to GEMS, he adds.
Medihelp CEO Anton Rijnen agrees that the regulatory environment makes extremely high demands. “The medical scheme industry is one of the most regulated in the country, and this sometimes has a negative effect on real innovation as far as schemes’ products and other services are concerned.
“Co-operation to get legislation promulgated that will satisfy most parties and benefit healthcare in SA will demand perseverance and patience,” he says.
TeleMed CEO Carel Stadler says medical scheme members are becoming better informed, which puts pressure on administration and managed healthcare initiatives.
“The fact that legislation tries to protect members’ interests will also mean that medical scheme administrators will have a greater responsibility to act in line with legislation.
is GROWTH Another great challenge, he says, is to increase the size of the pool of medical
very important – especially to inform members positively about initiatives that at first glance appear to be negative, as well as about regulatory changes that could affect them. In general, medical schemes will have to ensure that, when the time arrives, they can absorb any changes with the minimum effect on their members, their healthcare cover and their reserves.” REGULATION A busy year is expected on the regulatory front, says Botha. “Apart from the amendments to the Medical Schemes Act, the most important of which is Circular 8 – to introduce one common option for all members per scheme as far as compulsory benefits are concerned and which takes cross-subsidisation to a next level – and the Risk Equalisation Fund (REF), still to be finalised are the Healthcare Charter, the Low-Income Medical Scheme (LIMS) and how the costs of private hospitals will be handled.”
The setting up of a central board to negotiate with the three hospital groups on behalf of everyone has been mooted. Alternatively, “capping” can be looked at, but this is a risky idea, Botha says.
After the regulation of pharmacy tariffs in 2006, the focus this year will probably shift to private hospitals and other tariff regulation, Rijnen says.
“However, regulated prices should be guarded against, since that normally results in cheaper services. The problem then is that the private sector can usually no longer provide these services at these prices, resulting in them no longer being obtainable or of a much poorer quality,” he says.
Stadler says there will be more pressure on administrators this year, and also a greater onus on schemes’ trustees and senior officials, making their responsibility regarding corporate and risk management increasingly important. The auditing of schemes will also become more complex. scheme members.
“The pool has remained stable at about 7m lives for the past few years, but all indications are that this is shrinking as a result of increasing costs. After all, medical scheme cover is insurance, and the same principles regarding risk pools, economies of scale and cross-subsidising apply.”
He says far too many younger, healthier members are still being moved from one scheme to another by healthcare consultants, without new, uninsured lives being added to the industry.
“Healthcare consultants should be compensated far more for recruiting new, uninsured lives than for moving already insured lives from one scheme to another. The challenge is therefore to develop innovative and affordable medical scheme products that are made up and priced in such a way that currently insured lives do not leave the market and that the door is also opened for new markets/members to enter the industry.”
Botha says that increasing the number of insured lives depends on two important aspects – the cost of insurance and who pays for it.
“If workers who have not paid in the past are now obliged to do so, the trade unions will object and certainly insist on wage increases, which will push up the cost of labour. If employers have to pay, it will in any case increase the cost of labour, which will affect the economy.
“Another alternative is a larger State subsidy, which is not possible because of other economic priorities and limitations. As far as the present number of insured lives is concerned, all parties should keep an eye on the developments surrounding the REF to see whether they won’t finance the new generation of insured workers,” he says.
“One could argue that the REF is seen as not being politically correct, because it could imply that the ‘previously disadvantaged’ (who possibly did not enjoy medical cover in the past) would be subsidising the ‘previously privileged’. But if it is implemented, it will undoubtedly place a greater burden on the administration side of schemes in particular. This will hopefully be balanced by the fact that medical schemes that are currently being neglected because of their older membership tallies will benefit, thereby making the playing field more level,” he says. AFFORDABLE COVER Are initiatives such as LIMS really the answer for more affordable cover at the lower end of the market?
“The positive side of LIMS is that it has the potential of increasing the number of insured lives. But the pity is that an entirely new dispensation is needed for it – which actually amounts to admitting that the current dispensation, largely as a result of the levels set for minimum benefits, is too expensive,” Botha says.
He feels the medical scheme industry is still being hampered by a tendency to antiselection, that is, consumers and suppliers use or abuse certain products or options to their own advantage.
“One could therefore ask whether LIMS won’t enlarge the potential for anti-selection, or alternatively, how anti-selection
will be prevented in such an environment. Further uncertainties are whether there will be a separate LIMS act and what a LIMS REF will look like. One also wonders what kind of systems and other administrative changes administrators will have to make and how these will ultimately affect costs – in other words, whether the original objectives of reaching a new target market, can be achieved.
Stadler says the expected introduction of LIMS (and other low-cost schemes) will put a lot of pressure on current schemes’ benef it- development process and creativity as far as benefit packaging is concerned.
“On the other hand, it’s a possible solution for the emerging market – more lives must be covered. But the fact that medical cover is not so strictly enforced yet and isn’t compulsory could hamper the implementation of the scheme.”
He says current initiatives to increase the pool of insured lives from 7m to, say, 11m should be productive, “but it’s being hampered by legislation, as well as by the burden of being cost-effective in respect of the price you pay compared with what you get for your money.”
Rijnen says there aren’t yet sufficient statistics on the claims patterns of the lowcost market and that the medical insurance concept is also not yet established in the low-cost market.
“It will therefore still be difficult to develop, market and run this kind of product and scheme properly. However, in the end the low-cost market is one of few options for getting uninsured workers who work in a formal context into the market.
“We therefore don’t have much choice but to make it work, and our success will depend on our ability to understand this market correctly and then supply its needs, not simply offer what we think it wants,” Rijnen says.
He says the large-scale amalgamation of medical schemes will continue this year. “The end will probably be a few megaschemes, with their associated mega-suppliers and mega-administrators. The result of this should be a larger risk pool with, consequently, better cross-subsidisation, lower costs and greater product stability.
“The influence of the increasingly larger GEMS will also be a challenge for those schemes with large numbers of civil service members – about 22 schemes. These schemes will be forced to recruit members within the stagnant industry or enter new markets to make up for the loss of these members and the associated loss of administrative income,” Rijnen says.
Communication is very important. Carel Stadler
The largescale amalgamation of
medical schemes will continue this
year. Anton Rijnen