More of the same or something different? Medical schemes in the SADC region
Medical schemes in the SADC region
By far the majority of the medical scheme spend is on hospitals. It is probably accurate to say that many of the medical scheme products on offer are hospital-based products.
Examining the South African Development Community region’s approach to medical schemes can sometimes feel like looking in a mirror of South Africa and at other times, like staring into an alien world. While there are similarities in the way medical schemes are approached and in the challenges they face, there are also differences.
Metropolitan Health Group, Medscheme, Sovereign, MSO and EOH all have interests outside of South Africa in the SADC region. “Stringent regulations and the relative saturation of the market in SA have prompted companies to seek opportunities outside of South Africa,” says Heidi Kruger, head of corporate communications at the Board of Healthcare Funders of Southern Africa, adding that outside of SA, the private healthcare sector is relatively unregulated.
South Africa, Zimbabwe, Botswana, Namibia and Mauritius all have 10 per cent or more of the population covered by private healthcare. In Mauritius, medical insurance falls under general insurance.
Show me the money
Affordability remains the overriding challenge, according to Kruger. In Zimbabwe, 93 per cent of the population are either self-employed or unemployed and 87 per cent live below the poverty datum line.
Kruger says that the issues facing funders in SA’s neighbouring countries are all similar. Lack of regulated tariffs means it is difficult to contain costs. High hospital costs are another issue, she says. “By far the majority of the medical scheme spend is on hospitals. It is probably accurate to say that many of the medical scheme products on offer are hospital-based products. Zimbabwe reports that many people go to India and Malawi for hospital procedures as the costs are lower.” For instance, a hip replacement in Zimbabwe costs US$22 000 (excluding the hospital stay), while in India the cost is R13 000 (all inclusive, including flights, accommodation and so on for an accompanying person).
Non-healthcare costs are also an issue. Kruger cites the example of Zimbabwe, where these costs account for around 21 per cent of the total costs, in comparison to South Africa where the average is around 13 per cent. Another challenge is that health IT systems are time-dependent and real time and on-line benefit and payment systems cause difficulties.
The case of Namibia
In Namibia, one of the challenges is the fact that insurance companies are competing with medical aids for business. Medical aid funds are regulated in terms of the Medical Aid Funds Act No. 23 of 1995, while medical insurance is regulated in terms of the Short-term Insurance Act No. 4 of 1998.
According to Hester Spangenberg, executive director at Investmed Namibia, both are basically short-term entities, implying that benefits are vested annually including the general annual increases, although during the past few years the medical aid funds had various interim increases during the course of the year. Spangenberg differentiates between the two, explaining that a medical aid scheme is legally a not-for-profit entity, managed on behalf of the members by a board of trustees while an insurance company is a limited company, owned by shareholders. “The medical aid funds are quick to point this difference out to prospective members and say that all the profits in the insurance companies goes to the shareholders and are not to the benefit of the policyholders,” she says, but adds that what they fail to mention is that both medical aid funds and insurance companies are required to maintain a certain minimum level of reserves to protect the members or policyholders.
“For insurance companies the level of reserve is a statutory requirement while for medical aid funds it is specified that the scheme surpluses belongs to the members and members could be at risk when the funds are depleted,” she says. “It is well-known that one of the open medical aid funds operates at a very low solvency ratio.”
Lacking in consistency
The Medical Aid Funds Act clearly stipulates that no portion of any surplus realised in the fund in any financial year may be distributed to its members, while no such restrictions exist on insurance companies. “Thus, insurance companies may offer roll-over benefits, no-claim and low-claim bonuses while none of the medical aid funds may offer any bonuses or roll-over benefits. Some of the medical aid funds offer certain roll-over benefits,” she says.
The act also stipulates that the dependants of a member are entitled to the same benefits as the member, however most of the funds restrict the benefits of the dependants and the main members enjoy higher benefits. An investigation into medical insurance available in Namibia revealed that the insurance benefits are based on the family as a unit and that the insurance companies do not differentiate between the benefits of the policyholder or that of the dependants.
Medical aid funds contract with companies operating on a for-profit basis to provide administration services to the funds while the insurance companies are responsible for their own administration. Currently administrators of medical aid funds are being paid a certain percentage of the contributions in lieu of the services they execute.
“In principle, this should not be a problem, however the administrators are being paid immaterial of their performance,” says Spangenberg. “The fact that the functions of the administrators are not regulated by a body like NAMFISA, creates a problem due to the fact that the trustees of the funds, who should actually control and manage the administrators, do not fulfil their functions in this regard.” She adds that the funds and administrators are pricing aggressively and are using the reserves of the funds to do so; they will eventually need to increase contributions or decrease benefits to maintain solvency ratios.
On a personal note, I believe that there are many opportunities that could be exploited on a regional level.
In accordance with the Short-term Act, brokers can be appointed to market the products of the insurance companies. These brokers are also being regulated in terms of the act. The Medical Aid Funds Act does not allow for any person to market any fund although this has become a standard practice in the industry and it appears that NAMFISA is doing nothing about it, according to Spangenberg. In addition, she says, certain individual and employer groups receive discounts on their contributions from the funds in order to prevent such individuals or groups from leaving one fund to join another fund or insurance companies. Thus, based on the structure of the funds where certain groups of members must enjoy the same benefits for similar costs, certain individuals and groups are being benefited by paying less, all to the detriment of the other members.
A challenging environment
Corruption is also an issue in the SADC regions. Recently, for example, the Zimbabwean newspaper reported that the Harare Municipal Medical Aid Society is facing collapse with the 14-member board being accused of massive corruption and abuse of funds.
Despite these many challenges, however, there is much that is attractive about the broader SADC region in terms of medical schemes. Kruger says, “On a personal note, I believe that there are many opportunities that could be exploited on a regional level. For instance, there could be centres of excellence for the region, geo-mapping of providers, quality standards across the region and so on.” Understanding and being able to leverage both the differences and similarities and the challenges of the region will ultimately dictate which medical schemes will prevail in an increasingly competitive environment.
It is well-known that one of the open medical aid funds operates at a very low solvency ratio.