You could pay less for medical scheme cover
There are ways to relieve the burden on existing medical scheme members and induce more lowincome earners to join schemes – all while helping government to implement National Health Insurance, an actuary says. Laura du Preez reports ‘NHI will address mand
Medical scheme members could pay lower contributions, more low-income earners could afford to join schemes and muchneeded funds could be freed up for use in the public healthcare sector if a few reforms were introduced, an actuary told a conference this week.
Barry Childs, a healthcare actuary with Lighthouse Actuarial Consulting and CareGauge, told delegates at the Hospital Association of South Africa’s annual conference that there is a relatively quick way to bring relief to users of both the private and the public healthcare systems while waiting for National Health Insurance (NHI) to be fully developed.
Childs says the reforms include making medical scheme membership mandatory for people in formal employment and increasing income cross- subsidisation among members. He says these reforms, together with other reforms that were proposed earlier but have been ignored since the focus turned to NHI, could:
◆ Reduce by 15 percent the average cost of medical scheme membership for highincome earners;
◆ Result in another 13 percent of the country’s population becoming scheme members at contribution rates that are less than half the current average; and
◆ Benefit the public healthcare system, because it would have to treat six million fewer people. This would have the effect of increasing by 19 percent the annual amount spent on each person who uses the public healthcare sector.
Not only would these reforms bring short- term relief to medical scheme members while government pursues the longer-term goal of introducing universal coverage through NHI, but they would also help to bring about the conversion to NHI, Childs says.
On average, R11 395 a year (R949 a month) is paid in contributions for each medical scheme beneficiary, whereas government spends R2 835 a year (R236 a month) on each person who uses public healthcare facilities, he says.
The average amount spent on medical scheme contributions could be reduced to R9 686 a year (R807 a month) – a decrease of 15 percent – for high-income earners, while low-income earners whose contributions are cross-subsidised by high-income earners could be brought in at a contribution rate of R5 854 a year (R487 a month).
Childs says this would encourage about 13 percent of the population to join lowcost medical scheme options, which, in turn, would increase from 17 percent to 30 percent the percentage of the population covered by schemes. This would reduce the number of people who rely on the state for health care and enable government to increase the average amount it spends on users of public healthcare facilities from R2 835 per person a year to Mandatory membership of medical schemes will be addressed through National Health Insurance, Dr Monwabisi Gantsho, the Registrar of Medical Schemes, said in response to the proposals from independent actuary Barry Childs.
Gantsho says the medical scheme industry has indicated on numerous occasions that it is hamstrung in doing more to improve access and affordability, and medical schemes membership is growing at a “dismal” 1.8 percent a year. This may be a function of unaffordability, and thus a call for an alternative and innovative healthcare funding model.
The Competition Commission’s 2003 ruling prohibiting negotiations to set tariffs and the absence of guideline tariffs have left a vacuum within the private healthcare sector, where providers are now charging at rates as much as 700 percent above what medical schemes can afford, he says.
Concerning Childs’ call for regulatory reforms, the registrar says the Council for Medical Schemes has proposed amendments to the Medical Schemes Act to the Department of Health. However, these R3 377 per person a year (R281 a month) – an increase of 19 percent, he says.
In order to achieve all these things, government should complete the reform of medical scheme regulations that was proposed when it was pursuing a social health insurance system (SHI) for South Africa, Childs says.
In terms of SHI, everyone who could afford to do so – typically those in formal employment – would be expected to join a medical scheme.
However, the move to SHI was halted in 2005, and in 2007 government announced its intention to pursue NHI.
Childs says that making scheme membership compulsory for people in formal employment would prevent anti-selection (people join schemes only when they need health care and leave thereafter) and reduce contributions.
Making membership mandatory would also reduce the average age of the lives covered by medical schemes, he says.
It is estimated that utilisation of healthcare services by medical scheme members increases by 2.5 percent a year, and this amendments do not extend to mandatory cover, a risk equalisation fund or income cross-subsidisation.
In response to the suggestion that more should be done to eliminate fraud, Gantsho says the council is concerned about the lack of good governance in schemes and has been conducting training for trustees.
He also referred to the council’s opposition to unregulated gap cover and hospital cash plans and said it was engaging with National Treasury on these matters. can, in part, be attributed to the ageing, and worsening risk profile, of the medical scheme population.
The absence of mandatory membership for those in formal employment is a notable contributor to medical scheme contribution increases each year, and Childs estimates that introducing mandatory membership could save existing members between nine and 14 percent of the contributions they currently pay.
Another reform that was proposed previously, a risk equalisation fund that will equalise the cost of providing benefits to members across medical schemes, will encourage schemes to compete on efficiency rather than on their membership profile, Childs says.
One of the obstacles to making medical scheme membership mandatory is the high cost of contributions relative to household income, Childs says.
The high cost of providing the prescribed minimum benefits (PMBs) – the benefits that all schemes are required by law to provide – is a major hurdle to making contributions more affordable. On average, it costs R1 064 per family to provide the PMBs to scheme beneficiaries.
Income cross-subsidies are needed to ensure that medical scheme membership is affordable for lower-income households. Currently, wealthier households spend a far lower proportion of their income on medical scheme contributions.
He says that the introduction of greater income cross- subsidisation in medical schemes could make contributions more affordable, which would encourage more low-income earners to join schemes.
Restricted schemes (those that limit membership to a group, such as employees of a company) use income cross-subsidisation effectively to ensure that low-income earners can afford the contributions, but open schemes (those that must admit anyone) tend to differentiate contributions by income band only for their low- cost options, Childs says.
Employers also achieve income crosssubsidisation by giving higher subsidies to lower-income employees, he says.
For open schemes to make greater use of income-rated contributions, all schemes would have to be compelled to introduce such bands, he says. Ways would have to be found to verify members’ incomes, he says.
SMARTER HEALTHCARE BUYING
A saving of between 20 and 30 percent in contributions could be achieved if the regulations were reformed, while, at the same time, more co-ordinated strategies were implemented to manage fraud and schemes adopted a “smarter” approach to choosing the healthcare services they provide for their members, Childs says.
If medical schemes, administrators, managed care entities and healthcare providers collaborated more, they could do more to eliminate fraud, which, by conservative estimates, costs schemes five percent of your contributions.
Schemes that use data collected about healthcare providers in order to contract with those that have been identified as providing services cost- effectively have achieved a significant saving on claims payouts, and more schemes should be encouraged to follow suit, Childs says.
Schemes could make greater use of alternative reimbursement methods, which incentivise healthcare providers to take some of the financial risk of providing services to members. Currently, providers charge for each service, which can result in the overservicing of members.
If schemes passed on to their members only half of the potential saving of 30 percent in contributions, members’ contributions could be 15 percent lower. The remaining saving of 15 percent could be used to subsidise the contributions of lowincome earners, Childs says.
The healthcare system must be reformed to bring about affordable healthcare cover for all, he says. But implementing previously proposed reforms for medical schemes will keep contributions affordable in the meantime, while increasing the amount available to spend on public health care. This, in turn, will facilitate the development of NHI, he says.
This is how the healthcare system could look: Mandatory membership of medical schemes, as well as other measures, could save higher-income members 15 percent of their contributions, while reforms to the regulations, together with income cross-subsidisation, could bring another 13 percent of the population on to schemes at a contribution rate 50 percent below the current average per beneficiary. The relief this would bring to the public health sector could increase the amount spent per person by 19 percent.