Medical aids face costs crunch as bill shakes up benefits, rates
Private sector anxious new rules could destabilise it
● Proposed amendments to the Medical Schemes Act released by Health Minister Aaron Motsoaledi will entail a big shake-up in benefits and contribution rates but are aimed at ensuring medical schemes remain affordable and viable until National Health Insurance is in place.
The minister also released the National Health Insurance Bill this week, giving the broad framework but no details of how NHI will be funded or the benefits it will provide.
Motsoaledi said that NHI would do away with the need for government to subsidise contributions to schemes for its own employees.
Private-sector companies could decide for themselves how to proceed.
Industry sources say the changes to schemes are likely to be implemented in phases and the impact for members and employers who subsidise contributions will depend on each scheme’s benefits and reserves, and on members’ incomes.
The Medical Schemes Amendment Bill proposes that medical schemes:
● Be obliged to pay claims in full with no copayments;
● Charge wealthier members more in contributions to subsidise the contributions of lower earners; and
● Extend the prescribed minimum benefits to include primary and preventative healthcare.
The minister says members currently fork out R29-billion in co-payments partly subsidised by the government through tax rebates.
Medical schemes, however, have complained that they are at the mercy of providers who overservice and increase their tariffs when they know schemes are obliged to pay as in the case of prescribed minimum benefits.
The tariffs doctors, hospitals and other providers charge was referred to the Competition Commission’s Health Market Inquiry, which is due to release its findings next week, but Motsoaledi said he feared it may be interdicted from doing so by affected stakeholders. Asked how schemes could be expected to cover whatever providers charge without co-payments, the minister said tariffs “will have to be uniform”.
Charlton Murove, head of research at the Board of Healthcare Funders, says schemes need more details on how the scrapping of co-payments would be implemented.
The Council for Medical Schemes is conducting a review of the prescribed minimum benefits that is likely to take another two years. But expanded benefits are likely to add to the costs borne by schemes.
Motsoaledi suggests schemes set aside less in reserves to ameliorate the financial impact. They are now required to set aside 25% of contributions, but on average schemes have 33% of contributions or R60billion in reserve.
Motsoaledi said NHI would do away with the need for government to subsidise its employees’ contributions
The minister says this is an “unnecessary accumulation” at the expense of patients.
The council is revising the reserve requirements to align them with the risks that schemes face, with bigger schemes and those with younger, healthier members generally being regarded as lower-risk. Motsoaledi said the council would be encouraged to introduce the new requirements as soon as possible.
Morove said setting reserve requirements according to risk should make schemes more affordable, but in some cases schemes might need to raise reserves of more than 25% of contributions.
The market is not believing that they can achieve any of what Motsoaledi promised yesterday Warwick Bam Analyst at Avior Capital Markets
If the Medical Schemes Amendment Bill is introduced in its current form, trouble could be looming for the medical aids, hospitals, suppliers and medical aid administrators paid for by medical funds.
The bill, unveiled by Health Minister Aaron Motsoaledi on Thursday, proposes, among other things, banning co-payments for medical-aid members and increasing the number of medical conditions that medical aids must cover.
The anxiety in the industry was evident by the fact that at a press briefing on Thursday there were more people representing medical aids, administrators and doctors than journalists.
Motsoaledi’s proposals aim to cut costs to consumers but analysts warned this could destabilise medical aids, leaving less money for private healthcare, which is accessed by 8.8-million South Africans using medical schemes.
Dr Graham Anderson, principal officer at Profmed, said medical aids could not afford to cover costs in full and damaging them would have a negative knock-on effect on private hospital groups.
“It’s not possible for medical schemes to pay for everything with no co-payments,” he said.
The only way for schemes to afford to pay more in the event of no co-payments is to increase premiums.
A healthcare sector analyst, who did not want to be named, said: “The theoretical risk [of these bills] is that removal of co-payments and expanding of medical aid benefits would raise costs for schemes and therefore increase contributions required from members.
“This would mean lower membership as the less well-off struggle to afford the increased premiums, especially if the medical aid tax credit is removed.”
He added: “Less medical aid membership is bad both for medical aids, private funders and providers [hospitals, doctors, day clinics].”
Jill Larkin, a GTC broker who analyses medical aids, said to compel medical aids to pay for everything would be unaffordable and would destabilise them.
“If the law makes medical aids unsustainable, what will happen to members of medical schemes? They will revert to the state and become state patients.”
Warwick Bam, an insurance analyst at Avior Capital Markets, said: “If medical schemes were destabilised it would undoubtedly have a negative effect on hospital groups as medical aids are the largest buyers of hospital services.”
So severe are the proposed changes to medical aid law that Discovery Health, an administrator of medical aids, said it couldn’t yet respond in detail.
“The draft Medical Schemes Amendment Bill contains numerous complex amendments to the Medical Schemes Act. We are still studying the details of the draft bill and will provide more detail on our views as soon as possible,” it said.
Although the minister has said using medical scheme reserves — which sit at 33% rather than the statutory 25% of total premiums — is one way for medical aids to cover co-payments, this was not sustainable as their current excess reserves would not cover co-payments beyond a few years.
Anderson said: “The minister must be careful of using all of schemes’ reserves as medical schemes use these when high claims outnumber premiums. Medical schemes are not allowed to insure themselves against a bad year when claims outweigh premiums. The reserves are a buffer for us during that time.”
But there may be some benefits for big healthcare companies. The NHI fund — proposed to be the largest funder in the country — could mean more business for private doctors and hospital groups. The minister did not rule out using a private administrator that presently manages medical aid funds to run the NHI fund when asked at the press briefing on Thursday.
He also suggested public patients may be treated at private hospitals, which would increase the use of private hospitals that are not always full.
Elsabé Klinck, a healthcare consultant, said this could offer opportunities to the private sector but it was not yet clear how private-sector hospitals and administrators could provide services to the state.
“The cost base of the services are different. Publicsector hospitals don’t have to pay rent for premises, and the doctors don’t have to pay their malpractice insurance premiums,” Klinck said.
Roly Buys, a Mediclinic executive, said: “There will definitely be opportunities and we have offered our services on numerous occasions, but at this stage the exact mechanics are unclear.”
The analyst said NHI in its present form wouldn’t happen. “This does look like political kite-flying and we would expect the final version to be challenged and watered down. So, at the moment it is negative rhetoric and regulatory overhang rather than substantial change, which won’t help the listed shares, especially ones most exposed to South Africa.
“Theoretically NHI should provide greater volumes at a lower price. That’s if you assume it is feasible (which we don’t in South Africa). We wouldn’t be able to train enough doctors, never mind raise enough funding in a country of 50-million with a tax base of 5-million that trains 2 000 doctors a year and doesn’t make importing doctors easy.”
Bam said the market didn’t think NHI would be happening any time soon, which was why large healthcare companies’ share prices had recovered.
“There is a lot of noise in the market. There is very little reality in the way the health minister communicated yesterday. The market is not believing they can achieve any of what Motsoaledi promised yesterday.”
Health Minister Aaron Motsoaledi’s Medical Schemes Amendment Bill has many worried it will raise costs for medical aid schemes.