Med­i­cal aids face costs crunch as bill shakes up ben­e­fits, rates

Pri­vate sec­tor anx­ious new rules could desta­bilise it

Sunday Times - - Business Times - By LAURA DU PREEZ

● 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.”

Pic­ture: Gallo Images

Health Min­is­ter Aaron Motsoaledi’s Med­i­cal Schemes Amend­ment Bill has many wor­ried it will raise costs for med­i­cal aid schemes.

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