Health insurance is threatening your medical scheme

Short-term insurers are undermining medical schemes because the health insurance products they sell are not subject to the same tight regulations as medical scheme products, delegates at the Board of Healthcare Funders conference heard this week. Laura du Preez reports Health insurance products, which charge premiums according to your risk and do not have to provide minimum benefits, run the risk of eroding the social solidarity system provided by medical schemes, a medical scheme industry conference heard this week.

Social solidarity in schemes means that schemes cover your health needs without linking your contributions to the risk you pose of falling ill.

Barry Childs, a healthcare actuary with Lighthouse Actuarial Consulting, told the Board of Healthcare Funders (BHF) conference in Cape Town this week that if the proliferation of health insurance products continues, there is a risk that schemes could reduce their cover to prescribed minimum benefit conditions only (mainly hospital benefits and cover for the common chronic conditions), and you would have to buy risk-rated insurance cover for all your other healthcare needs.

Professor Alex van den Heever, who holds the Chair of Social Security Systems, Administration and Management Studies at the University of the Witwatersrand, says that if health insurance products are allowed to continue to offer cover for the same benefits that schemes offer, there will be a massive disruption of the medical scheme market.

He says medical schemes are our social protection against the costs of ill-health, and if health insurance products are allowed to operate in parallel with medical schemes, the result will obviously undermine schemes.

Van den Heever says government needs to nip the proliferation of insurance products in the bud and confine these products to areas which are not covered by medical scheme benefits.

Childs says the proliferation of insurance products has been driven by underlying problems in medical schemes, namely the lack of affordability of scheme contributions and the gap that is emerging between what healthcare providers charge and what medical schemes pay.

In March last year, National Treasury published draft regulations under the Short and Long Term Insurance Acts that were aimed at clarifying which health insurance products would be allowed to operate under an exemption from the Medical Schemes Act once it was amended.

A proposal to amend the Medical Schemes Act’s definition of a medical scheme in such a way that many insurance products would fall within its ambit and be required to conform to its requirements is currently contained in the Financial Services Laws General Amendment Bill, which is before Parliament.

The draft regulations, however, attracted much comment, and Treasury promised to published a revised draft.

Childs says the publication of a revised draft is, what he calls, “perpetually imminent”.

Van den Heever says Treasury’s draft regulations are “nonsense” and many of the proposals will deepen the current problem that insurance products are creating. The only answer is to allow exemptions from the Medical Schemes Act under that Act only and not through the Insurance Acts, he says.

WIDENING GAP

Van den Heever says one type of health insurance, gap cover, is not as benign as some providers have claimed, but is driving up the costs of health care because it legitimises the charging of any price for healthcare services.

When medical scheme members supplement their scheme cover with insurance products to cover shortfalls, it reduces the incentive for medical schemes to resolve the issue of the affordability of contributions and to reduce the gaps between what schemes pay and doctors charge.

In the absence of gap cover products, providers and schemes would be forced to agree on reasonable charges, he says.

Childs says South Africa should reaffirm its commitment to solidarity-based financing of healthcare.

He says medical schemes could, in the interim, address their lack of affordability and the growing gap in benefits by lobbying government for the introduction of mandatory membership for employed people, risk equalisation of healthcare costs across schemes, clear demarcation guidelines, and risk-based solvency requirements for schemes.

Between 2007 and 2011, the medical scheme industry lost the impetus to continue its reforms because of the government’s change