‘Schemes must tell you if they reduce benefits’

Consumers would lodge significantly fewer complaints about their medical schemes if schemes communicated openly with them, as was required by the regulations under the Medical Schemes Act, Tembekile Phaswane, the senior manager for complaint adjudication at the Council for Medical Schemes, told a recent medical scheme conference.

In a presentation to the Board of Healthcare Funders conference in Cape Town, Phaswane said members’ lack of understanding of schemes’ terms and conditions led them to assume that their claims were being denied unfairly.

She said the main cause of disputes between members and schemes was inadequate communication about benefits. Every October or November, when schemes announce their contributions and benefit changes for the coming year, they draw members’ attention to any benefit enhancements. Benefit reductions, however, are not highlighted in marketing material. As a result, members become aware of these reductions only when they try to access benefits they have previously enjoyed, only to find they are no longer available.

The Council for Medical Schemes also receives a large number of complaints whenever a scheme changes its administrator, Phaswane said. Although schemes reassure members that switching administrators will not be disruptive, it is common for the change to result in the loss or corruption of membership data and in delays in the payment of claims.

Another source of complaints is members struggling to establish what they are entitled to from managed-care programmes. In many cases, the council finds that schemes either do not have a written protocol in place, as required by law, or refuse to provide members with details of this protocol, citing “intellectual property” or “scheme copyright”.

The law is very clear that schemes and administrators must inform members of the details of managed-care protocols, she said.

Phaswane said schemes should inform members what is meant by “an emergency medical condition”, because there is widespread misunderstanding of the difference between planned surgical interventions and emergencies.

She said many members and doctors were confused about the terms and conditions governing designated service providers (DSPs). If a condition is a prescribed minimum benefit (PMB), which schemes are obliged by law to cover in full, a scheme can dictate which facilities and which healthcare professionals the members must use if they want their costs covered in full. These facilities and professionals are known as DSPs. Members who want to use non-DSPs are liable for a co-payment.

The council receives many complaints about doctors who failed to disclose to members that they were not DSPs, Phaswane said. These doctors proceed with treatment knowing that a scheme would not cover the cost in full. When the scheme does not pay, they demand payment from the member. Phaswane said the council had reported these doctors to the Health Professions Council of South Africa.

She said the National Health Act obliged doctors to disclose their fees. Additional rules pertaining to ethical conduct for doctors require doctors to provide information about the costs associated with each treatment option and the alternatives available, so that you, as a member, can make an informed decision.

Phaswane said most members did not understand what constitutes non-disclosure. Schemes could help to overcome this problem by designing forms that prompted prospective members to fill in all the required information.

A core principle of insurance is that there must be full disclosure of the risks the insurer is taking on, because insurers have to price the risks appropriately, Phaswane said.

Two types of non-disclosure are common when people apply to join a scheme. The first is when you disclose information about only one pre-existing condition, not others. The second is when you transfer from one scheme to another, within 90 days, without fully disclosing existing conditions.

In either case, she said, a medical scheme would be entitled to cancel your membership.

. The average income drawdown rate for living annuities continued its slow yet steady decline in 2015, edging a little closer to the recommended five percent of capital.

The 2015 Living Annuities Survey, released by the Association for Savings and Investment South Africa (Asisa) this week, shows that last year living annuity policyholders withdrew, on average, 6.44 percent of their capital as income.

A living annuity is a type of pension that, unlike a guaranteed annuity, does not guarantee a regular income. Your returns, and hence how much you can safely draw as income, are dependent on the performance of the underlying investments, which you choose.

Peter Dempsey, the deputy chief executive of Asisa, says that living annuity policyholders are required to draw a regular income of between 2.5 percent and 17.5 percent of their capital annually, but you risk eroding that capital if you draw more than five percent a year.

“This is why we get excited when we see the average drawdown rate decreasing each year, even if it is marginal,” Dempsey says.

When Asisa began collecting consolidated statistics on South Africa’s living annuity book in 2011, the average drawdown level was 6.99 percent. This means that over the past five years there has been a decline of just over half a percentage point.

“Given the rising cost of living, which affects most severely those no longer in a position to generate an additional income, we are encouraged that pensioners, on average, have not resorted to increasing their drawdown rates.”

Dempsey says income drawdown levels must be reviewed annually to ensure that they do not exceed expected portfolio returns.

“When the percentage of income drawn exceeds the returns of the investment portfolio supporting the living annuity, the capital base will be eroded over time,” Dempsey says.

He recommends, therefore, that a sustainable drawdown level is selected with the help of a trusted financial adviser who will take into consideration factors such as income needs, the composition of the underlying investment portfolio as well as the performance of the underlying assets.

He adds that policyholders who use a financial adviser generally select lower drawdown levels because they better understand the long-term implications.

Living annuity policyholders are allowed to review their drawdown rates once a year on the anniversary date of the policy..

At the end of 2015, South Africans had R331.6 billion (R278.9 billion in 2014) of their retirement savings invested in 410 898 living annuities (360 894 in 2014). In 2015, living annuities attracted new inflows of R58 billion compared with R46.5 billion in 2014.