High levels of premium inflation ‘unavoidable’, says Discovery CEO

Organisation: Position: Deadline Date: Location:
Broomberg

Dr Jonathan Broomberg, Discovery

High premium inflation is unavoidable given ageing membership, a rise in chronic diseases, new medical technology and a government-imposed anti-selection policy, says  Dr Jonathan Broomberg, CEO of South Africa’s largest medical insurer, Discovery Health, in the Sunday Times.

As private health-care members writhe under the pressure of spiralling premiums, the industry is facing “very significant challenges”. “We are seeing the impact of the economy on growth. The medical scheme market is totally flat,” says Broomberg. Membership growth has halved in five years, and the “lapse rate” is accelerating as members struggle to pay premiums that have been rising way above the inflation rate and annual wage increases.

Ageing membership, a rise in chronic diseases, new medical technology and a government-imposed anti-selection policy that allows people to join or upgrade their medical-scheme options when they’ve got a serious medical condition have made the increases unavoidable, he says in the report. “Anti-selection is having a huge impact.” He doesn’t want to be “alarmist” about it, “but there is a trend of anti-selection, and it is one of the strong drivers of the high premium inflation”.

The report says Discovery commands a 56.6% share of the open scheme market, raising the question why it hasn’t done more with the clout this gives it to contain costs and drive a harder bargain for members. “We do a lot of that and we do it very effectively,” he says. But spiralling premiums are not a function of price. “We are getting very cost-effective pricing from the hospitals and other providers. It’s a function of the volume of services being consumed. That is ageing and chronic disease and anti-selection.”

Pharmaceutical prices are regulated for the public sector but not the private sector. With the right policy intervention, the government could help bring down the “very high and rising costs of drugs in the private sector”.

The report says he rejects the widely heard complaint from aggrieved members that as premiums go up, their benefits come down. “They’re not coming down. Even the lowest-premium options are bound by law to provide prescribed minimum benefits.” These cover all the chronic conditions including cancer, although “obviously not at the same level as the top plans”.

About 18% of the population is covered by private medical schemes and, the report says, Broomberg concedes that there could be socio-political consequences for the sector as those at lower-income levels are squeezed out and it looks increasingly elitist.
In South Africa, where the public health system is so dysfunctional, he says “this perception of elitism is unavoidable”.

He says he doesn’t believe the imposition of a potentially crippling anti-selection policy on the private health-care industry is a sign of things to come as the government comes under growing populist pressure to accelerate transformation. “The government is facing very significant challenges in the public health-care system and is looking at how to work with the private system to bolster NHI [national health insurance] and ensure the assets available in the private space, such as hospitals, doctors and technological expertise, are used to benefit more than 18% of the population that uses private health care.”

According to the report, he says the government is not making nearly as much use of the private sector as it could. “We have no doubt that there could be a much stronger partnership and that the private sector could bring a lot of useful assets and expertise into the collective national health system or NHI.” Ongoing “mistrust” of the private sector by the government has prevented this, but he is “encouraged” by the appointment of Zweli Mkhize as health minister. “We very much hope he will change the relationship.”

The report says Broomberg doesn’t know how NHI will impact on the private health sector as “almost all of the relevant details are still not clear”. If it works out, it could provide “very effective competition for medical schemes, and we’d welcome that”.

Even if it doesn’t, it will still cost them members. “Assuming they would have to make a contribution then towards the lower end of the income spectrum of current medical scheme members that will create increased pressure and may force members to leave medical schemes. “If the NHI is not meeting their needs they won’t do so very happily, but economic reality may force them to.”

In spite of supposedly having to increase premiums way above the inflation rate, Discovery reported a 10% increase in operating profit to R1.46bn in the six months to end-December 2018 and, the report says, many view this kind of profitability as proof that the industry puts the interests of shareholders above those of members. “The medical scheme is not for profit,” says Broomberg. “By law.”

But, the report says, clearly the administrators of the scheme make very handsome profits. “We get paid a fixed fee per member per month,” Broomberg says and the fee has dropped “quite significantly” over the past decade. “The fact that we’re still able to report profit is a function of increasing operational efficiency and very tight management of our business. We are giving the advantages of the benefits of scale and efficiency back to the members.”

Out of every rand spent, the admin fee is the only component that is decreasing every year, he says. “We account in terms of admin fees for less that 8c in the rand. Most of
the rest is going on claims.”

The report says Discovery’s opulent new headquarters in Sandton shouts that this is a company doing very well for itself while its members take increasing strain. But Broomberg says the building houses the whole group, not just Discovery Health, and rental costs per square metre are lower than in the five buildings it used to occupy.

The report says that won’t mollify doctors who hate what they see as the increasing corporatisation of private health care. “They resent the fact they have to deal with medical-aid schemes telling them what to charge,” Broomberg says. We work incredibly hard to make life as easy as we can for them.”

So why is Discovery top of their hate list, the report asks? “We’re a very large part of their practice. In big cities we account for 60% to 80% of a doctor’s practice. I think it’s as simple as that.”

Sunday Times report (subscription needed)

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