Medical schemes, feeling the pinch with decreasing membership and bracing for radical upheaval when the National Health Insurance (NHI) kicks in, argue that the immediate solution lies in low-cost healthcare options, writes MedicalBrief.
They say if they were allowed to expand affordable healthcare solutions, the state will not need to raise additional taxes to fund the initial NHI roll-out, arguing that there is no need to kill the private sector to achieve universal healthcare coverage.
However, if the government went ahead and demolished the sector, it would also lose the expertise needed to root out fraudulent claims and to manage a fund the size of NHI.
Speaking at the Momentum Health Solutions Healthcare Insights Summit this week executive head of marketing Damian McHugh said the company, which administers several medical schemes in SA that serve about a fifth of the medical aid population, does not dispute the need for universal healthcare coverage and the shake-up of the private system as well, reports BusinessLIVE.
But the continued existence of low-cost health insurance and allowing medical schemes to offer the same would take an additional burden off the public healthcare facilities, he argued.
“It should not be, in our view, one sector at the expense of the other.”
But NHI deputy director-general Nicholas Crisp, in a Bhekisisa report, said having 76 medical schemes was not sustainable. “There are big ones, and some are very small, with small risk pools. I see a realignment of medical schemes, where we end up with fewer, offering fewer packages (so, less complicated choices) and one compulsory package, in which everybody knows what they’re getting for a set price, as negotiated and fixed between the state, the Council for Medical Schemes, the Competition Commission and the medical aids.
The changes, however, will not happen overnight, Crisp said. “You won’t feel anything in the first year. The system won’t change in a short time; it will take a couple of years before we see the first steps. Full implementation, which is what people … are unhappy about in section 33, will take decades. (Section 33 outlines what the role of medical schemes will be once the NHI is running).”
But McHugh says up to 6m low-income workers could afford basic private healthcare services and reduce pressure on the public sector if medical schemes could offer low-cost options now.
The Medical Schemes Act requires medical schemes to cover an extensive set of conditions known as the prescribed minimum benefits (PMBs), making membership unaffordable for millions of low-income workers.
Since 2015, industry regulator the Council for Medical Schemes (CMS) has been working on a regulatory framework to exempt schemes from these provisions and allow them to offer cheap, pared-down benefit options, but it has yet to be finalised, and is facing a legal challenge from the Board of Healthcare Funders for its slow pace in crafting a regulatory framework for low-cost benefit options.
“If we can get the benefit set and pricing applicable to lower income individuals who are formally employed, we will alleviate the state’s burden,” McHugh said.
“This is not in conflict with NHI – it will enable NHI to happen even faster.”
He said there was clear demand for such products from low-income workers and employers, and cited steady growth in the health insurance market. Momentum Health Solutions’ health insurance product Health4Me had seen 14% membership growth in the year to 30 June, to reach 184 168 lives.
About 1m low-income workers are now covered by health insurance products, offered by 12 licensed providers operating in the open market along with schemes restricted to people working in the road freight and security industries.
Growth in the health insurance market stands in sharp contrast to the medical scheme industry, which has seen the number of beneficiaries stagnate to just shy of 9m beneficiaries.
The market for health insurance products has been closed to new entrants since the government brought the demarcation regulations into effect in April 2017, shielding a handful of players from competition.
These regulations defined the difference between medical schemes and health insurance products, overseen by different regulators – the former by the CMS and the latter by the Financial Sector Conduct Authority – and subject to different rules.
For example, health insurers can restrict membership to specific age groups, reject people with costly health conditions, and charge higher rates for older people, while medical schemes are prohibited from risk-rating their premiums and are obliged to accept anyone who can afford their premiums.
When the demarcation regulations came into effect, the government granted health insurance product providers a two-year exemption to the provision requiring them to be scrutinised by the CMS, pending finalisation of the low-cost benefit options framework.
The exemption period has been extended repeatedly. The latest period expires on 31 March 2024.
The situation means medical schemes cannot launch their own low-cost benefit options, while the providers of indemnity products granted exemption when the demarcation regulations came into force have been protected from new competitors for the past six years.
Limitations
McHugh said SA spends about R4 400 a year on each patient in the public healthcare sector, while the private sector spends R25 000, but this was because of the limitations in providing primary healthcare products, reports News24.
Momentum’s calculations showed that if medical schemes were allowed to expand affordable options during the initial roll-out of NHI, there would be no need to raise additional taxes.
“Can we give breathing room to the state in the short term? Yes. It doesn’t have to happen with additional taxes. If we can get employers to subsidise that type of thing, people will start to engage with them,” he said.
However, the subsequent roll-out stages – when the NHI starts providing hospitalisation and benefits to see specialist doctors – would probably require additional taxes, he added. But that’s more of a long-term concern.
“We don’t understand what taxes are going to be required… The quantity of those taxes is unknown yet (…) But the rolling out of NHI is going to be primary health first.”
McHugh said those taxes would depend on whether the state intends to provide the same quality of care people currently get in public hospitals or the private sector.
Experts have predicted that the NHI scheme could potentially raise taxes by an average of 25%, according to a report in The Citizen. Their estimates based on on the recently circulated fact sheet on the Bill and the projected costs that are proposed to include a payroll tax and an income tax surcharge.
But there is no way taxpayers will accept this, said chief economist at Econometrix Dr Azar Jammine, especially “when they are the main contributors to the amount of money the government is receiving with which to fund the already failed service delivery”.
He noted the public mistrust of the government, “and the doubt that it is capable of running the system is one of the other big reservations”.
“We saw it with Covid … funds that are earmarked, collected from taxpayers, will be siphoned off into politicians’ pockets.”
Responding to questions after the release of the fact sheet, Treasury said no new work had been done to determine costs and that it had provided inputs to the Department of Health and the Cabinet throughout the process.
Treasury also conceded that a payroll tax levied on both employers and employees would raise the cost of employment for employers and result in lower take-home pay for workers.
McHugh believes that the level of additional taxes South Africans can stomach will determine the tertiary healthcare aspect of NHI.
That means no one knows for sure if SA will end up with well-resourced hospitals under NHI or with facilities like Chris Hani Baragwanath Academic Hospital, where nurses have been known to pool money to buy patients food.
Massive task
The task of managing the National Insurance Fund is bigger than any healthcare administrator in the country, let alone one public sector entity.
“Momentum Health Solutions alone processes around R1.2bn in healthcare claims transactions a month – about 20% of medical scheme market share. So, assuming that the other 80% of the market also processes R1.2bn of medical claims monthly, that’s R6bn. And if one extrapolates from the 9m people covered by medical schemes to SA’s population of 60m people, the volume and value of transactions to be processed monthly spikes significantly.
“The governance of that is such an important component – the rules around how you manage it. And then, we obviously have the question of corruption,” said McHugh, adding that there was also concern about the state’s ability to deal with the ballooning fraudulent claims with which it is swamped.
Declining members
Meanwhile, on the drop in private medical scheme members nationally, Discovery Health has said members were mainly exiting their high end contracts not because of emigration but because of changes in employment, after Moneyweb reported that the emigration of rich South Africans could explain the decline in the number of members and beneficiaries.
It highlighted that Discovery Health has seen stark declines in the number of members and beneficiaries on its costliest plans, reports Daily Investor.
However, in response, “while emigration impacted the membership of Discovery Health’s Executive, Classic Comprehensive, and Essential Comprehensive plans, it is not the primary reason for the decline”, according to Deon Kotze, chief product officer at Discovery Health.
He said the number of existing members leaving these plans exceeded the number of new members joining, but that the main reasons for people leaving these plans were changes in employment, or a move to more affordable plans.
“It is inappropriate to measure emigration of wealth based on the decline in membership of the Executive and Comprehensive options of the Discovery Health Medical Scheme (DHMS),” he said.
Furthermore, the Executive and Comprehensive plans are available to all members, regardless of income.
“These plans are taken up by people with specific, often more demanding healthcare needs that are met by the more comprehensive benefits offered by these options,” he said, and therefore, not an appropriate indicator of wealth.
The most recent data for DHMS and the open medical scheme industry indicate that in 2022, DHMS continued to experience growth exceeding that of before the pandemic, with higher levels of new business and lower levels of withdrawals.
Bonitas, SA’s third-largest medical scheme, said cash-strapped consumers are trimming their medical cover, opting for cheaper packages to make ends meet, adding that monthly packages of under R3 000 per member were the only options reporting strong growth last year.
Bonitas had 727 041 beneficiaries in 2022, representing 8% of the roughly 9m medical scheme market. Discovery Health Medical Scheme covers 2.8m lives, and the Government Employees Medical Scheme (GEMS), has about 1.9m beneficiaries.
BusinessLIVE reports that Bonitas’ analysis of seven medical schemes showed membership of more expensive options and more comprehensive benefits have been stagnating or shrinking.
The same trend was reflected among its own plans. Its cheapest plan Bonstart reported net growth of more than 200% between 2019 and 2023, while membership declined in its most expensive plans, CFO Luke Woodhouse said.
Bonitas reported a net surplus of R699m and a record solvency rate of 41.3% at the end of 2022 as member claims continued to track below expectations, even as the coronavirus pandemic waned.
The solvency ratio is a key metric to gauge a scheme’s ability to pay claims and measures the ratio of accumulated funds to gross annualised contributions. The minimum is 25%, according to the Medical Schemes Act.
Bhekisisa – The health department’s NHI branch appoints two new chief directors. Here’s what you need to know
BusinessLIVE – High cost of living drives consumers to leaner medical cover
The Citizen – NHI will potentially raise taxes by an average of 25%, say experts
Daily Investor article – Discovery Health explains high-end member decline (Open access)
See more from MedicalBrief archives:
Fear of public hospitals may be a cause of buoyant membership for Discovery and Medscheme
Medical scheme membership becomes unaffordable to many
NHI Bill ‘won’t be a silver bullet’ in saving public healthcare in SA