With private healthcare growing increasingly out of reach of anyone outside the top income brackets, it’s time for the industry to devise solutions that more people can afford, say experts.
Medical specialists are charging what they like and getting away with it because they are in high demand and becoming scarcer as more of them leave the country; liability cover for certain specialisations has become prohibitive; and new-generation, hi-tech treatments and drugs for cancer and other life-threatening conditions are costing hundreds of thousands, even millions of rands.
Personal Finance editor Martin Hesse writes in IOL that medical schemes are battling to keep pace with rocketing costs – tightening limits on what they cover, reducing benefits and increasing contribution rates at percentages well above CPI inflation. They also face growing claim fraud, where members, often with corrupt doctors, over-claim or claim for procedures not carried out.
Schemes also face declining membership numbers, especially among younger generations, who want cheaper ways to cover basic medical needs. Younger, healthier members are necessary to subsidise older members, who comprise the bulk of the costs.
Additionally, the pandemic upended the industry, depleting built-up reserves and contributing to the closure of at least one scheme.
Unfortunately, in finding ways to reduce costs, medical schemes often skirt the regulations in providing what they are legally required to provide, especially regarding prescribed minimum benefits (PMBs), treatments for a list of life-threatening conditions drawn up by the Council for Medical Schemes (CMS). Another ploy is to increase the administrative burden and red tape for members claiming for PMBs.
Fazlin Swanepoel, managing director of employee benefits at ASI Financial Services, recently noted that, with young people opting for healthcare solutions other than medical scheme membership, the pensioner ratio for open medical schemes increased from 7% in 2013 to almost 9% in 2020. The latest CMS annual report shows open medical scheme membership peaked in 2018, before declining in 2019 and 2020, increasing slightly in 2021.
Health Squared, a small scheme with about 48 000 members, was placed under provisional curatorship by the CMS in September, applying for voluntary liquidation after its reserve levels dropped to around 2% by the end of July 2022, but before the High Court ruled on the application, the CMS stepped in.
This could signal the rumblings of an avalanche of failures, especially among smaller schemes.
Lerato Mosiah, chief executive of the Health Funders Association, said by law, a medical scheme must, always, hold reserves of at least 25% of its annual contributions.
As would have been the case for Health Squared, which reportedly suffered from high claims associated with Covid-19, these reserves are a buffer when contributions no longer cover liabilities.
Health Squared was already running at a deficit in 2019 and its solvency level had dropped to 15.4%, so there were red flags even before the turmoil from the pandemic.
At the end of 2019, Health Squared already had the highest average age across all registered open medical schemes, with almost 26% of beneficiaries older than 65, further exacerbating the risk.
“The failure of any medical scheme has a knock-on effect on other schemes, since higher-risk members then require cover without any transfer of reserves, ultimately increasing the burden on other scheme members,” Mosiah said.
So where does the lower-income worker, who can’t afford expensive medical scheme cover, turn for funding assistance?
Paul Cox, managing director at the Essential Group of Companies including health insurance provider EssentialMED, said many South Africans would readily purchase affordable private health cover if it were available.
StatsSA surveys show that nearly 30% of the population pays out-of-pocket for private primary healthcare, yet only 13% of people are covered by medical schemes, meaning there is a mismatch between the demand for private healthcare and private cover affordability.
Healthcare policy enabling more affordable private cover has been in the doldrums for years, Cox said. The insurance industry stepped into this unregulated space nearly two decades ago, but government passed the “demarcation regulations” in 2017, limiting what products they could provide, believing medical scheme legislation would be amended to allow for low-cost offerings.
“However, such low-cost cover would require a major overhaul of the Medical Schemes Act, allowing medical schemes to offer low-cost benefit options that are exempt from the PMBs,” Cox said.
In May 2022, chief executive of Insight Actuaries & Consultants Christoff Raath questioned the tardiness of the CMS on this matter, and more recently, the Board of Healthcare Funders, which represents medical schemes, took the CMS to court to compel them to enable the regulatory provisions for low-cost products.
Cox said it was not in the financial interests of medical schemes to offer low-cost benefit options, as this would trigger a buy down by members.
Cox and Swanepoel, however, believe there is room for the short-term insurance industry in the future of low-cost healthcare funding, Swanepoel highlighting the employee benefit space, particularly. She said employers wanting to manage productivity were increasingly considering subsidising low-cost options, likes primary care, health insurance and even pre-paid healthcare, for lower-income staff.
“It’s time for South Africans to consider – if not demand – hybrid healthcare solutions,” she said. “There’s no doubt medical schemes are already unaffordable, but the need for quality primary, chronic, and emergency healthcare will not disappear any time soon, not even if or when NHI rolls out. The industry must be more creative in finding solutions that more people can afford.”
IOL article – SA’s health-care system: looking into the abyss (Open access)
See more from MedicalBrief archives:
CMS accuses Health Squared of plotting its own liquidation
Medical scheme membership becomes unaffordable to many
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Time for hybrid healthcare solutions, expert warns medical schemes