The battle for control of the R70-billion private healthcare industry has been ratcheted up as the regulator of medical schemes turns to the Constitutional Court to define its jurisdiction and the minister of health releases draft price-control regulation.
The Council for Medical Schemes (CMS) is turning to the Constitutional Court over a Supreme Court judgement which the regulator says will free up to two thirds of medical schemes from regulation.
The CMS asked for leave to appeal to the Constitutional Court last week on the grounds that as a regulator it is bound to enforce equity and the current legal judgement will lead to discrimination against the old and sick.
The CMS had taken Guardrisk Insurance Company to court to stop it from selling two policies which the council said were doing the business of a medical scheme. An initial victory for the regulator was overturned last month by the Supreme Court of Appeal.
The court decided that a business needed to fulfil all three conditions in the legislation rather than only one or two of them. The CMS said the legislation should be read as “or”; the Supreme Court said it should be “and” and so Guardrisk was freed to sell its medical insurance products.
In a statement the CMS said the Supreme Court’s interpretation of the law would “create an enormous hole in the regulatory regime created by the [Medical Schemes] Act, which would be rapidly exploited by everybody keen to carry on the business of a medical scheme but free of regulation.”
Medical schemes have come under increasing regulation over the past few years in an attempt to create a sustainable yet equitable healthcare system.
Medical schemes are regulated as not-for-profit organisations, which must accept all applicants, offer minimum benefits and offer a flat rate to all members subject to a few exceptions. This prevents the old and sick from being pushed out of medical insurance by excessive penalties and protects a member from, for example, suddenly being unable to afford cover because of a premium hike after a diagnosis of cancer.
Short-term insurers are regulated through different legislation and are able to refuse policies to individuals. They can also cancel policies unilaterally with just 30 days notice — an issue that one industry analyst says could lead to people finding their policies cancelled once they start making large claims.
Guardrisk says that the registrar’s decision to appeal was expected and that it would continue selling its policies pending the outcome.
About 55Â 000 families have purchased the disputed insurance cover, which funds the difference between medical aid payments and medical bills.
Guardrisk managing director Hermann Schoeman said the decision only applied to particular products. “Had the Supreme Court of Appeal’s ruling gone the other way, many traditional accident and health insurance policies, and general short-term policies that have an accident and health insurance component, and which currently comply with legislation, would immediately have become invalid.”
The concern is that, freed from the burdens of medical-scheme regulation, insurers could offer cheaper policies which would pick off the healthiest — that is the least costly — people from medical aids.
Jacky Mathekga, principal officer of the country’s largest medical aid, Discovery Health Medical Scheme, says the Supreme Court’s decision threatens the sustainability of his industry. He said unless the judgement was overturned or the disputed legislation amended, the result was likely to be a proliferation of such insurance products. Young and healthy members are likely to buy down — join cheaper medical aid options and top up with insurance products — and possibly even give up on medical aids altogether.
This would lead to a drop in the value of medical aids and would threaten their long-term sustainability altogether because there was a risk they would only be attractive to the old and the sick.
His fears are also those voiced by the regulator, which has asked for leave to appeal to the Constitutional Court, on the grounds of equality. The regulatory environment is being constructed to prevent discrimination against the old and the sick, which involves cross-subsidisation from the younger and healthier members.
Guardrisk’s Schoeman says that its products do not encourage people to buy down or offer a lower- end alternative to medical schemes. “Guardrisk’s gap cover insurance in no way threatens, competes with or compromises medical schemes.”
But the regulator is concerned about the implications of the finding. CMS says that if the current court judgement stands: “About two-thirds of medical schemes currently registered under the Act would be excluded from its ambit”.
CMS senior strategist Stephen Harrison says there are long-term policy implications for the development of the risk equalisation fund (REF), which is a system to cross subsidise risk groups across medical schemes. The REF has to establish equitable access to medical insurance. Legislation establishing the REF has already received Cabinet approval.
Although the dispute between Guardrisk and the CMS could be settled by amending the relevant legislation, Harrison says that this is unnecessary. “It is infinitely preferable for the courts to confirm the interpretation that supports the fundamental policy intentions of the Act, than for every attempt to circumvent its provisions to be met by resorting to legislative intervention.” The regulator should know in late May if the Constitutional Court will hear its arguments.
Clamping down on rising costs
Last week Cabinet approved draft legislation to regulate private healthcare costs. It also approved draft legislation that will alter the name and function of the Medicines Control Council.
South Africa spends about R120-billion on healthcare, R71-billion of which is spent on the 7,1-million people who benefit from medical aids. The public sector spends R59-billion on 38-million people. People also pay out of pocket to access private healthcare.
One thing all health-care stakeholders agree — is that escalating healthcare costs are unsustainable. But who and what is to blame was strongly disputed.
The National Health Amendment Bill regulates the costs of prescribed minimum benefits (PMBs), which are condition-linked packages of care that medical schemes are obliged to cover. But it does not regulate the prices of non-PMBs, which raises the question whether treatments in this area will be pushed up to compensate for the control of the compulsory conditions.
Meanwhile hospital groupings suggest that the course of legislation may not run smoothly for the minister of health. Previous legislation to control medical costs was tied up in court for years.
The hospital groups have been defensive after accusations of being the biggest single driver of healthcare costs by the Council for Medical Schemes.
The CMS said hospitals consume 29,7% of medical schemes’ spending, followed by medicines (18,3%) and specialists (18%). The CMS says market concentration of 90% of facilities into just three groups has led to these increases.
One of the issues likely to receive much comment is the discretion given to the minister who appoints a pricing facilitator to oversee price increase negotiations each year. Those unhappy with the prices proposed will be able to refer to the Health Pricing Appeal Tribunal, which is also appointed by the minister. The minister can also decide whether to accept recommended tariff increases.