Spreading the cost
Cross-subsidising the elderly and sick with younger and healthier members is a bedrock principle of South Africa’s medical scheme legislation.
The first Medical Schemes Amendment Act, enacted in 1998, among other things, made provision for risk and income cross-subsidisation, a set of prescribed minimum benefits and community rating.
But despite these provisions, it is still possible for schemes to attract low-risk members at the expense of those with high risk.
The risk equalisation fund (REF), is due to be implemented in a few years and it will provide a funding vehicle for medical schemes to pay the same for the mandatory prescribed minimum benefits (PMB) basket of basic benefits, which they are obliged to provide to all medical scheme members.
With a pooling mechanism, this equalisation enables the costs and the risks of funding the prescribed minimum benefits package to be spread evenly across the various medical schemes, according to the ratios of young and healthy or sick and elderly members in the respective schemes.
This effectively equalises—or cross-subsidises—the risk across the entire medical schemes industry.
Humphrey Zokufa, chief executive of the Board of Healthcare Funders (BHF), points out that by law medical schemes, unlike medical insurance products, are not allowed to “risk rate.”
This means that they cannot charge more for healthcare if a scheme member is deemed to be sicker than others or because a member has more dependants, for example. They are also not allowed to discriminate on grounds of gender or age.
Medical schemes are not-for-profit organisations and should operate essentially as trust funds. They are obliged to maintain a certain level of reserves, currently set at 25%.
Another key facet of South Africa’s constantly changing healthcare structure is the mooted introduction of compulsory medical aid cover in the form of a national health insurance system.
This is something which the Board of Healthcare Funders is advancing strongly in its submissions to the new Medical Schemes Amendment Act.
Zokufa says: “With a risk equalisation fund in place, mandatory medical aid cover will be needed to cross-subsidise risk.
“Ideally, you need all employed people, but it may be practical to begin with those earning over a certain threshold.
‘This would typically exclude, for instance, domestic workers or much of the informal sector, earning below this threshold.”
Costing around the prescribed minimum benefits has always been problematic, given that there are no restrictions on the charges levied for PMBs by service providers. This has had the result of pushing up medical aid premiums and created barriers to entry for new members, Zokufa says.
This is further exacerbated by the fact that there is no unified coding system for the country and there are two main tariff schedules in the market.
One of these is the national health reference price list which is the national health department’s schedule and the other is the Sama (South African Medical Association) doctor’s guide to billing.
This contains a schedule of tariffs, higher than the government tariff list, with discrepancies in some instances of up to 500% between the two tariff schedules.
The National Health Act, which makes provision for the establishment of a bargaining chamber to arrive at fixed costs for the package of prescribed minimum benefits (PMBs), is one of a trilogy of new healthcare Bills now in draft form.
The package of measures comprises the Medical Schemes Amendment Bill, the National Health Amendment Bill and the Medicines and Related Substances Amendment Bill.
The health ministry’s vision is that the NHRPL (National Health Reference Price List) will become a new peer process, with the different disciplines basing their costs on audited figures, building in such aspects as rental, experience and technology required to perform their service—with some return on investment factored in. These audited submissions will be interrogated within the national health department and will form the basis on which the proposed bargaining chamber will work.
Medical stakeholders will then “fee bargain” in the bargaining chamber, with the objective of reaching consensus on an acceptable and affordable tariff regime. The BDF’s MD, Humphrey Zokufa, says it is anticipated that in most instances these tariff codes will be above the NHRPL rates. If the parties cannot agree, the Bill provides for arbitration.
“For the first time ever,” says Zokufa, “it will ensure that the prices we pay are based on something real and transparent—so that patients will know exactly how much they will be paying at all times for the various healthcare services.”
He emphasises that the bargaining chamber applies only to the package of basic healthcare benefits. Any-thing over and above this is still subject to competitive pricing.
“The BHF regards this as a very good piece of legislation, says Zokufa. “Much fine tuning needs to be done around arbitration and making the bargaining mandatory (it is voluntary in the gazetted version of the Act) because there will be no incentive to bargain if this is not made mandatory.”