There are few subjects more emotive than medical schemes. Open the subject at any gathering and you’re likely to get a tsunami of complaints.
Even satisfied customers, like human resources consultant Bridgette Khama, have niggles with the open medical scheme she and her clients use: when low-income employees choose cheaper options, she says, they are forced to use a less convenient network of suppliers such as hospitals.
Pensioner Hilary S. doesn’t want her name to be used because she fears offending her scheme. She’s had to ‘buy down’ to a cheaper plan due to spiralling premiums and believes her scheme communicates badly.
Her son Jonathan says it’s unfair that his parents have contributed all their lives, and now he has to assist with medical costs while also carrying a heavy premium for himself, his wife and three teenage children. Why is this so?
“People often encounter the healthcare system at times of illness and stress, only to find that it is sometimes complex and difficult to navigate,” says Discovery CEO Dr Jonathan Broomberg. “Healthcare is also costly and becomes more expensive each year, as new expensive medicines and procedures become available, and as the prevalence of chronic diseases increases. All of these are global problems and not unique to South Africa.”
High costs mean that “health insurance remains an imperative, whether private or government-funded. What remains to be done is proper regulation of how such funds are administered and regulated,” says Dr Norman Mabasa, chairman of the South African Medical Association (SAMA).
Which is the best route — an open or a closed scheme? A traditional one that offers a straight deal — pay the premium and we cover the medical costs — or one which offers ‘extras’ such as discounts on gym membership along with medical cover?
South Africa has more than 100 medical schemes which cover less than a fifth of the population, primarily those in employment who can afford the premiums. The majority of these schemes are closed or restricted — they serve only the employees of a specific company, like Sasolmed; or, like Bankmed, only people who work in a specific industry.
“Medical schemes are essentially funds where member contributions are kept in trust to be used when needed,” explains Freddy Beukes, wellness manager at Sasol. Some schemes administer these funds themselves, but nowadays many hand the responsibility over to a medical schemes administrator.
“There are not many self-administered schemes left,” says Dr Leighton MacDonald, who heads up Bankmed. “It’s a complex business and it costs a lot. Administrators can take advantage of economies of scale.” The scheme itself is not-for-profit, but the administrator may make profits.
Open or closed?
Until a couple of decades back, closed schemes were basically all that was available to South Africans, and they have distinct advantages. “The trustees of closed schemes have employer representation,” says Beukes. “So the employer has the ability to influence the health and wellness of its employees and their families (the scheme beneficiaries) by funding and promoting preventative care. This can be coordinated with employee assistance programmes at the workplace.”
In addition, he says, “Benefits are typically richer than in the open scheme environment. Benefit structuring is typically transparent and easily understandable. Contribution rates and employer subsidies are typically adjusted to the income bands of employees, supporting the socialistic nature of healthcare funding as entrenched in the South African Constitution.”
Moreover, he points out that closed schemes don’t have to fund marketing budgets, and MacDonald says this can be a significant saving: non-healthcare costs in open schemes may be nearly twice that of closed schemes.
Dr Broomberg, on the other hand, sees the open scheme as the wave of the future: “In the case of large open schemes, such as Discovery, one critical advantage is that the very large risk pool provides enormous financial stability. A large open scheme can handle significant claims volatility without impacting on reserves or premiums. In 2010 paid a large number of claims in excess of R1 million, and the largest claim paid was for R16.5 million for one 20-day hospital admission.”
In addition, he says, large open schemes can offer a large number of different plan options, catering for all levels of need and affordability. Discovery has been a pioneer in offering ‘extras’ to attract new members, which is quite different from the traditional model where your premium buys you cover for medical costs and nothing else.
This is seen as positive by many in the industry – medical schemes can only work well where they follow the basic principle of insurance: that the loss, which would have fallen heavily on the one, falls lightly on the many. In other words, the young and healthy, who claim seldom, are vital to ensure there are funds for those who are ill, elderly or injured.
“Cross-subsidisation is absolutely critical,” says MacDonald. He says medical cover is usually a ‘grudge purchase’, especially for those in their 20s and 30s who still feel immortal. If discounts on gym membership encourage them to join by making them feel they are ‘earning back’ their premiums, this will improve the spread of risk and the scheme’s ability to cover the needs of all its members.
There are some burning issues in the industry. You’d expect National Health Insurance to be top of the list, but it’s not so: “We support NHI,” says MacDonald. “We know it has to come. It will extend healthcare, and pricing will get attention from the government.”
Pricing is a huge issue, according to Heidi Kruger, spokesperson for the Board of Healthcare Funders (BHF), the representative body for schemes. Last year, a high court ruling set aside the National Reference Price List, the guideline for healthcare fees, and that has caused uncertainty.
“The difficulty of having no reference price is that it leads to ambiguity,” says Katy Caldis, CEO of Fedhealth. “Providers ideally need a guideline of what the medical schemes’ reimbursement rate will be to set their charges. Without these parameters it often leads to confusion and sometimes leads to unintended out-of-pocket payments from consumers, even in cases where healthcare professionals were not aiming to charge a higher rate.”
Dr Mabasa is forthright: “As SAMA we believe that the health sector was legislated out of function and sanity when the Competitions Commission prohibited bargaining between doctors and hospitals on the one hand as well as the medical schemes (represented by Board of Healthcare Funders) on the other. This allowed anyone to charge anything as there is no benchmark and all this is within the law.”
SAMA supports the establishment of a representative structure which will base its decisions on research into the cost of healthcare delivery. “The fees paid by medical schemes are far below what the researched cost-studies have revealed.”
The other major issue in play at present is Prescribed Minimum Benefits (PMBs). The Council for Medical Schemes (the statutory body which regulates schemes) and the BHF are headed for a court date in September where the meaning of the ‘payment in full’ requirement of Regulation 8 of the Medical Schemes Act, relating to PMBs, will be decided.
Does it mean pay up to the limits in scheme rules, or pay whatever the healthcare provider charges? This goes to the heart of medical schemes cover, as nearly 300 fairly common conditions fall under PMBs, including things like hypertension, heart disease and certain cancers.
The Act’s intention was to ensure that members would never run out of benefits for these conditions. It’s all part of a necessary process to hammer out a system that South Africa can live with.
“All parties need to work together to make the system more sustainable by improving outcomes and reducing cost,” says Caldis. “This requires partnership, dialogue and true sharing of responsibilities between consumers, healthcare professionals and funders/facilitators of healthcare.”