Dr Humphrey Zokufa
It’s that time of year again when medical schemes release their premium increases and consumers weigh up their options and wonder how their hard-earned premiums are being spent.
According to the Council for Medical Schemes’ report issued during September of this year, medical schemes paid out R112.5-billion in benefits for 8.7 million members or approximately R12 859 per member.
While a small proportion of this is allocated to maintaining the 25% reserve level that all medical schemes must have in case the scheme itself encounters financial difficulties, less than 10% of contribution income is spent on non-healthcare costs. This means that about 90% of the income received by schemes goes to providing benefits to members.
The most significant proportion of this is taken up by hospitals. The yearly spend on hospitals by medical schemes in 2013 was R39.7-billion, which includes ward fees, theatre fees, medicines and consumables, but excludes the costs of the specialists and other doctors.
Next highest on the list of payouts is medical specialists, which account for 24.5% of spend or R27.5-billion. Payments to GPs amounted to just R7.8-billion or 7% of the pie.
It may be argued that increases in healthcare costs outstrip inflation in most parts of the world due to factors such as new technology and an ageing population, but there are a number of contributing factors which are particular to South Africa and could, if rectified, lead to private healthcare becoming more affordable.
One such example is the tariff of charges for healthcare-related services. Unlike most other essential services, such as water and electricity, which are subject to regulated tariffs, there are no regulated tariffs or price lists of charges for private healthcare professionals and facilities. This has led, in some cases, to opportunistic charges by health professionals and makes it difficult for medical schemes when it comes to budgeting accurately as there are no restrictions on the fees that health service providers can charge.
Like water and electricity, healthcare is not a commodity and is not discretionary. Therefore, the lack of a tariff is most certainly a key driver of costs, especially since consumers are often ill and vulnerable at the point of service and not in a position to negotiate. The information asymmetry that exists within the healthcare environment and the shortage of specialists also contribute to this situation.
You may be wondering why these factors are affecting your pocket, even if you are not making use of your benefits. The answer is that a medical scheme is a communal venture where all the contributions (except for the savings account portion) go into a funding pool. This means that the people who need high cost care are subsidised by those who do not, and the older members who need more costly care are subsidised by younger members, who are generally healthier and therefore don’t need medical treatment as often. Unlike insurance products, medical schemes must accept anyone who applies to join and their premiums may not be based on members’ risk factors, such as age and health.
All medical schemes are governed under these social solidarity principles which differentiate them from insurance products, and which are complementary to national health policy. These principles are by no means peculiar to South Africa and pertain to most health systems around the world.
Since membership of a medical scheme in most cases is voluntary and not mandatory (except in employer group schemes where scheme membership is compulsory as a condition of employment), healthcare experts suggest that younger people are becoming less willing to accept the need to subsidise older, sicker people when they join a scheme, with the result that the 20- to 30-year-olds are increasingly leaving or not joining medical schemes. This, too, results in an increase in costs.
However, if membership to a medical scheme was compulsory, especially for those in certain income brackets, indications are that premiums could reduce by between 17 and 23%.
The legislation which governs the benefits that medical schemes should cover exacerbates the problem of continual cost escalation. While the protection of members is the key consideration for all schemes, this legislation is focused on specialist and hospital-type interventions (therefore the high-cost healthcare items) at the expense of primary and preventative care, which are obviously lower cost items. Ideally, the prescribed benefit structure should be changed such that primary and preventative benefits are legislated as the first port of call, thereby preventing the necessity of accessing higher-cost interventions, such as specialist and hospital care.
There is little doubt, therefore, that with regulatory intervention on those factors negatively influencing affordability, the cost of private health insurance can be reduced.
Dr Humphrey Zokufa is the managing director of the Board of Healthcare Funders of Southern Africa