The private medical scheme is in an extremely precarious situation

05 March 2018
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The Competition Commission’s Health Market Inquiry (HMI) into private healthcare confirmed – at great expense – what many people have known for years: the private medical scheme market is in an extremely precarious situation caused by government policies that prevent medical scheme actuaries from devising policies that suit individual needs.

Under normal circumstances, as the South African population ages and healthcare costs rise, we could reasonably anticipate more individuals to move toward costlier, benefit-rich options. However, there has been a net migration to lower-cost, less benefit-rich options. The HMI data demonstrates that “…the proportion of beneficiaries on Comprehensive options has shown a marked decrease over the period analysed, with corresponding growth seen on Traditional and Savings options, with Savings options showing the highest growth rate over the period”. The result of this movement is that the average age of beneficiaries enrolled in Comprehensive schemes has increased at a faster rate (2.69 years) than the overall average increase of 1.23 years.

Comprehensive options are now dominated by older and less healthy individuals and as prices rise (at an average of 10.85% compared to an overall increase of 9.24%), to reflect the changing demographic circumstances within these options, we can reasonably expect the tendency of those who are, or at least perceive themselves to be healthier, to migrate to lower-cost, less benefit rich options.

As stated in the report, “This evidence supports the submissions received by HMI which suggest that membership and claims trends outlined at an industry level potentially understate the worsening risk and claims profile of the industry…the impact on contributions is likely to be larger since contributions are community rated whereas claims are risk-profile dependent”.

The fundamental problem yet to be openly identified, let alone resolved, is the principle of so-called “social solidarity” contained in the Medical Schemes Act of 1998 (MSA). The MSA changed the regulations governing the operations of medical schemes and set in motion the determined process of crowding-out private medical schemes. Any “social solidarity” principle unavoidably raises the price of medical scheme coverage which prevents low-income people (mainly the youth and black people) from entering the private medical scheme market.

The average cost of providing PMBs alone amounts to R680 per beneficiary per month (excluding administration and managed care fees) and necessarily precludes low-income earners from joining medical schemes. In the past, many low-income earners therefore opted instead for health insurance products. However, to compound matters, in April 2017, the government introduced demarcation regulations. All existing medical insurance products (previously governed by the Short and Long-Term Insurance Acts), like medical schemes are now required to conform to the provisions (i.e. the principle of social solidarity) contained in the MSA.

The demarcation regulations further exacerbate government interference in private contracts entered into by freely-consenting adults in an effort to minimise their risks of huge medical bills when catastrophe strikes. The Department of Health has requested that the Council for Medical Schemes (CMS) grant a two-year exemption period from April 2017 for health insurers who submit to the regulations under the MSA before existing health insurance policies are banned. This will allow the Department time to conduct further research into the development of low-cost medical scheme benefit options (LCBOs).

Last year, for the first time since 2002, government adjusted the means test used to determine who is eligible for free or discounted fees at public hospitals. The 2002 means test enabled households with an annual income of less than R100,000 to qualify for free or heavily subsidised hospital fees; the new threshold of R350,000 (which goes beyond an inflation adjustment) enables an estimated 29-million people to access “free” or greatly subsidised hospital care (all primary healthcare is “free”). Despite this far wider margin, we have not seen people – particularly at the low-end of the private insurance market – give up their private insurance to access “free” government provided healthcare. This suggests that people are desperate to avoid the public sector and there remains a significant demand for private insurance options. Government, however, is pushing ahead with its proposed National Health Insurance (NHI) that seeks to destroy the private health insurance market – irrespective of people’s revealed preferences.

Government should think carefully about introducing a LCBO which has the potential to completely destabilise an already volatile market. The only feasible option is to deregulate the health insurance market and allow people to enter into private arrangements with insurers. Government should not attempt to provide “free healthcare for all” through its ambitious NHI programme but should focus on those who cannot afford medical insurance and not concern itself with those who can afford to pay for their own healthcare arrangements.

Author Jasson Urbach.

This article was first published in the  MedSuiteMedia magazine in February 2018

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