Drip by toxic drip, the South African government is slowly and systematically poisoning the private medical scheme and insurance industries in South Africa. With each new pronouncement by government, SA consumers’ options are increasingly being limited, which is bad news for anyone who, in future, becomes seriously ill.
The latest dose is the Treasury’s announcement to restrict the choice and availability of medical insurance “gap” cover, Hospital Income plans and other private health provisions in terms of proposed new “demarcation”regulations (illegal in terms of competition policy as these very likely are). This has swiftly followed the last bitter drop which was administered with the budget announcement that tax deductions on medical scheme contributions were to be replaced with tax credits.
The slow and lethal process began with the introduction of the Medical Schemes Act (MSA) of 1998 which made sweeping changes to the existing regulations governing the operations of medical schemes in South Africa and set in motion the determined process of crowding-out private medical schemes. Health care policy has become more toxic with each subsequent amendment to the MSA and especially so after talk about introducing a National Health Insurance-style policy began.
Four noxious changes introduced in the MSA of 1998, were: open enrolment, “community rating”, statutory solvency requirements, and the introduction of a comprehensive package of hospital and outpatient services that all schemes are compelled to provide – referred to as prescribed minimum benefits (PMBs). Each of these amendments resulted in an increase in the cost of providing medical scheme coverage, which invariably needed to be borne by the consumer.
Open enrolment is the practice whereby medical schemes are compelled to accept all individuals, regardless of age, sex or health status (subject only to number of dependents and income – making this another form of taxation rather than pure community rating!). In order to reduce the probability of selecting high-risk individuals, schemes were permitted to apply waiting periods and penalties to those members over a certain age joining a scheme for the first time. The MSA made it compulsory for every scheme to charge the same premium to every member within an option, despite their age or state of health, a practice commonly referred to as community rating.
The MSA also introduced statutory solvency requirements, which stipulate the minimum amount of accumulated funds that each scheme should hold as a reserve. In addition, the Act of 1998 made it compulsory for every scheme to provide PMBs. These poisonous provisions have since so driven up the price of medical aid membership that South Africans in their droves have simply had no choice but to reduce their benefits, stop their membership altogether and make less expensive private insurance arrangements, or, as too many are doing, go entirely without cover.
At the heart of the matter is the fact that the South African government is fundamentally opposed to what their communist alliance partners like to refer to as the “commodification of health care”. In simple terms, the government is opposed to private health care, but is afraid to openly say so. When one reads the Green Paper on National Health Insurance, it is obvious that the socialist architects of the measure loathe the wealth-producing private sector and would prefer that a single wealth-consuming government entity should be put in place to control the entire healthcare market – both the financing and provision of health care, private and public alike.
With reference to the latest developments, for all freedom loving South Africans it is sickening to think that government officials believe that the medical scheme contribution tax deduction was a “subsidy” for the rich. Whoever imagined a time would come when the government would consider our hard-earned money as its own! Tax deductions can never be considered a subsidy. Government cannot subsidise you with your own money! And who could have envisioned a government that steps in to actually prevent mutually consenting, free adults from entering into their own private contracts with insurers to minimise their risks of huge medical bills when catastrophe strikes?
Gap and other healthcare cover options are yet other creative ideas developed by private medical insurance companies to overcome the consequences of the bad laws created by government. Gap insurance has arisen directly as a result of the restrictions imposed on medical scheme actuaries from devising products to suit individuals’ needs. Indeed, if actuaries were free to design products that suited individual needs, none of the “sly tricks” that they employ to benefit medical scheme members would have occurred in the first place. Actuaries ought to be applauded for their ingenuity in coming up with such innovative ideas to counteract the dreadful laws imposed by this government.
It seems the architects of the NHI are incapable or unwilling to appreciate the significant role that the private health insurance market plays or could play in securing SA’s healthcare future. If more individuals were able to enrol in private medical schemes and insurance contracts, it would greatly alleviate the already overburdened government hospitals and clinics. With private healthcare financing, access to quality care is increased, particularly amongst those willing to pay for it. It improves consumer choice and leads to greater health system responsiveness. Future healthcare reforms in SA must therefore recognise the constantly positive role of the private sector.
Regulations must be immediately amended so that private medical schemes and insurance companies are free (subject always to wide competition) to devise products that meet the actual needs of consumers and at a cost they can afford. Individuals must be free to choose plans that suit their specific requirements and not be forced to buy cover that does not apply to them. Options that are tailored for individuals, based on their specific healthcare needs, will allow those previously uncovered to obtain coverage at affordable prices.
The essential ingredients for a successful private sector in general are personal freedom, competition and innovation, all of which will fade away if government effectively monopolises health care under the NHI by making it prohibitively expensive for ordinary South Africans to join medical schemes or illegal to buy their own supplementary insurance products.
It is likely that the government’s next step will further restrict the operations and reduce the attractiveness of private medical schemes by introducing a risk equalisation fund (REF). The intention behind this step will be to transfer money from profitable medical schemes that have more low-risk members to subsidise schemes with higher risk, often indigent members – where risk is measured along several key, pre-specified dimensions.
For many decades, the ANC struggled so that ordinary people could have the right to vote, to make their own choices and to determine their own future. Those rights surely include the liberty to make their own choices about their health, and how they want to spend their money, whether or not by procuring or providing their own medical care. If only the present SA government would remember this and set about adopting policies that grant all our citizens the economic freedom to increase their wealth, then millions more people would be able to afford proper health care. The government must stop thinking people need cosseting and are not capable of making their own decisions. It should leave the private sector alone, let all South Africans decide how and where they want to spend their money, and dedicate its energy rather to fixing what is almost completely broken and rapidly deteriorating - the public health sector.
AUTHOR Jasson Urbach is a director of the Health Policy Unit (a division of the Free Market Foundation). This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.
FMF Feature Article / 20 March 2012