Legislating medical aid out of the consumer’s hands

“Our health situation is in a crisis” are the reported words of a doctor, who preferred not to be named, in a recent newspaper article on the state hospitals in Gauteng. The situation does indeed sound disastrous, as the large government hospitals are reportedly unable to cope with the demand on their resources, even to the point where they refuse to treat emergencies.

Luckily for me, I have private health insurance and should I need some medical care will be able to go to a private health facility. The level of care that one receives in a private hospital in South Africa is reputed to be world class. With state budgets severely stretched, the government should be eager to see increasing numbers of people being treated in the excellent private hospitals, paid for by private medical aid, so that the state hospitals are under less strain. Yet the government is doing quite the opposite, making private medical insurance ever more expensive and pouring salt into the gaping wound that is South Africa’s healthcare system.

The Council for Medical Schemes is a statutory body that is supposed to safeguard the interests of the beneficiaries of medical schemes, control and co-ordinate the functions of medical schemes, investigate complaints against schemes and ensure that the schemes comply with their financial and solvency requirements. No doubt there are some schemes that don’t reimburse their members on time and some that financially may sail a little close to the wind, so many medical aid fund members may well regard the Council’s work as important and justified.

Yet recently the council has been responsible for the adoption of a number of rules and regulations that have greatly increased the financial burden on medical schemes. For instance, recent regulations on the prescribed minimum benefits (PMBs) require all medical aid schemes to cover a minimum of 25 chronic conditions as well as other prescribed benefits. The Council conducted its own investigation into the potential cost of this regulation to the schemes and found that it would cost only R2,156.78 per beneficiary per annum or R179.73 per beneficiary per month. This amount may not be an enormous burden for Sandton executives who already belong to medical aid schemes, but it will make total monthly contributions prohibitively expensive for poor workers wanting to get away from the crumbling state hospitals.

From next year, the Council requires that all schemes hold 25% of their contribution income in reserve so as to ensure the financial sustainability of the schemes. Yet this comes at a significant cost. Tying money up in reserves means that the medical schemes are unable to use that money elsewhere in their organisations and will therefore have to raise contributions to cover running costs. And the administration costs of schemes have gone up significantly in recent years. According to the Council for Medical Schemes, total non-health expenditure by medical aid schemes rose by over 45% between 2000 and 2002. Most of this increase in cost was in administering the schemes, while other items such as broker fees were relatively stable. The 2003 Annual Report of the Council for Medical Schemes claims that the increases are “of grave concern which necessitated the Registrar’s intervention in a number of cases.” The irony is, however, that intervention is the most likely cause of increasing costs in the first place.

New regulations also mean that medical schemes have far less scope for making decisions over the health risks that they can and cannot cover. Yet when one is running a business, it is essential to be able to make economic decisions in the interests of one’s own business. Most restaurants reserve the right of admission so that they can, if necessary, refuse entry to someone that they feel may disturb the other patrons and therefore hurt business. But despite their rights to discriminate, South Africa is home to restaurants that cater to almost every taste and wallet, from pap and vleis to langoustines. Perhaps the comparison of restaurants and medical schemes is facile and simplistic, but the principle is valid. If government wants to increase the access to medical aid for all citizens, it should stop interfering with schemes in a way that unnecessarily increases their costs.

The worrying news for medical staff employed by the state is that their jobs are unlikely to become easier. The number of South Africans on private medical aid has been almost constant at around 7 million since 1996. Last year that number fell slightly by just under 1%. Yet as the number of people on medical aid falls, the Council for Medical Schemes is growing larger and larger. According to the Council’s own financial statement, expenditure on personnel almost doubled from just under R10m in 2001 to R18m in 2003/04. Such is the way of a government body that is gravely concerned about the medical scheme administrative cost increases. No doubt as more and more medical aid schemes struggle to comply with the ever-increasing burden of regulation, the regulator will continue to grow and grow, until it has entirely squeezed the life out of the private medical aid industry.

If the government really wanted to improve healthcare in South Africa, it would start doing less rather than more. If more people could become members of private medical aid schemes, the government would be able to use its resources better in catering for the very poor. The only way to increase the uptake of medical aid membership is to reduce legislation, reduce compliance costs, and allow increased innovation and competition among medical aid providers, which would give potential members a much greater choice of prices, quality and types of cover. The government is harming consumers by over-regulating the industry, which not only drives up costs, but also takes power away from consumers to make choices for themselves; choices that consumers are perfectly able to make for all manner of goods and services. Health insurance should be no different.

Author: Richard Tren is a director of the health advocacy group, Africa Fighting Malaria, and is based in Johannesburg. 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 Free Market Foundation.

FMF Article of the Week\11 November 2003 - Policy Bulletin / 18 August 2009

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