A legal battle is currently being waged over prescribed minimum benefits (PMBs) that all medical scheme options are required to cover and pay for in full regardless of the cost that providers charge. Genesis Medical Scheme have taken the Minister of Health, Dr Aaron Motsoaledi to court, arguing that it is unreasonable to expect medical schemes to pay in full the costs of some 26 chronic conditions and 270 others and seeking to put a cap on the cost of PMBs.
PMBs must be provided to all medical scheme members regardless of which option they are enrolled in and whether or not they actually need the cover. Not surprisingly, these compulsory minimum benefits raise the predicted costs of every medical scheme option and thus reduce the number of people seeking private medical coverage at the low end of the market and even to relinquish private medical cover altogether.
According to the Council for Medical Schemes (CMS), the cost of providing PMBs varied between R332 and R1,150 per beneficiary per month, with the average being approximately R510. For babies under one year of age, the average cost per month was R861, and for a beneficiary 85 years or older, the average monthly cost was R2,548.
The fundamental problem yet to be properly 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. Four changes that drastically increased the cost of providing medical scheme coverage were: open enrolment, community rating, statutory solvency requirements, and the introduction of PMBs. Inevitably, consumers have borne the brunt of these cost increases.
Any “social solidarity” principle unavoidably raises the price of medical scheme coverage and prevents low-income people from entering the private medical scheme market. As a result of PMBs, medical scheme actuaries are prevented from devising schemes to suit particular categories of members and circumstances, particularly schemes that cater for low-income people. When benefits are determined politically rather than by what individuals want, the benefit package and the costs required to cover them expand andraise the cost of providing medical scheme coverage.
According to Christoff Raath, joint CEO of Insight Actuaries, some medical specialists manipulate costs for treatment of conditions covered by the prescribed minimum benefits and charge significantly more for such procedures than for illnesses not covered by the minimum benefits. Raath said it was not illegal for doctors to determine what they charged for procedures “but the law that their costs will be covered in full removes the incentive for doctors to enter into price negotiations with medical schemes and negotiations on price are needed to keep costs down”.
If medical schemes were to obey the law and pay the full expenditure associated with covering the costs of PMBs without any limitations, they would very quickly go insolvent. Medical scheme member contributions cover a defined list of benefits. These are set out in the member’s agreement with the medical scheme. Medical scheme administrators in turn are compelled to guard the interests of all members by ensuring that, in carrying out their administrative duties, they adhere strictly to the terms of the contract between the individual member and the medical scheme. If they routinely pay for treatments that have no cost limitations, they will end up bankrupting the medical scheme and failing in their duty to the entire pool of members, which could result in the worst affected option or the medical scheme disappearing altogether.
Capping PMBs will not adequately address the underlying problem of social solidarity or prevent government from including more conditions over time. To increase the number of beneficiaries of private medical scheme cover, the cost of medical scheme options need to be reduced. For this to happen, government needs to remove PMBs. At the very least, government should exempt certain schemes at the low end of the market from PMBs to enable actuaries to devise options that cater for low income individuals.
Private health insurance has the ability to relieve a great deal of the pressure related to the provision of health care currently borne by government and leave it to rather concentrate its scarce resources on the truly destitute. For this to occur, medical scheme actuaries must have the freedom to design polices that recognise when resources are limited but still cater for a low income individual’s needs.
Author: Jasson Urbach is an Economist and director 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 FMF.