‘Social solidarity’ stopped actuaries devising policies to suit low-income earners

The final demarcation regulations drawing the line between medical insurance products and medical schemes was gazetted by the Treasury in December. When the first draft regulations were published for public comment four years ago, they were met with staunch opposition as the proposals would have all but banned health insurance products.

It was a classic case of "door-in-the-face technique". By diverting attention away from the real cause of the problem, the public would be lulled into agreeing to "more reasonable" future proposals.

The regulations gazetted in December still ban primary healthcare insurance policies but allow "gap cover" or "hospital cash plans", subject to the application of maximum limits and strict underwriting and marketing conditions. These watered-down regulations still do not address the dubious principles driving the perceived need for change.

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 Treasury states, "[Health insurance products] must operate within a framework whereby they complement medical schemes and support the social solidarity principle embodied in medical schemes".

The MSA of 1998 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 a comprehensive package of hospital and outpatient services that all schemes are compelled to provide — referred to as prescribed minimum benefits (PMBs).

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. Indeed, the average cost of providing PMBs alone amounts to R608 per beneficiary per month and necessarily precludes low-income earners from joining medical schemes.

Many low-income earners have instead opted for hospital cash plans. Currently there are no limits in place for these payments but the new regulations will impose a limit of R3,000 per day and a maximum of R20,000 per year. "Gap cover" policies will be limited to a pay-out of R150,000 per year.

Why would a government step in to prevent mutually consenting, free adults from entering private contracts with insurers to minimise their risks of huge medical bills when catastrophe strikes? Especially when it would lessen the pressure on the government-run provision of services to have more people covered by private insurance.

The situation the demarcation regulations seek to remedy would never have arisen if "social solidarity" had not been adopted. They effectively stopped medical scheme actuaries from devising policies to suit low-income earners. The only real solution would be to eradicate the cause; to deregulate and scrap the dubious principle of social solidarity that applies to private medical scheme arrangements.

If the new limits are implemented, most wealthy people will be able to afford to continue their medical scheme membership and comply with the regulations. But poor people cannot afford this form of social engineering. They will be denied private cover.

The Department of Health has requested that the Council for Medical Schemes (CMS) grant a two-year exemption period for clients before existing primary healthcare insurance policies are banned, while the department conducts further research into the development of low-cost medical scheme benefit options.

Do not hold your breath: the government has been discussing the introduction of low-cost medical scheme benefit options for at least 10 years and we can expect further delays while the government continues to marginalise the private sector before the proposed National Health Insurance is introduced.

Government officials and their aides seem incapable or unwilling to appreciate the role of the private health insurance market in financing healthcare. Future healthcare reforms must recognise the positive role played by the private sector. Private healthcare financing increases access to high-quality care, improves consumer choice and leads to greater health system responsiveness.

Urbach is an economist and director of the Free Market Foundation.

This article was first published in Business Day on 25 January 2017

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