Warning: SA's centrist medical schemes strategy will bring higher costs and poorer quality

News from the medical schemes regulator, the Council for Medical Schemes (CMS), that it is pressing ahead with a draft consultative framework on compelling the consolidation of medical schemes, tells us that the proposed National Health Insurance (NHI) is still the favoured government policy.

The NHI white paper broadly proposes running one gargantuan national fund, akin to a single state-run medical scheme, to provide a universal package of healthcare for all citizens, thus the consolidation of medical schemes is required.

The regulator is now seeking the amalgamation of medical schemes that cover fewer than 6,000 families to create a larger risk pool and, ostensibly, lower healthcare costs.

This strategy remains the cornerstone of government thinking – a bigger fund, supposedly, will have greater bargaining power and be more economical.

However, the inconvenient truth of this strategy, steeped in centrist, Marxist thinking, is that a single, centralised state entity can deliver services at lower cost and of better quality than a multitude of private players within a free, competitive market. But having fewer bigger funds will remove competition and create a cartel that will suffer from what every other monopolised industry suffers from – higher costs, poorer quality, and less choice for end-users.

Besides this, there are other more technical concerns. About 90% of the medical schemes with fewer than 6,000 members are closed, employer-based schemes. In most of these, employers provide explicit subsidies to their employees and, more importantly, an additional, implicit cross-subsidy from higher income members to lower income members within their schemes. These technical aspects enable staff in lower income categories to afford medical cover.

By enforcing amalgamation of these employer-based schemes, companies will lose control of this implicit cross-subsidy within the scheme and the affordability threshold for lower income members will increase. Coupled with the Treasury’s stated goal of removing medical tax credits, which assist the poor more than they do the rich, these measures are a serious blow to lower income families.

International and local experience tells us that the collective bargaining power of large healthcare funders has limited impact on healthcare costs and virtually none on improving the quality of treatment. When combined with traditional provider reimbursement methods, such as fee-for-service or capitation, these healthcare systems reward and entrench poor quality outcomes and inflated costs.

The government would do well to look at the growing number of outcomes-based reimbursement models being implemented in many countries around the world with promising results.

These models do not operate in a top-down monopolistic fashion but provide sufficient outcomes-based information to consumers — patients — for them to freely choose their preferred doctor, hospital or physician. This injects competition into the provider market so that doctors and hospitals are openly scrutinised on the clinical outcomes of their patients.

Through voluntary peer review systems, doctors and hospitals achieving sub-optimal outcomes learn from providers achieving better outcomes.

Equally, health insurers or medical schemes that embrace these new reimbursement models are attracting more members.

Creating competition at these two levels within a healthcare system — provision and funding — along with keeping end users informed, has all the tenets of a properly functioning market. Not surprisingly, in virtually all outcomes-based models, costs decline as quality of outcomes improve.

The government’s stated aim with NHI may be laudable, but it is naively seeking a mythical silver bullet to fix its problems.

Our disease burden as measured by the World Health Organisation is more than double that of the global average and ranks 19th highest out of 193 sovereign states. Coupled with a systemic shortage of providers, backlogs on infrastructure upgrades to facilities and extensive mismanagement of funds and resources within the health department, a more realistic strategy would be to divide responsibility between what the state can afford to deliver and allow citizens with sufficient means the freedom to purchase whatever healthcare they wish.

This strategy is diametrically opposite to that of the NHI, but would ease the plight of the primary victims of government’s current strategy, the poorest sector of our society.

• Settas is a member of the Free Market Foundation’s health policy unit.

This article was first published in Business Day on 10 May 2018

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