26 August 2013

Medical schemes threatened by health insurance?

Are medical schemes in South Africa being undermined by the rapid proliferation of health insurance products on the market?


Are medical schemes in South Africa being undermined by the rapid proliferation of health insurance products on the market?

This question, and the criteria for regulation and demarcation on both sides of the health insurance market, occupied the minds of many delegates at the 14th Annual Board of healthcare Funders’ Conference, held in Cape Town last week.

“No, not yet,” was the answer given by Barry Childs, founder of Lighthouse Actuarial Consulting, but his presentation did not go all the way to allay all the fears of delegates who were looking for reassurance.

“We are seeing the beginning of what is potentially a slippery slope,” he warned. “These products exist because they fulfil a consumer need but they are not solving the underlying problem of general affordability and gaps in cover for all medical scheme members.

“If things continue along this trajectory, it is plausible that we will see medical schemes funding Prescribed Minimum benefits (PMBs) only, with the rest funded through insurance products.”

Difference between claims and payments

The demand for insurance products is fuelled by the growing difference between claims and payments. They provide a cheaper solution for low income earners and there is a strong commercial imperative for insurers to provide the cover because the margins are attractive.

The problem according to the medical schemes industry is that health insurance products, such as gap cover and hospital cash plans, exist in a regulatory vacuum. There is no clarity on solvency requirements for certain of the products, and many of the products are being offered by smaller providers, selling direct to the public. The recourse available to consumers if their expectations are not met is not clear.

Ideally, for a medical scheme to remain financially healthy it needs a cross subsidisation from the young and healthy to the older, less healthy members. Delegates expressed their concerns that if the young and healthy were lured away by health insurance, providing adequately for the aged could become a problem.

For Childs, the proliferation of the medical insurance policies is indicative of larger problems in the medical scheme industry. He believes that the wide variation of treatment costs and issues around fraud need to be addressed.

"Bearing in mind that the main drivers of health insurance products are the wide divergence between claims and costs and the affordability of medical scheme cover, the industry needs to work together to fix the underlying problems."

“It is not a fair playing field,” Childs said. “Health insurers are able to play by a different set of rules that come in at a lower cost but they don’t offer the social protection that medical schemes do. And what happens to those people who are no longer insured after they turn 65? Medical Schemes and Health Insurance products can be designed jointly to benefit consumers, but it is critical that there is regulatory certainty as soon as possible so that appropriate, cohesive products can be developed for members.”


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