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22 June 2018

Medical schemes: More money in members' pockets – for now

Major changes to the Medical Schemes Act mean could mean scheme members could get more cover for less money – but for how long?

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Major changes to the Medical Schemes Act mean could mean scheme members could get more cover for less money – but for how long?

Some of the amendments concerned co-payments, changes to Prescribed Minimum Benefits, and the abolishing of medical scheme brokers' fees. 

While many of the amendments to the Medical Schemes Act appear to be to the immediate benefit of members, who will get more cover for their contributions, the financial health of schemes in general might be affected negatively, as their income reduces, and their liability increases.

Major changes are coming to the world of medical schemes as details emerge on the Medical Schemes Amendment Bill, announced by Health Minister Dr Aaron Motsoaledi on 21 June 2018.

This ties in closely to the National Health Insurance Bill, both of which concern the state of healthcare services available to all South Africans, and the funding of healthcare – both by the state and medical scheme members.

The announcements appear geared to relieve the burden on consumers who are medical scheme members in the time of transition towards the NHI, for which the bill has now been gazetted.

It must be remembered that the National Health Insurance Bill and the proposed amendments to the Medical Schemes Act are two separate issues, although they are both healthcare-related.

There are just under 9 million medical scheme beneficiaries in South Africa – about 4 million principal members and the rest are their dependants. That means that about 80% of South Africans are dependent on state healthcare.

The issues surrounding medical schemes that have been most frequently raised by Motsoaledi in recent years include the high cost of private medical care, the high levels of medical inflation, unequal access to healthcare service for South Africans, high cost of medical scheme membership, and issues surrounding Prescribed Minimum Benefits (PMBs).

The 10 amendments to the Medical Schemes Act concern the following:

• The abolishing of co-payments by members
• The abolishing of the practice of using medical scheme brokers
• PMBs to be replaced by comprehensive service benefits
• Abolishing unfair benefit options in schemes
• Declaring it an offence to carry on the business of a medical scheme without being registered as one
• The creation of a central beneficiary and provider registry
• Introducing an income cross-subsidation model
• The passing back of savings if a designated service provider is used
• Changes to waiting periods and cancellation of membership
• Minimum educational requirements and expertise for trustees and CEOs of medical schemes

Of these, the most direct effects will be felt by members on the issues of co-payments, changes to the PMBs, the introduction of a cross-subsidasion model, the abolishing of medical brokers' fees and a change in the waiting periods currently imposed by schemes.

Co-payments

Many members are crippled by co-payments charged by private doctors for treatment of non-PMB conditions. If schemes have to foot the bill entirely, it means one of two things – either the financial burden to the schemes will be increased greatly (with a resulting increase in contributions) or it will force doctors to lower their charges.

The fixing of tariffs is still an option – the results of a market inquiry into the high cost of private healthcare by the Competition Commission are expected by the 28th of June. Whereas lower costs would certainly benefit the consumer, fixing these costs, could, however, lead to an exodus of private doctors from the country, as more money could be made elsewhere in the world, where their skills are in demand.

Schemes have two income streams: member contributions and income from investments earned by the money in their reserves. Motsoaledi has recommended that these reserves be used to fund the shortfall, as there are billions in these reserves.

True enough, but the law requires schemes to have 25% of member contributions in reserve for emergencies.  Using this income to fund a shortfall can, however, lead to a reduction in income for the scheme – and the only other possibility to get that money is from the members themselves.

Payment for PMBs – a tricky issue

The list of PMBs consists of plus/minus 270 different procedures and treatments and 26 chronic conditions for which medical schemes have to pay in full, regardless of cost. The minister is proposing to replace the PMBs with BMBs – Basic Minimum Benefits, which should include vaccination, contraception, and a focus on preventative care.

In effect, the list appears to have grown, not shrunk.

There have been efforts to introduce low-cost schemes, where the number of conditions on this list would be reduced, in order to make scheme membership more affordable. These efforts were unsuccessful in the past. 

The minister has always been in a difficult position in this regard: lengthening this list would benefit the consumer in the short term, but that would also lead to increased costs for schemes and of scheme membership, putting it even further out of reach of the average South African.

High medical inflation is a worldwide phenomenon, where costs are presumably driven by the high cost of medical equipment, high hospital costs in the private sector, high private doctor's bills, and possible overtesting and overtreatment in the private sector. While the reasons for high medical inflation may be determined, it is something which is linked to economic forces which lie beyond the reach of legislation. Or does it?

No more broker's fees

Most people are unaware that they are paying broker's fees, but this makes up about R90 of each member's medical scheme contribution. This will now be abolished, and used by the scheme to pay medical costs, rather than continuing to pay the broker who sold the policy. This is tough on the brokers who do their jobs properly, but just desserts for those who are just along for the ride and whose clients are unaware that part of their monthly contributions even go to a broker.

Cross-subsidisation models

Currently, various options within a medical scheme are supposed to be self-sufficient – a ruling which, on a practical level has not been enforced for years. Motsoaledi mentioned that people pay set contributions regardless of income, which in most cases is true (except for one or two of the cheaper hospital plans, where permission was obtained to allow income to determine your contribution). 

It would appear that allowances will now be made for this to be done on other options, which could mean that low-income earners could see their contributions lowered, and, in effect be subsidised by higher-income earners. 

Waiting periods

There are two types of waiting periods: the first where you have to be a member for three months on a scheme before you can claim, and the second where you can be excluded for 12 months before you can claim for a pre-existing condition. These will probably be shortened or done away with.

Most members will be grateful for this, but it might damage schemes financially in the long run, as it could fail to protect members from people who join just in order to claim for expensive procedures, and then resign.

Ultimately, it has to be remembered that schemes are technically not-for-profit, and while the new amendments will certainly be to the advantage of the average consumer in the short run, overall financial health of the scheme might be compromised in the long run as their financial liabilities increase. 

It remains to be seen whether the high costs of some private doctors and private hospitals are found by the Competition Commission to be a major cost driver in medical inflation, and what the minister of health intends to do to curb those, without crippling the country's healthcare system as a whole.

Susan Erasmus is a former deputy editor of Health24, and a trustee and board member of the Naspers Medical Scheme from 2007 – 2016.

 
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