Why the medical schemes regulator is canning low-cost benefit option
A universal primary health-care package will give low-income earners a better deal
If the enrolment of membership to medical schemes has been stagnant and the proportion of the population that enjoys cover has decreased during the past decade, why is the regulator discontinuing the low-cost benefit option intended to increase the affordability of medical schemes?
Due to modest growth of 6.7%, from 8.32-million to 8.8-million members from 2010 to 2017, and the proportion of the population that enjoys medical scheme cover over the same period having decreased from 16% to 15.9%, it has now become clear that we need change.
Has the Council for Medical Schemes gone rogue? No. The truth is health care delivered within a well-organised, team-orientated, universal-access national systems will improve outcomes, sustain national economies and provide greater synergy of health, wealth and social wellbeing than when fragmented aspects of health care are provided in a highly commercialised environment.
The concept of a low-cost benefit option is intended to increase the affordability of medical schemes and membership through the development of a product aimed at a specific group of the population, mainly low-income households, so they are able to afford medical scheme cover.
Generally, these households cannot afford high medical scheme premiums — the premiums paid determine the quality of benefits medical scheme members can receive.
While higher premiums covered richer benefits, there was an opportunity to offer lower-income earners inferior benefits.
Mainly, such products potentially use the state as a designated service provider without entering into agreements with the state, and lack prescribed minimum benefits.
We consider the proposed primary health-care package as a basis for the discussions that will lead to the development of an affordable and quality health-care financing package to citizens
However, the economy has come under much strain and higher levels of unemployment suggest that a low-cost benefit option for low-income earners could be difficult to realise.
We have been working with the prescribed minimum benefits committee and have developed a prescribed minimum benefits package with a specific focus on primary health care.
Prescribed minimum benefits (PMBs) are a set of defined benefits that ensures all medical scheme members have access to certain minimum health services, regardless of their benefit option.
In addition, we consider the proposed primary health-care package as a basis for the discussions that will lead to the development of an affordable and quality health-care financing package to citizens.
As we move towards the National Health Insurance (NHI) to tackle the ever-widening disparities in access to health care that threaten the security of all, the health-care system should not aggravate unfairness.
The NHI would introduce other new dimensions to the health financing system, notably the possibility of using public resources through strategic purchasing of services for the population.
Earlier in 2019 we received the following inputs from industry stakeholders on the benefits of low-cost benefit options:
- To prevent the adverse events that may be caused by the introduction of a low-cost benefit option, this should be permitted only to individuals who are earning below the income tax threshold. This contradicts the tax exemption for these individuals, whose main purpose is to ensure that their disposable income remains as high as possible; and not to pay for health cover.
- The low-income-earning targeted group may actually need a tax subsidy for them to afford some of these products.
- Targeting low-income earners for these products also negates the income cross-subsidisation that is necessary to ensure sustainability of these risk pools. This is accompanied by the risk of cherry-picking and anti-selection, placing their long-term sustainability at risk.
- Experience in middle-income countries shows that extensions for health cover succeed when they target wealthier population members.
- In the absence of mandatory cover, the targeted group may choose not to accept this offering on the basis of non-affordability. Those who take up this cover may mainly be responding to marketing initiatives rather than real needs. The extent of the uptake of this cover will need to be significant for this to redirect service users away from the overburdened public facilities.
- The administrative cost and burden to the schemes regulator of ensuring through regulation that only tax-exempt individuals are allowed to enjoy this cover is significantly high and needs to be guaranteed to ensure effectiveness and efficiency.
- The stagnant economy does not support the successful introduction of these products, while ensuring there is effective regulation to protect these members.
The following findings have been made in an analysis report:
- The claims ratios of medical schemes and the exempted products are 94.3% and 45.5%, respectively. This indicates that medical schemes pay claims at a higher rate than the exempted insurers. The non-payment of these claims often results in members settling these claims out-of-pocket, leading to their impoverishment.
- The non-health expenditures in medical schemes are 8.4% of the contributions on average, compared with the 48.4% of the exempted insurers. This clearly indicates that a higher proportion of the member’s contributions fund administration costs than in a medical scheme.
- Another key finding was that while medical schemes are non-profit making, the exempted insurers were found to generate up to 8.3% on average.
- Medical schemes are subjected to a statutory 25% solvency requirement and some of the exempted insurer products had solvency rates lower than 10%. This places the long-term sustainability of these products at risk.
- Exempted insurer products carry high brokerage fees compared with medical schemes.
- On average, there is great variation between premiums paid for the various exempted products, with some clearly costing far higher than what would be affordable by tax-exempt low-income earners.
As a statutory regulator, the Council for Medical Schemes’s mandate is to exercise oversight over medical schemes, medical scheme administrators and brokers. Our job is to ensure that medical scheme members are always protected.
It is difficult for us to support the introduction of the low-cost benefit option and demarcation products as they are structured and operated.
Indeed, no low-cost benefit options will be allowed for low-income market segments going forward to align such products with the broader health-policy discussion that seeks to ensure adequate access to care, irrespective of the economic status of the population.
We believe that they do not guarantee value for money and fail to protect the interests of their members and are likely to drive them to access health care from public facilities due to their limited inferior benefits.
We instead prefer to promote a discussion that will lead to the implementation of a single comprehensive basic option that should be implemented across all schemes, as recommended by the Health Market Inquiry. This will reduce information asymmetry, promote competition, drive prices down and provide a sound basis for the introduction of universal health coverage.
• Kabane is registrar and CEO of the medical schemes regulator, the Council for Medical Schemes.