PAUL COX: SA needs more competition in provision of low-cost health benefits

There is no doubt that a significant portion of the SA population would readily purchase affordable private health cover in SA if such cover was available. The routine General Household Surveys from Stats SA show that nearly 30% of the population pays for private primary healthcare out of pocket and only 13% of the population is covered by medical schemes. That means there’s a mismatch between the demand for private healthcare services and the affordability to buy such private cover.

Traditional medical scheme membership is expensive and largely out of reach for the vast majority of South Africans. That leaves 87% of the population relying on the poorly managed public sector that often delivers poor health outcomes — which is precisely why a substantial percentage of citizens who aren’t insured will pay out of pocket for private healthcare when they need it.

Healthcare policy that would enable more affordable private cover has been in the doldrums for years now. The insurance industry stepped into this unregulated space nearly two decades ago with health insurance, but government wanted this cover to be offered by medical schemes only.

That resulted in government passing new insurance regulations in 2017 preventing the insurance industry from offering these low-cost health products, so that medical scheme legislation could be amended to allow for a low cost offering. However, the medical schemes legislation simply doesn’t permit such low-cost cover. It would require a major overhaul of the Medical Schemes Act to allow medical schemes to offer low-cost benefit options that are exempt from the prescribed minimum benefits (PMBs) as stipulated in the Act.

Efforts to amend the regulation and create such cover have been languishing since the 2017 insurance legislation was passed. As a temporary measure, an exemption was allowed in 2017 by the industry regulator, the Council for Medical Schemes (CMS), to permit insurance companies to offer their low-cost products. However, there has been little investment into the provision of affordable, low-cost healthcare solutions given the policy uncertainty.

That uncertainty was worsened when, in December 2019, the CMS made an about-turn, issuing a circular declaring its intent to shut down all affordable health products, both within insurers and medical schemes. It was only substantial push back from the industry that forced the CMS to continue with development of the low-cost benefit options within medical schemes, and maintain the interim exemption for health insurers.

Slow and painful

But the work has been painfully slow, if not stagnant, and about 1-million citizens with health insurance still do not have the certainty of how their access to quality, affordable, private healthcare will play out. In May, Insight Actuaries & Consultants CEO Christoff Raath questioned the tardiness of the CMS on the matter, resulting in a public spat after the CMS took offence to the valid criticism.

The Board of Healthcare Funders (BHF), which represents medical schemes, recently joined the fray, taking the CMS to court in a bid to compel it to enable the regulatory provisions for low-cost products within medical schemes. It is anyone’s guess how long this battle will drag on; however, the BHF’s court action is also pressing the CMS to retract the current exemptions given to health insurers, so that medical schemes will hold a monopoly over those low-cost products. That approach confirms the damning findings of the Health Market Inquiry commissioned by the Competition Commission that anti-competitive behaviour is prevalent among medical schemes. 

The elephant in the room is that it is not in the financial interests of medical schemes to offer low-cost benefit options (LCBOs) that will in effect trigger a buy-down of members from medical scheme benefits to LCBOs. The trend of downgrading cover (or opting out entirely), particularly among the young and healthy, is already putting the funding model of medical schemes under immense pressure. Medical schemes operate on the principle of “social solidarity” where all members within a scheme contribute equally to a pool of funds, whether young and healthy or elderly and sickly, expecting that they will all derive equal utility value from the scheme.

Medical schemes already find themselves with a shrinking pool of funds to subsidise older, less healthy, higher utilisation members, bringing the sustainability of the entire private healthcare funding model into question. It is clear that providing more options for different affordability categories within the ambit of the Medical Schemes Act and its prescribed minimum benefit model has already proven counterproductive, increasing anti-selection among members as well as driving up the costs of medical scheme membership by above-inflation increases for many years.

It is also difficult to fathom, from a governance perspective, how medical scheme trustees, who have a fiduciary obligation to protect the interests of all members, would balance the interests of medical scheme members on the one hand, and those of LCBO members on the other. The key risk is that membership movements to LCBO options will affect the existing medical scheme risk pool, and in turn drive up the cost of LCBO cover and medical scheme benefits for the remaining members.

Decentralise control

In effect, what the BHF is pushing for is that the CMS removes all competition to medical schemes from the market, enforcing a monopoly whereby only medical schemes will be permitted to offer low-cost products as well as medical scheme benefits to access private healthcare. Where is the benefit for and protection of the citizens of SA in such a model, where all access to quality private healthcare is centralised under the control of medical schemes, and all health market funding competition is removed?

That has prompted some insurers that provide affordable health insurance products to question why the 2017 insurance regulations should not be amended to permanently allow them to also offer affordable health insurance products. Health insurers already have all the means, experience and capacity to provide low-cost benefit options, and they have been co-existing alongside medical schemes for almost two decades. Furthermore, a legislative framework within the insurance sector for health insurance products already exists — and is functional — requiring little regulatory amendment to enable these low-cost products to continue and grow.

One also has to question the wisdom of forcing an enormously costly and complex regulatory overhaul of the Medical Schemes Act when there is still no clarity on the government’s intentions with regard to National Health Insurance, or what the role of private healthcare funders will be. Amending the 2017 insurance regulations to permanently allow affordable health insurance products would provide insurers — and the people insured — with regulatory certainty. It would also reduce the burden and incongruence of two regulatory frameworks for insurers and medical schemes, and it would mean insurers are able to commit to longer-term investments in sustainable and affordable healthcare solutions for the most vulnerable. Crucially, it would alleviate the overwhelming demand on the overburdened and under-resourced public sector.  

As health insurers we neither envisage nor want a monopoly on the low-cost products. It is not in the interests of the healthcare sector, consumers or healthcare providers. Rather, medical schemes should continue to develop their own version of low-cost offerings, and the two sectors — medical schemes and health insurers — should be free to compete with each other. , Robust competition results in innovation and cost reductions over the long term, which would bring affordable healthcare solutions to millions more South Africans.

Removing the burden on the public healthcare sector with the rapid expansion of access to private healthcare services for those who can afford it will, ironically, play a much more meaningful role in the delivery of universal healthcare.

• Cox is MD of the Essential Group, which includes health insurance provider EssentialMED.