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Medical Schemes
Tuesday, October 6, 2015 - 02:16
Patently unfair

The furore the beginning of August, subsequent to the Minister of Health giving notice of his intention to change Regulation 8 of the Medical Schemes Act, misses the point entirely about what factors are responsible for the massive cost escalations the medical scheme industry has been facing for 15 years. So says Michael Settas, Managing Director, Xelus Specialised Risk Solutions.
The first and most critical element to note is that, although the Regulation 8 wording has been in place since 2000, it was only enforced in its current form by the industry’s regulator, the Council of Medical Schemes (“CMS”), from about 2008. “This was when the CMS made an interpretation that the words ‘payment in full’, contained within Regulation 8, meant that benefit payments by medical schemes should be at any cost billed by a provider for the prescribed minimum benefits (PMB) rather than the fixed tariffs used by medical schemes,” says Settas.
“That a regulatory body, responsible for a R120 billion a year industry, could possibly have made such a far-reaching interpretation of law, let alone do so on an autonomous basis, should be guarded against in future laws,” he adds. “This interpretation practically handed a blank cheque to medical providers – it is no wonder that we see some providers manipulating the system to their financial advantage on PMB claims.”
This unilateral action by the CMS is what Health Minister Dr Motsoaledi is now overturning – an interpretation of law that should never have occurred in the first place.
Nonetheless, this interpretation and enforcement of Regulation 8 has been going on for around seven years and has simply added further to the extreme pressure that medical schemes have been under since 2000. The pertinence of noting the timing of when Regulation 8 was enforced by the CMS (i.e. 2008), is to examine medical inflation prior to 2008 and then after that.
Ironically, in real terms, the level of medical inflation for private hospitals and specialists, which make up the vast majority of PMB costs, has in fact been slightly lower post 2008 than what it was pre 2008. So one may ask the question - how is this possible? “Is Regulation 8 really then such a big problem in its current format?” asks Settas.
The answer is an emphatic YES! But - and it’s a big but. “Regulation 8 is only one component of a myriad of problems that have distressed the medical schemes industry since 2000, when the current Medical Schemes Act came into effect.”
The primary cost problems afflicting the medical scheme industry do not exist in Regulation 8. “They exist in maintaining a rights based medical scheme framework with voluntary membership requirements, serviced by unregulated, monopolised supply chains of healthcare providers that are virtually guaranteed business regardless of the quality of healthcare they deliver.”
Settas  says the Medical Schemes Act entitles consumers to join a medical scheme at any age regardless of health status. It further prevents medical schemes from being able to underwrite new members and then also compels them to charge every member the same rate, regardless of how much they claim out of the system.
“These consumer protection mechanisms would be reasonable if we could ensure that everyone - young and old, healthy and sick - entered and stayed in the medical scheme system because this would achieve a balance of risks.
“But the reality is that human nature drives people to act in accordance with what is to their immediate advantage when membership is voluntary. If they are sickly, they will almost certainly join a medical scheme’ if they are healthy they may take their chances without medical scheme cover.”
In addition, since consumers are afforded such favourable rights, it’s not a big risk to stay out of the system until the cost of one’s healthcare exceeds the cost of joining a medical scheme. This gaming of the system to each individual’s advantage is called anti-selection and is very well known to all medical schemes in South Africa, since it occurs virtually on a daily basis.
“The evidence in medical scheme demographic statistics of anti-selection is obvious,” he points out. Younger members are underrepresented in the age data. The prevalence of chronic disease has skyrocketed over the past decade because only the sick are staying in the system. “The size of insured families has shrunk by nearly 20% since 2000 because members selectively insure their less healthy dependants, in order to save the monthly contributions on the healthy ones.”
Subsequently, those members who conscientiously remain in the system have been forced to downgrade their cover level because they cannot afford the exorbitant contribution increases created by this rampant anti-selection.
“It is an intrinsically unfair system that needs to change and it needs to change quickly!”
There is also a need to implement regulation around providers. There is much that can be done to improve efficiencies on the supply side of healthcare.
Preventing individual practitioners from owning hospitals or any other supporting providers will remove the existing conflicts of interest that are simply not in the best interest of patients. Ensuring the proper implementation of treatment and diagnostic coding systems will provide for measurable health outcomes that can be used by medical schemes to contract the best quality providers.
Both these initiatives will collectively focus providers on improving the health outcomes of their patients since their revenue will be entirely contingent upon it.

Copyright © Insurance Times and Investments® Vol:28.10 1st October, 2015
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