Three of South Africa’s leading medical schemes: Bonitas, Discovery Health and Fedhealth, described their operations and the major challenges they faced in the local medical aid environment.
Their main concern centred on the need to drive down costs so that medical insurance could become affordable for low income earners. At present, medical costs were increasing at a faster rate than the consumer price index.
Problems faced by medical schemes included the need for compulsory membership to ensure adequate long-term funding; the impact on members’ premiums of meeting the Prescribed Minimum Benefits requirements; some schemes developing a “poor risk” status owing to an ageing membership profile; increasing member usage creating increased costs; and the prohibition on collective bargaining with service providers, which created uncertainty over prices.
The three schemes were unanimous that compulsory membership should be the norm, and that a Risk Equalisation Fund should be established to ensure stability in the industry. It was pointed out that medical aid schemes experienced a combined loss last year of about R2,8 billion.
Dr Penny Tlhabi, General Manager, New Markets, Discovery Health, said there were 3,5 million principal members of medical schemes in
She said the key elements of the Medical Schemes Act were:
Anyone could apply and join a scheme.
Cover could not be declined or medical conditions permanently excluded.
Premiums could only be rated by family composition, plan type and income level.
Prescribed Medical Benefits (PMB) required schemes to cover the cost of 271 diagnostic and treatment pairs, and 26 chronic conditions.
Schemes had to hold 25% of gross contributions as statutory reserves to pay claims.
She said that 9,4% of members’ contributions were allocated to administrative costs.
A major challenge facing medical schemes was to control medical inflation, which was being driven by increasing demand, an ageing population, technological advances, a scarcity of skills, communication problems and irrational consumer behaviour. This was a worldwide problem, and not peculiar to
She pointed out the correlation between the incidence of HIV and the prevalence of chronic diseases, which was also contributing to medical inflation.
The ratio of healthcare professionals to population size was another factor, as the scarcity of supply in relation to demand was pushing up costs.
Medical aid coverage had grown slowly since 1998, from 6,5 million to the current 8 million. Discovery had focused its attention on those previously uninsured through its low cost KeyCare programme, which had attracted over 275 000 members, 63% of whom had been previously uninsured. Affordability had been enhanced through all stakeholders – hospitals, administrators, healthcare professionals and intermediaries – offering discounts. This had enabled Discovery to launch KeyCare at a rate of R412 per month for employees earning less than R3 750 per month, if employer pays 50%.
Dr Jonathan Broomberg, Deputy Chief Executive Officer, Discovery Health, outlined the regulatory challenges facing all medical schemes.
Firstly, several schemes had poor “risk pools,” in that they had a high percentage of older members, whose needs were greater than younger members, and who therefore placed greater strain on those schemes’ financial resources. A Risk Equalisation Fund was urgently needed, but although this had been debated in Parliament about two years ago, nothing had materialised so far. It was essential that this issue be revisited, as it would share out the risk among all the different medical schemes.
Another problem was that schemes were required to cover the costs of the Prescribed Medical Benefits (PMB), and this made the cost of entry to a medical aid very high. Even though KeyCare, for instance, offered coverage for only R412, this was still a major expense for a low income family. He suggested low-income funds should be exempted to some extent from the PMB requirements.
Dr Broomberg referred to the problem of “anti-selection,” which occurred when people joined a scheme when they felt they needed to, because they were going to make claims, and then left the scheme. He said this often happened in the case of maternity. However, medical aid schemes worked in the long term only if one joined when young and healthy, and claimed later when old and sick. They could not be sustained if there was a high level of “anti-selection”. Medical schemes needed protection, because the law allowed anyone to join a scheme, but did not require mandatory cover for all employees, as originally intended. In the long term, this situation would bankrupt medical schemes.
He described the services which Discovery provided to the 15 schemes it administers, 14 of which were restricted to a specific employer or group of employers, while the other was an open scheme. These ranged from new business development, operational activities, and managed care, to claims processing. Total annual premiums amounted to R28,61 billion, and 3 300 people were employed to provide services to members. Claims processing times had been reduced from over two days in 2003, to only a few hours now, while administration fees had also been reduced from 12 % to 9,8% of gross contributions in the past five years.
Dr Broomberg said Discovery had introduced an Integrated Care Unit as a pilot project. This focused on 20 000 people who were consistently in and out of hospital, and through co-ordination with doctors and sending nurses to the patients’ homes, it had been possible to reduce hospital admissions and significantly reduce costs.
He said increasingly sophisticated tools were being used to understand the cost relationship between doctors and their patients, and it had been found that 5% of doctors who look after 2,7% of patients were responsible for nearly 15% of costs. These doctors generally ordered many more laboratory tests than their peers, or prescribed more expensive medicines. They had been approached, and discussions had resulted in very positive responses. Discovery had developed its own pathology request form, which listed the cost of each laboratory test, so that doctors were now aware of the costs which members were incurring, and gave more careful thought to the boxes they ticked.
One of the concerns expressed by the Committee had been the fact that some members not only paid premiums to the scheme, but also had to make co-payments to service providers. In recent years, Discovery had made a big effort to sign up contracts with doctors so that members would have no co-payments. At present, 87% of general practitioners and specialists were contracted, and members using their services would not face co-payments.
Hospital efficiencies were also monitored, so that above average admission costs could be identified. The average at KeyCare hospitals was R16 000 per admission, but the most efficient averaged
R6 000, while the least efficient cost up to R40 000 per admission. This enabled Discovery to direct its members to the more efficient hospitals.
Many instances of fraud and abuse were also being uncovered, such as biokineticists claiming for back, neck and shoulder treatments when they were in fact providing personal training. After talking to the BASA, the professional body, these claims stopped. A similar instance was the use of high cost gloves by radiologists for each x-ray which, after intervention, had also ceased.
Hospital billing errors were picked up, with the result that Discovery had been able to achieve a total risk management saving in 2009 of R1,2 billion.
Mr D A Kganare (COPE) asked whether Discovery had any education programmes for its members in terms of their rights and issues involving health education.
Dr Broomberg said as far as rights were concerned, a detailed brochure was sent to members each year, explaining their benefits and how to access them, information was available on their web site, and a magazine was sent out quarterly to all members. In the field of health education, Discovery considered itself a world leader with its Vitality programme, which placed emphasis on keeping healthy; eating well, exercise, and so on.
Mr Kganare and Mr M Waters (DA) asked how Discovery envisaged a Risk Equalisation Fund being managed.
Dr Broomberg said a lot of work had been done by the Council for Medical Schemes on the mechanics of such a fund, and there was even draft legislation. The Council’s proposal was to create a central fund and every scheme would pay in a fixed amount each month per member. Those schemes with high risk would receive a payout from the fund as compensation, while those with a low risk would effectively be paying in. This would enable high risk funds to maintain low premiums. He encouraged the Committee to reintroduce debate on this issue if possible.
Mr Kganare asked if lists were available of those doctors contracted for whom no co-payment was necessary.
Dr Broomberg said this information was available to Discovery members on the web site, but he could not say whether these doctors offered the same facility to other medical schemes.
Ms E More (DA) asked whether Discovery viewed the proposed National Health Insurance (NHI) as a challenge or an opportunity.
Dr Broomberg said the health care system was in need of reform. The functioning of both the public and private system needed to be improved, as well as the way in which these two systems worked together. Within the context of a national health system, Discovery believed the medical schemes would play an important role.
Ms M C Dube (ANC) asked when Discovery’s open scheme started, and how it was popularised.
Dr Broomberg said it had started in 1992, and was publicised mainly through many thousands of individual and corporate brokers.
Ms Dube asked how Discovery determined how much people should pay.
Dr Broomberg said each scheme had a number of different plans, or options, from the most comprehensive coverage to the more restricted schemes. Premiums would vary from around R400 to as much as R3 000, and were all compliant with the Prescribed Minimum Benefits legislation.
Ms Dube asked what role was played by doctors and nurses employed by Discovery.
Dr Broomberg said they did many things that helped to bring down the cost of claims, such as identifying fraud; which doctors and hospitals were more efficient; and evaluating the cost and effectiveness of new drugs introduced into
Ms Dube asked in which areas the Integrated Care Unit was operating.
Dr Broomberg said a pilot programme had been running in the
Ms Dube asked what legal action was taken by Discovery to combat fraud.
Dr Broomberg said the first priority was to recover members’ money, and if there was clear evidence of fraud, the matter was reported to the Health Professionals’ Council, as well as to the police.
Ms M J Segale-Diswai (ANC) said she had heard the advice that people should join medical schemes when they were young and healthy, but wanted to know what happened when they became old and sick but could no longer continue membership of the scheme. She asked whether any unspent funds, contributed when the member was healthy, could be taken into account.
Dr Broomberg said that unfortunately, unless the person was still with an employer who continued to fund the medical aid contributions after retirement, membership of the scheme ended. This was because the schemes worked on a pay-as-you-go basis, and there was no pre-funding that guaranteed continued membership.
Mr M Waters (DA) asked whether the medical schemes had engaged with the Government in respect of the risk equalisation fund and compulsory membership for all workers.
Dr Broomberg said there had been attempts over the past two years to engage with the Department of Health, and there were encouraging signs that this discussion would come back on to the agenda.
Mr Waters also asked what alternative to PMBs there were for low-cost medical schemes, taking into account that the R412 KeyCare scheme had to comply with PMBs and this was still expensive for low-income earners.
Dr Broomberg said this was a critical issue. He believed there could be a version of PMB that covered both in-hospital and out-of-hospital costs and benefits, and which could bring down premiums to under R200 a month if there were changes in the law. This would mean changes in the way hospitals provided care, including their ability to employ doctors, which was currently prevented by the Health Professionals’ Council legislation. He said the PMB was introduced with good intentions, but an unintended consequence was that low-income earners were unfairly denied access to low-cost medical schemes.
Ms G Saal (ANC) asked how Discovery members were able to determine what medical expenses were for their day-to-day account.
Dr Broomberg said Discovery used its website, publications and brokers to educate members. A general principle was that most out-of-hospital treatments were for the day-to-day account.
Ms More asked what differences existed between KeyCare and other medical aid schemes.
Dr Tlhabi said KeyCare was one of 13 Discovery options available, and was launched seven years ago specifically to meet the needs of low-income and previously uninsured people. Premiums were kept down by discounts negotiated among role players, and by carefully selecting participating doctors and hospitals on the basis of their efficiency rating.
Mr Gerhard van Emmenis, Acting Principal Officer of Bonitas, said the scheme had been started in 1982 primarily to provide medical aid for black civil servants. It had 270 000 members, of whom two-thirds were black, with 630 000 beneficiaries. Its reserves of R2 billion represented 35% of expected healthcare expenditure in 2010 of R5,8 billion, and was well in excess of the prescribed 25% minimum level. The average monthly family contributions for the six options offered, ranged from R565 (BonCap) to R4 123 (BonComprehensive).
He said Boncap was similar to Discovery’s KeyCare scheme. The difference in premium was related to its risk profile, which reflected the pressure which all low-cost funds were experiencing as a result of over-usage by members with high expectations, aggravated by providers’ demand.
Mr Van Emmenis suggested that when looking at a reformed health care system, the assets built up by the medical schemes should be considered. However, an alarming trend had emerged, with the industry as a whole experiencing a loss of R900 million in 2008, and an estimated loss of R2 800 million last year.
Bonitas was caring for over 35 000 HIV patients, with 15 000 members receiving anti-retroviral therapy. The three main chronic conditions for which members were treated high blood pressure, high cholesterol and clotting disorders.
He supported the call for a Risk Equalisation Fund, a revised basic benefits package, and low-income medical schemes.
Mr Van Emmenis said one of the biggest challenges facing medical schemes was the uncertainty over the tariffs charged by medical practitioners and hospitals. Providers could charge anything they wanted, while the schemes were not in a position to foot the bill at that specific cost. This created frustration, because the schemes had committed themselves previously to premiums at a different cost level.
He said medical schemes were a major player in the economy, with annual contributions totalling R85 billion in 2009, and total reserves amounting to around R27 billion. However claims increases were consistently greater than CPI (consumer price index) and unless there was a serious reform or intervention, the gap between what people paid for medical aid, and inflation, would widen every year.
Compulsory membership was essential to enable wider coverage to be provided. Many men aged between 20 and 35 – in the most productive economic sector – left medical schemes in favour of self-insurance.
He also called for legislation to be amended to allow collective bargaining in the health environment so that cost increases could be curbed.
Ms T E Kenye (ANC) asked if HIV babies received the same benefits as the parents in respect of ARVs.
Mr Van Emmenis said ARV costs had dropped from R4 000 per patient in 1997, to under R800, making HIV one of the least expensive chronic conditions to treat. Babies enjoyed the same ARV benefits as their parents.
Mr Kganare asked how compulsory membership would relate to a national health scheme.
Mr Van Emmenis said the main problem was affordability. Hospitals would play a major role, and this meant they would have to provide different levels of service to cater for all sections of the population.
Mr Kganare said collective bargaining with service providers required changes in legislation, and asked if the medical schemes were showing enough initiative.
Mr Van Emmenis said the schemes had attempted to achieve changes, but there was a specific ruling from the Competition Commission that schemes were not allowed to bargain collectively for hospital tariffs.
Ms Segale-Diswai said she understood certain schemes would not accept members who had HIV, and this stigmatised the condition.
Mr Van Emmenis said when medical examinations were conducted, the schemes were not allowed to disclose the HIV status, nor discriminate against a member. It was in the best interests of the schemes to take care of these members and help them to become productive members of society.
Ms Saal said the absence of banks in rural areas created payment problems for some members.
Mr Van Emmenis agreed that this was a concern, and Bonitas was working with all the major banks to improve the situation.
Ms Saal asked how a member’s funds in Bonsave could become exhausted after retirement.
Mr Van Emmenis said when membership in a scheme with a savings account ended, the funds always belonged to the member, and would be paid out to them.
Ms More asked how Bonitas was dealing with the problem of co-payments.
Mr Van Emmenis said it was a major concern because of the uncertainty over what a provider would charge. At some stage, there needed to be a limit on what providers could charge and a minimum that medical schemes would pay, to create some parity in the system.
Ms Katy Caldis,Chief Executive Officer, Fedhealth, described medical aid as insurance, a pooling of risk. Most chronic conditions affected people over the age of 55, increasing their usage of scheme benefits. However, older people could not be charged more, and at the same time, younger people were often choosing to opt out of schemes. This undermined the principle of trying to provide wider coverage for all sectors of the community.
She said the schemes were able to bargain collectively with providers and agree on prices, but the Competition Commission ruled this was anti-competitive, which was unfortunate, because this was not a case of a monopoly negotiating against providers, but consumers collectively bargaining. This led to the current uncertainty over prices.
She said there used to be a medical schemes rate for providers, but today the closest equivalent was the National Health Reference Price List (NHRPL), which was merely a guideline but which enabled both parties to talk a similar language when discussing rates. General practitioners generally charged at the NHRPL rate, but specialists – because they were in short supply – did not want to negotiate.
Legislation to control medicine prices had resulted in medicine costs declining from 17% of total expenditure in 2003, to 10% last year.
Ms Caldis said apart from keeping prices down, the schemes needed to work with doctors to keep patient visits down. They also needed to make difficult decisions regarding approving the use of very costly treatments when a member’s limited life expectancy did not warrant such an expense.
She endorsed earlier calls for the introduction of a Risk Equalisation Fund.
Please refer to attached Fedhealth presentation for further details.
Ms Kenye asked whether Fedhealth’s representatives were trained to advise members on the scheme’s options.
Ms Caldis said all agents had to be registered with the Financial Services Board (FSB) and the Council for Medical Schemes, otherwise they would not be able to earn commission. In the past, poor advice had often been given, but this was no longer the case.
Ms Kenye asked to what extent the scheme was involved in private-public partnerships.
Ms Caldis said although this was desirable, entering into contracts with the State had proved a difficult process. Some contracts had been negotiated in the
Ms Dube asked about the need to train and recruit doctors and nurses.
Ms Caldis said the debate around the NHI was creating uncertainty in the medical profession. Doctors and nurses were in demand worldwide, and could move easily. Attention had to be focused on improving local training facilities, as more young people wanted to become doctors than could presently be taken in by medical schools.
Mr Kganare asked if the schemes had seriously considered the effect of compulsory membership on what people would have to pay, and how the schemes would need to be managed.
Ms Caldis said more attention should be paid to the risk equalisation aspect at this stage, than the compulsory membership issue.
Ms More asked whether the schemes conducted community outreach programmes.
Ms Caldis said Fedhealth’s social responsibility programmes included outreach and education projects, but these were limited by a lack of funds.
The meeting was adjourned.
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