Presentation by the Medical Schemes Council

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13 March 2001
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Meeting Summary

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Meeting report


13 March 2001

Chairperson: Dr S Nkomo

Documents handed out
Health Systems Trends and Issues

The Medical Schemes Council focused on the distinction between the public and the private sectors. The per capita expenditure of the private sector far exceeded that of the public sector despite the fact that the public sector services the bulk of South Africa’s health care needs.

The impact which the recent Medical Schemes Act has had on medical schemes was highlighted. An important development in this regard is that a person can no longer be refused membership of an open scheme if that person has contracted a chronic disease, such as Aids.

Per capita health expenditure/outcomes
Mr A van der Heever (Medical Schemes Council) said that in terms of figures presented by the World Health Organisation, South Africa’s per capita expenditure is lower than that of any other country in the same income range. Even Columbia and Mexico show higher figures than South Africa in terms of overall health outcomes. This should not just be viewed as a feature of the health system as other factors also are very relevant. This is evident in the fact that these figures follow a similar pattern to that of the income distribution of these countries. South Africa’s level of income distribution is low even compared to Brazil’s.

In addition, policy also has to be taken into account as a factor. It is not just important to note how much is spent but also how the money is being spent. A large portion of the problem involves redistribution issues. The problem is evident from the following figures: The public sector serves 39 million people with an expenditure of R27.2 billion so the per capita expenditure in the public sector is R695. The private sector on the other hand, serves seven million people and its per capita expenditure is R5 714. The per capita tax subsidy in the private sector is R975.

With regard to these figures, the problem is that one cannot assess who the user populations are. In the private sector six million of the seven million belong to medical schemes. Of the remaining one million, a large portion was in the process of being registered while others were registered but did not have full cover.

It is very evident from the figures that there is a mal-distribution of resources. It is not enough having sufficient medical staff without taking into account whether the doctors and nurses are in the public or private sector. Therefore even if the overall expenditure should increase, it would not mean very much if all the resources were shifting from the public sector to the private sector.

The Chair asked whether these figures were calculated bearing in mind the persons who are private patients but then are forced into the public sector if they become terminally ill.

Mr Van der Heever replied that these figures were being updated to take this into account.

Mr Van der Heever continued that the per capita expenditure of the public sector could not even compare favourably with the tax subsidy given to the private sector (In other words the tax subsidy given to the private sector exceeds the per capita amount spent on the public sector).

Social Exclusions
According to the Health Systems Trust survey, the statistics on social exclusions are worsening, for example with regard to unemployment. These have also given rise to poor socio-economic performance and therefore have health impacts since the stress is felt by the Health system. Poverty refers to the state where a person is, whereas social exclusion refers to the process by which the person reached that state. The exclusion refers to exclusion from components of society by one factor or another. The elements of social exclusions could be classified as follows:
Exclusion from civil society (legal exclusion). such as Apartheid, which had long- term effects.
Exclusion resulting from a failure of the supply of social goods and services thereby reducing a person’s ability to participate in society and their ability to move forward.
Exclusion from social production (de-legitimisation)
Exclusion from normal social consumption (economic exclusion). This refers to unemployment.

Per capita public health expenditure for the periods 1996/7 to 2000/1
These figures indicate an overall drop in the budget of all the provinces on a per capita basis, taking into account the increase in population. The health system is sensitive to demographics, as the cumulative effect over a period is significant. The problem is that the health system is unable to keep pace with these changes.

Approximately R4m to R5m is spent servicing the administrative component in the private sector. This figure however represents the entire budget for public hospitals. The amount spent on administering the private sector is due to the medical schemes and the various contracts between the schemes and the private sector. The resultant increase in expenditure of the private sector is not unusual when health insurance is used to fund health care. Medical schemes are, in the opinion of Mr Van der Heever, one of the most inefficient ways of funding health care as they result in massive waste and fraud and allow for very little control.

The contrast with the situation in the public sector is glaring. This sector services an overwhelming majority of South Africa’s core health needs. Despite this, they are experiencing a decrease per capita expenditure.

Medical Schemes Beneficiary Changes
These changes are a result of the Medical Schemes Act (the Act). There has been a systematic increase in the membership between January 1999 and September 2000. This increase is likely to continue.

Another change is the marked increase in membership of the open schemes at the expense of the closed schemes. Open schemes are schemes that anyone can join, as membership cannot be refused. Examples of these are commercial schemes such as Fedsure and Discovery Health. Closed schemes restrict membership. They are created where an employer chooses to form a group scheme and membership is restricted to employees.

Commercial Schemes are now increasing in membership. This increase can largely be attributed to an increase in broker activity.

Medical Schemes Age Structure: Open vs Closed 2000
Open schemes generally had a younger age profile than closed schemes. Previously, persons over 55 had not been allowed into open schemes based on the process of risk selection. This has stopped to some degree because of the Act.

Selected Index for SA
This survey on medical scheme usage trends shows that in the first year of membership there is very high cost as health needs are higher. There is also a male-female differential. The figure then drops after the first year and remains low until the age of 55. The principle of risk selection was used by the schemes where the old and sick were kicked out in order to make the scheme cheaper.

Average claim by age
The twenty to 35 age group is excessively costly to Medical Schemes as these members only join when they become ill and often end their membership immediately afterwards.

Price advantage/disadvantage due to risk profile (open schemes reflecting 90% of membership) 1999
The great advantage that some schemes have over others is not due to the fact that they are more efficient but is determined by who they cover. Their price advantage is therefore just a result of their risk profile. The greater their risk selection, the greater the price advantage over their competitors. Despite the Act, schemes still manage to manipulate methods of excluding the old and sickly.

Key factors affecting the year ahead
- The end of the Amnesty period: Penalties for late joiners will be delayed for a period. This applies where a person joins only when he becomes ill. Those who stayed out for too long will be faced with surcharges. This however will also not be charged during the amnesty period.
- Expected growth in membership: This will occur mainly in the low-income schemes which are already expanding rapidly.
- Aggressive Competition: The Act forces schemes to compete on the basis of medical costs and not just on the basis of the scheme that can ‘pull in the good risks’. The medical schemes are not based on normal market principles. Thus, very often the brokers do not give the best advice as they are paid a hidden commission to push potential members into specific schemes. As schemes merge and there are fewer and larger schemes, this practice will fade (although this will not happen in the near future).
- Slow economic growth: this affects every area of the health system. The expenditure in the private sector could remain high for the next three to four years after which it will probably hit a ceiling in terms of how much they can spend.
- Decline in restricted membership schemes: this would be due to broker behaviour and the amalgamation of schemes.
- Develop regional strategies in moves away from fee-for-service: the above practices could continue because schemes could exclude whom they wanted to and there was poor governance on the part of the schemes. Governance of schemes will influence intermediary behaviour: there will be more arms-length transactions between the schemes and the persons with whom they are contracting.
-Increased transparency: this would be easier to evaluate as more standardised information is made available.

Public vs Private sector
These sectors were compared with regard to cover, burden of disease, finance and providers. The burden of disease is getting worse in the public sector as this sector often serves as a last resort as they are forced to accept patients. The private sector is trying to turn away patients suffering from Aids and other chronic diseases and instead are dumping them on the public sector.

If the public sector financing is cut by one percent per annum while the population increases by two percent per annum, the sector will lag behind by three percent per annum. The cumulative effect over a number of years is significant - causing the entire health system to lag behind.

On the issue of health care providers, Mr Van der Heever said that the private sector has drained the medical staff of the public sector. Although the public sector is still receiving applications for positions, the problem is that there are budget constraints. In addition, there is also a tendency for public sector workers to serve the private sector in an uncontrolled manner. The result is that the public sector is losing staff time.


Ms N Gxowa (ANC) asked why the patients suffering from chronic diseases are forced to complete special application forms.

Mr Van der Heever replied that this was as a result of an age-related bias which schemes used in order to exclude high-risk individuals. In terms of the Act, however this practice is probably ultra vires.

Dr S Gous (NNP) asked whether the tax being paid by the persons using the private sector was taken into account when calculating the tax subsidy. He stated that these people were paying the bulk of the taxes, as unemployed people did not pay taxes after all.

Mr Van der Heever replied that the issue is complex, as there are a number of offsetting taxes. There is, for example the direct subsidy obtained by the employer if s/he subsidises the contributions of the employees. There is also the out-of-pocket subsidy which applies where the claim exceeds R5000. Normal tax payments are not taken into account. He added that very few people benefit from the tax subsidy and even those who do receive them do not feel the benefits in any significant way.

Dr S Gous asked whether VAT is taken into account when making the calculation.

Mr Van der Heever replied in the affirmative. He said that one needs a full tax model in order to do a full offsetting.

Budget vs Policy
Mr Van der Heever said that it was evident that health departments in the provinces are unable to look at national issues over provincial issues. Provincial Structures have a stronger pull with regard to what happens in the health system. He stated that money follows policy and it is at the provincial level that key allocations are made. Although the provinces do not determine policy, they do allocate the budget. Thus, when conditional grants are allocated to provinces, it can be undermined if a provincial treasury wants to cut the health budget for whatever reason. One problem is that there is no inter-provincial equity. In many strong federal countries, allocations are done at a national level, hereby ensuring that allocations are made to areas where they are required, for example health.

Relationship to alternative sources of funding
Mr Van der Heever said that the principle that hospitals should retain revenue taken in by the private sector is not in fact being implemented. The provincial treasuries take in any additional funds. Thus, finance is not following policy and this is indicative of a control problem at provincial level.

Dr Gous was shocked that the retention of the services fee by the hospitals was not a reality as the funds have to be given to provincial treasuries. He asked whether Mr Van der Heever proposed retention of fees by hospitals as an incentive for them to deliver a decent service.

Mr Van der Heever agreed but said that it was not in treasuries’ interests to lose control over the amounts obtained as fees. He referred to an example in Gauteng where hospitals attempted to retain their fees. The Treasury responded by cutting their budget. The solution consists of strengthening the autonomy of the hospitals and giving the treasuries regulations by which to abide. The accounting officer could be the hospital manager. Funds, which would then remain with the hospitals, would be audited.

Ms S Nqodi(ANC) asked what would happen to the person who was a member of a medical scheme for many years and then subsequently contracted a chronic disease.

Mr Van der Heever responded that if the contract had been in existence for a long time it would be beneficial to the member. In terms of the Act, there are penalties for joining only when one gets sick and this is in the form of a waiting period. The person who leaves the scheme has no access to the benefits as the scheme serves as a short-term insurer. One cannot claim the money at the end of one’s membership.

Ms Nqodi asked whether the above-mentioned person could in terms of the Act be accepted irrespective of having contracted a chronic disease or Aids.

Mr Van der Heever said that if a person was excluded historically, he was granted an amnesty period which is a waiting period. The purpose of the waiting period is to deter hit-and-runs, i.e. people who join as they become ill and leave thereafter.

Dr E Jassat (ANC) asked whether the demarcation between ‘health insurance’ and ‘medical scheme’ has been clarified.

Mr Van der Heever said that there is consensus as to the definition in the Act.

Ms M Malumise criticised the fact that public hospitals can now refuse to treat people if they do not get paid for their services.

Mr Van der Heever stated that this did not refer to emergency cases. In addition, it only referred to cases where the person did have adequate health care. In such cases the person would then be referred to a private hospital. In practice, this deflection occurs before the person even reaches the hospital as the ambulance personnel would check the person’s details beforehand.

Ms S Baloyi (ANC) asked whether Mr Van der Heever would further address the Committee on medical schemes and health insurance at a later date. She wanted the discussion to focus on the way in which other countries have dealt with these issues and problems.

The Chair said that this was just the first in a series of discussions on this topic.


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