Schemes get costlier as reform takes back seat to NHI

Laura du Preez | 10 May 2024

Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.

In a long wait for National Health Insurance (NHI), medical scheme healthcare reform is in limbo, resulting in members paying 25 to 30 percent more for membership than they could be.

One reason why private healthcare users are paying a high cost for medical scheme membership is because schemes are operating in a “broken regulatory system”, Christoff Raath, joint-CEO of Insights Actuaries & Consultants, told the annual Board of Healthcare Funders (BHF) conference in Cape Town this week.

The BHF is a voluntary organisation representing medical schemes and their administrators.

The regulatory system for medical schemes was only partially implemented and then stalled. An unintended consequence of this was that about two percent of the annual increases in contributions over the past two decades were a result of members buying down to cheaper options or opting out of medical schemes, Raath said.

When members move to cheaper options en masse it often upsets the pricing of the cheaper option which in turn leads to contribution increases.


NHI stalled reforms

Medical scheme reform stalled after the government decided to pursue NHI from 2007.

The Medical Schemes Act has since 1999 obliged schemes to admit anyone who applies for membership, to provide certain minimum benefits and to charge all members of a particular option the same contributions regardless of their state of health or age.

This created “a toxic environment” for medical schemes that was never the plan, Raath said.

This was because the Act should have been accompanied by other reforms that ensured scheme membership was more affordable. This included regulation to oblige everyone who could afford to join a medical scheme to do so, a risk equalisation fund to ensure members in schemes with sicker, older members did not pay more for healthcare than those in schemes with younger, healthier members, and subsidising the cost of healthcare across income bands.

Work on some of these reforms began but was halted to pursue NHI that has now, 15 years later, only been formalised in legislation that the President Cyril Ramaphosa still needs to sign. Implementing it is expected to still take decades, the conference heard, leaving schemes to provide cover for members in the interim.

The NHI Act provides that only when NHI is fully implemented, will medical schemes be prevented from offering the same benefits that NHI provides. Two lawyers, Neil Kirby from Werksmans Attorneys and David Geral from Bowmans Law, told the conference that the bill, and the provision concerning medical schemes in particular, are likely to be challenged as unconstitutional.


Damage significant

Raath said the incomplete regulatory structure has done significant damage to schemes.

He said Health Squared, the medical scheme that was liquidated in 2022, was a victim of the broken system. The best board of trustees or principal officer, the regulator or the Department of Health could not have saved the scheme, he said.

It’s membership was older and sicker resulting in the scheme’s benefits costing 60 to 80 times more than other schemes. While the scheme had some governance problems, a risk equalisation mechanism may have prevented it from reaching the point where members, many lying in hospitals or undergoing oncology treatment, were given just days to find their own alternative cover.

Raath said in the absence of a risk equalisation fund, it was impossible for the scheme to merge with any other scheme. Trustees of other schemes had a fiduciary duty to decline a merger with a scheme with such high-risk members.

The darker side of the fact that scheme trustees do their utmost to attract younger, healthier lives is that trustees are scared to improve benefits such as those for oncology so as not to attract members in poor health, Raath said.


NHI many years away

The government’s focus on NHI will take a long time to provide relief for healthcare users and the first three to five years will be just focusing on the establishment of the fund itself, Dr Sandile Buthelezi, the director-general of the National Department of Health, told the conference.

Buthelezi said there is enough money in the healthcare system for NHI as the country is spending 13 to 14 percent of its gross domestic product on health, but this money needed to be used efficiently.

He said the department of health was working on resolving managerial issues and employing more doctors, standardising the healthcare coding system, ensuring quality standards for healthcare facilities, standardising the regulation of healthcare professionals, developing strategies for telemedicine and telehealth, and introducing digital records linked to the home affairs biometric system.

Mark Blecher, the chief director of health and social development at the National Treasury, also said it was likely that the evolution of NHI will be gradual over many years.

He said the NHI Act will not be promulgated in one part but in different sections with major reforms in the public sector, such as creating semi-independent hospitals and districts, taking up the first few years.

Blecher also pointed out that servicing the government’s debt now accounted for one in every five rand raised from tax, it would struggle to raise additional tax revenue for expensive reforms and had many competing priorities, including that for the social relief of distress grant.


Self-help for schemes

Raath said while medical schemes were regulatory orphans, they should make things easier for members by:

  • Publishing information about an alternative way for schemes to hold reserves based on their risks, as holding reserves unnecessarily increases the cost of contributions;
  • Working together to assess the efficacy of healthcare advances, such as, expensive biological drugs;
  • Working in cell captives through which they could do their own equalisation of the cost of expensive hospital events;
  • Using the collective bargaining mechanisms suggested by the Competition Commissioner to determine rates of reimbursement for doctors, hospitals and other healthcare providers; and
  • Tackling the regulator’s interpretation of the law and insistence on each medical scheme option being self-sustaining, as this has resulted in indirect discrimination against older, sicker members who pay more to belong to comprehensive options.

Blecher said as NHI was years away and schemes were unaffordable for many low-income workers, the industry should be more active in exploring ways to achieve greater efficiencies for schemes.

He said the industry should pursue attractive short-term reforms, including many of those suggested by the Health Market Inquiry:

  • A basic benefit package that was common to public and private healthcare;
  • Alternative ways of reimbursing providers instead of paying a fee for each service;
  • A greater role for primary healthcare; and
  • Using generic medicines, making sure patients were referred to higher levels of care, using networks of providers and treatment protocols.