There is no doubt that a significant portion of the South African population will readily purchase affordable private health cover in South Africa if such cover is available. The routine General Household Surveys from StatsSA show that nearly 30% of the population pays for private primary healthcare on an out-of-pocket basis, yet only 13% of the population are covered by medical schemes, meaning there is a mismatch between the demand for private healthcare services and the affordability level to purchase such private cover.
This is because traditional medical scheme membership is very expensive and largely out of reach for the vast majority of South Africa’s population. This leaves 87% of the population relying on the poorly managed public sector that often delivers poor health outcomes – exactly why a substantial percentage of citizens who are not 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 and filled this demand with health insurance, but government wanted this cover to only be offered by medical schemes and not by insurance companies.
This resulted in government passing new insurance regulations in 2017 that prevented the insurance industry from offering these low cost health products, so that medical scheme legislation could be amended in order to allow for a low cost offering to be made available.
However, the medical schemes legislation simply does not permit such low-cost cover as it would require a major overhaul of the Medical Schemes Act, allowing medical schemes to offer low-cost benefit options that are exempt from the prescribed minimum benefits (PMBs) as stipulated in the Medical Schemes Act. Efforts to amend the regulation and create such cover have been languishing for years now 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, given the policy uncertainty there has been little investment into the provision of affordable, low-cost health care solutions.
This policy uncertainty was further exacerbated when in December 2019, the Council for Medical Schemes (CMS) did a complete about-turn and issued a circular declaring their 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, but the work has been painfully slow, if not stagnant.
In the interim, an estimated 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 future. To the extent that in May 2022, CEO of Insight Actuaries & Consultants, Christoff Raath, question the tardiness of the CMS on this matter, and it resulted in a very public spat between Raath and the CMS, who took offence to the valid criticism.
Recently, the Board of Healthcare Funders (BHF), who represent medical schemes, joined the fray by taking the CMS to court to compel them to enable the regulatory provisions for low cost products within medical schemes. It is anyone’s guess how long this court battle is going to drag out for.
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 these low-cost products. This approach confirms the damning findings of the Health Market Inquiry, commissioned by the Competition Commission, that anti-competitive behaviour is prevalent amongst 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 which 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 very clear that providing more options for different affordability categories within the ambit of the Medical Schemes Act and its PMB model has already proven counterproductive, increasing anti-selection among members as well as driving up the costs of medical scheme membership by above-inflationary 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 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.
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 health care. Where is the benefit for and protection of the citizens of South Africa 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?
This has prompted some insurers providing the 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 nearly two decades already. Furthermore, a legislative framework within the insurance sector for health insurance products already exists - and is functional - requiring very little regulatory amendment to enable these low-cost products to continue and grow into the future. One also has to wonder what the wisdom is in forcing a massively costly and complex regulatory overhaul of the Medical Schemes Act when there is still no clarity on the intention with and the future of NHI and 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 going forward, it would reduce the burden and incongruence of two regulatory frameworks for insurers and medical schemes, and it would mean that insurers could commit capital to longer term investments in sustainable and affordable health care solutions for the most vulnerable in our society. Most crucially, it will 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.
There is absolutely no reason why such healthy competition should not exist, since robust competition results in innovation and cost reductions over the long term, which would bring affordable healthcare solutions to millions more South Africans.
Ironically, 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 play a much more meaningful role in the delivery of universal healthcare.