A panel discussion at the recent Personal Finance Discovery Health Health Wise Seminars focused on social health insurance and the future relationship between private and public healthcare financing. The topic was addressed by four participants representing some major players in the debate. Today we publish the views of Penny Tlhabi, of the Board of Healthcare Funders of Southern Africa, and Alex van den Heever, of the Council for Medical Schemes. Next week it will be the turn of Kgosi Letlape of the South African Medical Association and Shaun Matisonn of Discovery Health.
Chief executive of the Board of Healthcare Funders of Southern Africa
The solution to the problem of providing healthcare coverage for everyone can be found in the existing well-established medical scheme industry, so long as the government ensures that the industry is working well and is competitive, and provides financial assistance to those who need it, Penny Tlhabi says.
The government's current proposal on social health insurance assumes that increased and substantial government involvement is necessary to provide universal healthcare coverage, she says.
The Department of Health's social health proposal recommends a single medical scheme for civil servants and a state-sponsored scheme for low-income employees.
However, the view of the Board of Healthcare Funders of Southern Africa (BHF) is that increased government intervention often makes matters worse. Instead, the government can ensure equity and promote efficiency by encouraging a competitive healthcare market, she says.
Tlhabi says the BHF's view is that a monolithic government-controlled or government-sponsored scheme is not necessary, and such a scheme would deprive employees who are subject to it of choice and access to private medical schemes.
It would lead to excessive uniformity and potential inequity and would subject the employees to coverage without taking their unique circumstances into consideration. The BHF believes in maximum informed choice for all citizens, Tlhabi says.
The government's role should be to develop structures and an environment that will enable markets to work well, she says.
The government's one responsibility is to provide resources for low-income people to enable them to buy healthcare coverage, Tlhabi adds.
One of the greatest challenges facing South Africa's economy is its ability to create adequate, well-paid and sustainable employment, despite governments' achievements of sound macro-economic fundamentals.
Safety nets are imperative to ensure that poor households are helped, but these have to be balanced with the requisites of fiscal prudence and financial stability, Tlhabi says. The reality is that, even with the greatest commitment in the world, it would be unrealistic and inefficient for the government to increase the present levels of public health funding by anything other than marginal amounts.
Private payments and medical schemes directly benefit the public healthcare system, as people with medical schemes opt off the system and leave more public resources for those who remain. Public health expenditure can then be targeted to the most needy, she says.
The key to resolving South Africa's healthcare challenges therefore, lies in achieving a better interface between the public and private sectors. The overall equity and efficiency of the health system critically depends on the quality of that interface.
The most important step is to promote membership of private medical schemes by all employed people. Anything that would increase the ability to pursue private health insurance will relieve pressure on the public healthcare budget.
The BHF regards this as an opportunity to engage the state to resolve some of the key elements driving instability in the industry and preventing the industry from making inroads into the low-income population.
The BHF's biggest concern is the lack of shared understanding and alignment between the regulator and the industry on the state of the industry, the causes of the instability and the measures needed to correct the instability. We need a common understanding of the issues so as to develop a common agenda, Tlhabi says.
The BHF has initiated an independent objective research into the industry and has invited the Department of Health to participate. Through this process, Tlhabi says, the BHF hopes the government and the industry will agree on what is necessary to address the deepening crisis in the healthcare industry, and avoid the confrontation that has characterised their relationship in the past.
The BHF is encouraged that the government acknowledges BHF's role in the expansion of equitable, affordable health care and believes this is a critical first step in improving the interface between the two, Tlhabi says.
Adviser to the Council for Medical Schemes and a member of the Taylor Committee of Inquiry into a social security system for South Africa
Behind the bluff and bluster of industry role players crying foul at the government for forcing them to properly and honestly provide medical scheme cover, is a deep-seated attempt to retain business models that are profoundly harmful to the public and the sustainability of the private health system, Alex van den Heever, says.
These business models have seen cover substantially decline and costs rise without falter since the early 1990s, he says.
"From 1993 open schemes have grown organically through the straightforward, and highly dubious, practice whereby administrators pay vast sums of money to brokers as an incentive to persuade employers to dump in-house schemes."
Employers, by throwing their lot in with open schemes, have effectively given up any meaningful say in what happens with their medical scheme and become price takers in a market driven by strong marketing tactics which may disguise the true state of affairs, Van den Heever says.
"Many open medical schemes now demonstrate bizarre levels of administration and non-health expenditure. Between 2000 and 2001 these have increased by around 40 percent. Not surprisingly administrators, who all too often have a cozy relationship with their trustees, rush to claim that these are perfectly acceptable.
"The reality is, however, that these fees are not acceptable and cannot be justified on a value-added basis. They are primarily the result of employer disempowerment in the running of medical schemes, as well as weak and dishonest trustees. In other words, problems happen when nobody's watching the piggy bank."
Van den Heever says the audited annual financial statements submitted to the Council for Medical Schemes indicate contradictory trends - there is a stabilisation of medical costs coupled with spiralling non-medical costs. This is evident since the introduction of the Medical Schemes Act which took effect in January 2000, he says.
The Act was intended to provide improved access to medical schemes and provide certain protection through prescribed minimum benefits, community rating, and open enrollment.
Despite this protection, Van den Heever says, certain open schemes are still behaving unethically by attempting to discriminate against people who are poor risks and those with pre-existing conditions. This is usually through the unfair application of waiting periods, charging more for access to chronic benefits, and directly incentivising brokers to turn away poor risks, he says.
"The primary incentive for this behaviour is the need for some schemes to generate significant margins over and above medical claims costs, which can be siphoned out of the scheme as profit. The practice is simple: push out the bad risks, over-price the benefits, and create the appearance of charging a market-related price," he says.
The Taylor Committee of Inquiry, which recently reported to the government, made far-reaching recommendations directed at certain of these practices, Van den Heever says.
He says the steps necessary to reduce the unethical discrimination against poor health risks in the market include:
- The implementation of a risk equalisation fund (which now has strong industry support);
- An expansion of prescribed minimum benefits to include chronic care and expanded HIV benefits; and
- The implementation of a state-sponsored medical scheme.
A state-sponsored scheme is regarded as an important measure to develop alternative and cost-effective reimbursement models for medical services using public sector hospitals, as well as providing a lower-cost alternative scheme in the market, he says.
A risk equalisation fund will provide the mechanism to even out unbalanced distributions of risk between schemes. Thus a scheme that has, through luck or design, obtained a preferential risk profile, will be equalised back to the general market profile, Van den Heever says.
The expanded set of prescribed minimum benefits will eliminate discrimination against those with chronic conditions, currently a fairly widespread practice, he says. The so-called "buy-down" effect, where members shift from over-priced comprehensive options into basic options with minimal cover, will also be diminished.
The Taylor Committee has also recommended the strategic re-design of the tax framework applicable to medical schemes. This includes consideration of the conversion of the employer-related tax subsidy into a direct per capita allocation for each person who is a member of a medical scheme, Van den Heever says.
The value of the subsidy will have to be consistent with the value of what a person would have received if he or she were dependant on the public sector. This is an important recommendation and seen, in the long-term, as the feature that links public and private sector cover in a manner consistent with a system of national health insurance, Van den Heever says.
He says there is a concern that the Treasury will intervene and modify the tax framework without consultation or understanding of the implications for employers. This has happened in the past and is likely to occur again, he says.
The Taylor Committee has also stressed the need for the government to consider making its services available to medical schemes as a means to open up a genuine low-cost market - which has been impossible until now, Van den Heever says.
"This will compete with private hospital providers, who are managing to drive up costs despite the heavily over-traded nature of the market. Medical schemes are currently unable to even partially move away from inefficient fee-for-service reimbursement models because of their weak market power relative to the highly concentrated hospital market (three hospital groups dominate the private market)."
Despite this, Van den Heever says, there are signs of light at the tunnel's end emerging from the private health market. Medical claims costs are stabilising, and some trustees are taking effective control of their medical schemes.
"However, much is needed and expected from the next round of reforms from the government. This next round will see the usual cries to protect deficient business models that are damaging to the public interest.
"It is hoped, however, that the government's consultation process extends beyond narrow financial interests and includes the broader public more substantially than in the past," Van den Heever says.
Increases a sign that medical schemes are in crisis
Scheme members commit most healthcare fraud
How to choose a medical scheme