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Policy Progress Needed For Healthcare Sustainability

Missing Pillars Of Regulatory Framework Amplify Risk And Costs

Wednesday, 13 September 2023, As family budgets continue to be stretched, long-awaited healthcare regulatory pillars for the sustainability of health funding should be prioritised as part of the transition to National Health Insurance, according to the Health Funders Association (HFA), a health cover industry body representing over 50% of lives covered by medical schemes.

“As early as 1995, policymakers envisioned the transformation of medical schemes into the cornerstone of a social solidarity framework, mandatory for individuals earning above a specific income threshold, complementing the publicly funded healthcare system, however, this has not materialised,” explains Phumelele Makatini, chief executive officer of the Health Funders Association.

“Experts estimate that, with mandatory cover and other reforms, the minimum benefit packages’ costs could be reduced by 17% to 23%, which could bring affordable quality private healthcare to many more South Africans relatively quickly with existing resources.”

A need to change the status quo

“In the last few years, the sustainability of the current model has been challenged, and as a result, various medical schemes have merged and even liquidated. As not-for-profit entities, medical schemes must ensure members’ contributions are enough to cover all their claims and build sufficient reserves to provide adequate security for members,” she says.

“Medical schemes in South Africa are facing mounting cost pressures because of South Africa’s incomplete regulatory framework, which logically makes medical scheme coverage unaffordable for many South Africans.

As a country, we urgently need progress towards completing the principles of social solidarity that underpin the current health system, thereby supporting individuals to access private healthcare without exposing their families to financial risk.

“We believe that with the full regulatory framework, as intended to support several key provisions already in the Medical Schemes Act of 2000, we can work together to establish a sustainable framework and make the health future better for all more rapidly. We wholeheartedly support the journey to universal health coverage as envisaged the NHI Bill. From our perspective, closing these regulatory gaps is not only fully aligned, but would bring us nearer to the goals of universal health coverage.”

Makatini points out that some provisions introduced included community rating, open enrolment, and a comprehensive Prescribed Minimum Benefits (PMB) basket. These provisions aligned with Universal Health Coverage goals, ensuring risk cross-subsidisation and protecting members against catastrophic financial loss. South Africa subsequently achieved one of the lowest rates of out-of-pocket expenditure globally, indicating the effectiveness of these measures.

Makatini explains that the affordability of medical scheme coverage is currently under threat due to high annual contribution inflation. This primarily results from increased healthcare utilisation rates among members, driven by anti-selection, which negatively affects all members, individual schemes and the industry as a whole.

"This regulatory vacuum needs to be addressed, as medical schemes need to be sustainable and affordable while NHI is working towards implementation and gradually fulfilling needs for healthcare access currently funded predominantly through belonging to a medical scheme.

“Anti-selection refers to the practice where people join a medical scheme when they believe they have health risks that will need costly medical intervention, likely to outweigh the cost of monthly contributions. This additional risk forces medical schemes to increase everyone’s contribution rates to ensure there is enough to cover these extra claims.

The cost of higher risks

“To rectify the spiraling costs of unchecked risk in this situation, South Africa desperately needs finalisation of mandatory membership and a risk-equalisation mechanism – crucial elements of a social solidarity framework. Recommendations from various policy papers, including the Taylor Committee Report (2002), the Davis Tax Commission (2017), and the Health Market Inquiry’s (HMI) Final Report (2019) have supported the need for these outstanding reforms,” Makatini says.

With reference to the National Health Insurance (NHI) Bill, the Actuarial Society of South Africa (ASSA) has underscored the implications of incomplete regulatory reform on medical schemes and their members since the current Medical Schemes Act was enacted. The absence of mandatory membership of above-threshold employed individuals undermines social solidarity principles by reducing risk cross-subsidisation, while the anti-selection effect negatively impacts the risk profile.

“The Council for Medical Schemes [CMS] has projected that demographic and utilisation factors are set to increase medical scheme costs by 3.2% above the Consumer Price Index [CPI] for 2024. This trend signifies that contributions must rise significantly, further burdening household budgets,” she notes.  Medical schemes are also facing the pressure of increasing claims volumes as the impact of treatment forgone during COVID-19 is being felt, as well as additional claims related to post-COVID treatment and increasing mental health-related expenses.

“These trends are exacerbated if employers allow healthy lives to opt out of cover and join only when healthcare is required. Further, on an individual level, members may selectively choose which family members to include in coverage, often only covering the sickest family members. These effects result in a sicker risk pool, higher claims and, as a result, higher contributions, which may encourage the healthier lives left in the risk pool to withdraw.”

Makatini said that the introduction of mandatory cover presents an opportunity for regulators to stabilise the market, reduce cover costs, and strengthen financial protection for medical scheme members.  This, along with implementing the low-cost benefit options, presents the immediate opportunity to expand access to affordable healthcare cover for millions of South Africans, which will also alleviate the pressure on the public sector to facilitate much-needed health system strengthening without tax increases.

“On behalf of the many medical schemes and their members represented by the HFA, and any person who values the opportunity to choose financially sustainable healthcare, we respectfully urge policymakers to commit to finalising the incomplete regulations. With a full social solidarity framework, South Africa can realistically look forward to a brighter healthcare future for all,” she concludes.