"The announcement clearly highlights the importance of establishing an overarching master plan of healthcare funding as well as the need for a regulatory framework to ensure that the entire healthcare system is working towards the same goals. At present, ad-hoc and interim steps are being taken to change legislation where decisions should rather be driven by a strategic, well thought out master plan," says Neels Barendrecht, CEO of Agility Channel, a strategic marketing, distribution and loyalty service provider in the financial services industry.
The latest changes follow years of debate about whether short-term medical insurance products undermine the business of medical schemes.
"Consumers spend millions each year on top-up and gap cover. This form of insurance plays an integral role in assisting existing medical scheme members and ensure that they are not out-of-pocket when using providers who charge more than medical scheme rates," says Barendrecht. "With medical scheme contributions becoming increasingly expensive, putting private healthcare out of reach for many South Africans, it's often lower- and middle-income members who opt for this type of insurance."
Barendrecht is concerned that government's plans of cutting top-up and gap cover will leave this market out-of-pocket as the move will not necessarily encourage these consumers to buy up into more expensive benefit options. This could have knock-on effects and could negatively impact consumer spending and therefore the broader macro economy.
Instead, Barendrecht suggests that a strategic approach which addresses the underlying causes of spiralling private healthcare costs should be used to make healthcare more affordable. In particular, Prescribed Minimum Benefits (PMBs) which have become increasingly expensive for schemes, as well as a lack of standardised tariffs after the guideline National Health Reference Price List (NHRPL) was struck down in 2010, should be addressed.
"The PMBs were introduced at a time when government was considering making medical scheme membership compulsory for all formally employed South Africans under a social health insurance system," says Barendrecht. "Since then, the strategy has been replaced with the National Health Insurance (NHI) system and medical scheme membership has remained largely stable at the current 8 million or so members, leaving the current market reach to deal with the increasing cost and not cross-subsidising benefits with additional membership."
If membership increased to around 12 million formally employed citizens and their dependants, it would have been possible for medical schemes to cross-subsidise and finance the increased cost. However, schemes remain hamstrung by current regulations which leave little room for the industry to reduce its costs.
According to Barendrecht, some products do need closer regulation, especially hospital cash plans which some consumers buy as an alternative to medical scheme cover, but often have extensive exclusions.
"It's a good thing that the Council of Medical Schemes (CMS) monitors and regulates all products more closely, but this should be done on a case-by-case basis," Barendrecht emphasises. "The demarcation debate between insurance products and medical scheme cover should follow a constructive approach based on sound business principles."
He believes that, rather than undermining the business of a medical scheme, top-up and gap cover should assist existing medical scheme members and encourage them to stay in the system.
"If top-up and gap cover is eliminated, it could cause more members to exit medical schemes as they may not see value in purchasing monthly medical cover. It is integrally important that low-risk consumers stay part of the medical scheme system for it to remain viable," says Barendrecht.
"What's needed is innovative thinking, guided by a well-planned, well-thought out national strategy on the future of healthcare funding," Barendrecht concludes.
1. Top-up's: these policies cover actual medical costs that are not covered by medical scheme benefits.
2. Gap cover: these policies will cover the difference between actual costs incurred and costs covered by the medical scheme.
