Sub headingDemarcation DebatePresented by Butši Tladi

Live without regret

Agenda

• What is the ‘demarcation debate’• Types of products• Alleged problems with health insurance• Empirical evidence

Defining the problem

Defining the problem

• Objectives• Provisions• Limitations• Results

Medical Schemes Act 1998

Medical Schemes Act 1998

• Responding to the problem• Case studies• Industry submissions• Independent research

Gap CoverGap Cover

What is the demarcation

debate?

Medical Schemes vs Health Insurance

What is ‘the business of a medical scheme’?

Medical schemes are vulnerable given the stringent provisions of

the Medical Schemes Act

Main categories of Health insurance products include:

Gap Cover

Top-up cover

Hospital cash plans

What is the Demarcation Debate?

Undermine the principles of social solidarity underpinning medical schemes

Attracts the young and health members away from medical schemes

Policy holders think they are buying a medical scheme

The Medical Schemes Act is underpinned by principles of Social Solidarity

The objectives included the need to:

Prevent ‘dump on the State’ due to low limits and exclusions

Increase the number of people covered by medical insurance

Improve financial sustainability

Improve governance

Maximum cross subsidy between – young and old, health and

sick

Medical Schemes Act and its intentions

Open enrolment and guaranteed acceptance for all

eligible applicant

Community rated contributions

Limited underwriting:

3 months general waiting period

12 months waiting period for pre-existing conditions

Late joiner penalties

Medical Schemes Act and its provisions

Regulatory developments that were anticipated, but never

happened:

Mandatory cover all employed people

Risk Equalisation Fund

Failure to implement the above has left the environment vulnerable

to:

Anti-selection

Uneven ‘playing fields’ between schemes – particularly favourable

for schemes with good profiles, to the detriment of schemes with

poor profiles

Medical Schemes Act and its limitations

Results for medical scheme industry:

Stagnant membership – that is ageing

Above inflation cost increases and premiums that are

unaffordable to the majority of people

Cut in benefits and the introduction of co-payments for

procedures

Unregulated prices for doctors and hospitals

Increasing disease burden

Medical Schemes Act and its results

A microcosm of a bigger health challenge facing the

country

The public sector does not provide a viable solution

A public sector that is not copying with demand

The quadruple burden of disease –

HIV/AIDS and TB

Maternal and child mortality

Diseases of lifestyle

Violence and injury

Like in the private sector, treatment is hospi-centric

Medical Schemes Act and its results

Are Health Insurance Products a necessary

response to the

challenge?

Cost of equivalent gap cover in a medical scheme

is costly compared to a stand alone product

Addresses the problem of member affordability

Supports rather than competes with medical

schemes

Negative impact on policy holders if withdrawn

Interim solution for shortcomings in medical

schemes

Reasons for the existence of gap cover products

Rate of cover by medical scheme options

Re-imbursement category

Number of options at rate

Number of main members

Percentage of sample members

100% options 118 2 075 170 70%

120- 125% options 4 85 928 3%

150% options 8 32 292 1,5%

200% options 34 681 224 23%

300% options 13 51 993 2,5%

Totals 177 2 926 607 100%

Restricted scheme: 7,000 members; 3 options

Considered impact of doubling reimbursement rate to 200% for in-hospital treatments Compared risk claims for defined group on open scheme Main benefit difference – reimbursement rate for in-hospital

claims Outcome

Risk claims for comprehensive option 2.5 times higher Contributions only 1.2 times higher

Conclusion Contributions not sufficient to sustain option Option reliant on surplus-achieving options to survive

Case study 1:

Self-administered restricted scheme 3,000 members; 1 benefit option

Considered % increase required (over and above inflation) to provide reimbursement rates above 100% for in-hospital treatments

Case study 2

Multiple of Scheme Tariff

Claim Cost PMPM

Additional PMPM Contribution

Required on 1 January

Percentage Additional

Contribution Required Over and Above the “Base”

Increase100% R 3,751150% R 4,000 R249 7%200% R 4,249 R 498 13%250% R 4,498 R 747 20%300% R 4,747 R 996 27%

Analysed 2012 option selection for 125,000 members

Outcome: 93% remained on current option 4% upgraded their option 3% downgraded their option

Conclusion: Affordability drives benefit option choice This view is supported by the CMS

“The study revealed that the most common reason why members change from one option to another is due to affordability, i.e. when contributions

become too expensive and unaffordable, members buy down to cheaper benefit options.”

Addresses the problem of member affordability

Member on Hospital plan with cover at 100%

Choices available to increase in-hospital

reimbursement

1. Upgrade option to 200% for in-hospital treatments

2. Buy gap cover with in-hospital cover up to 450%

Case study 3

Case study 3: Continued

Family Size *Percentage Increase in Contribution / Premium

Upgrade Option Purchase Gap Cover **

P 16.4% 11.4%

PA 18.9% 6.5%

PAC 18.4% 5.3%

Family Size

Combined Net Monthly Income

R 7,500 R 12,500 R 17,500 R 22,500

P 0.7% 0.4% 0.3% 0.2%

PA 3.1% 1.8% 1.3% 1.0%

PAC 4.0% 2.4% 1.7% 1.3%

**Assume gap cover at R120 per family Costs family extra R300 pm (1.7%) to upgrade option compared to gap cover at R120 pm

Survey based on 90% of all Gap Cover membership: Members have good understanding of the scope of cover

of gap products and did not view it as a replacement for medical scheme

Concern over unpaid medical bills was the main reason for buying the product

85% of policy holders did not downgrade cover after buying gap cover

96% said that gap cover gave them peace of mind 77% would incur debt in respect of medical costs in the

absence of gap cover 44% would not be able to upgrade to higher benefit

options in event that gap cover is removed

Independent research

There has been over-whelming response to the

Draft Regulations

Driven by business interests as well as a strong

social conscience:

About the right of individuals to protect themselves

against financial exposure

Contrary to objectives of NHI, which recognises co-

existence with health insurance

Industry submissions

No need for gap cover products if medical scheme environment was efficient

Products exist in direct response to systemic shortcomings in medical scheme environment

Disingenuous to argue that gap cover products and health insurance are responsible for medical scheme ills

Medical schemes need to resolve own problems No mandatory membership No Risk equalisation No regulated provider tariffs

Conclusion

If Draft Regulations are passed: There is no provision for gap cover products

Survival will mean significant and costly restructure

Doctors will not charge less and members will be exposed to ‘gaps in cover’

There will be increased reliance on the State for care

Considerable impact to policy holders who cannot afford to upgrade their medical scheme option

Impact on medical schemes is small – less than 10%

Impact on policy holders would be significant 300,000 directly affected

No affordable alternative available!

Conclusion

The proposed Regulations

will make medical

schemes more secure?

”Practical reality has shown that there exists a need for this type of insurance and there seems to be no reason why it should not be permitted”

Judge in the case of Guardrisk vs Council for Medical Schemes

THANK YOU

Questions