South Africa’s medical scheme industry faces challenging times
South Africa’s medical schemes believe that the provision of healthcare in the country is deteriorating and that the introduction of the National Health Insurance (NHI) system will not necessarily resolve the current state of health services, according to the results of a survey conducted by Professional Services Firm PwC.
Tom Winterboer, Financial Services Leader for Southern Africa and Africa, says: “This is just one of several findings surrounding the medical aid industry contained in PwC’s first edition of Strategic and Emerging Issues in the Medical Scheme Industry survey 2012, which was carried out among principal officers of 20 schemes registered in South Africa and one from Namibia, covering 53% of the South Africa industry based on 2010 average principal members.”
The survey focuses on strategic and emerging issues in the South African medical scheme industry. The main aim of the survey is to raise awareness of medical schemes to emerging trends and issues in the industry, identify industry trends, understand the strategic thinking of principal officers in the sector, and provide insight into how the industry may evolve over the next three years.
Ilse French, PwC Medical Schemes Leader for Southern Africa, says that the medical scheme industry can expect many challenges following the introduction of NHI, the demarcation between health insurance and medical scheme cover, and the constantly evolving regulatory environment.
French says: “New member growth prospects and the sustainability of existing membership continue to be impeded by reduced consumer discretionary income and an increase in medical costs. The medical scheme industry in South Africa faces unique challenges and it is important that it evaluates and adapt to the needs of the emerging market.”
Medical schemes believe that NHI alone is not the solution to South Africa’s healthcare problems as working conditions first need to be improved and a total overhaul of basic resources should take place before the new system is implemented. French says: “The Introduction of the NHI system is intended to strengthen the public healthcare system. The NHI system will require meaningful collaboration on many issues between the Government and private sector.” Only a quarter of the participants agreed that the introduction of the NHI system would change the current state of healthcare if it was implemented in accordance with the focus contained in the NHI Green Paper.
The majority of participants believed that NHI will increase access to healthcare, improve service delivery to the previously disadvantaged, and improve medical risk cover for the entire population. However, medical schemes do not believe that it will reduce the cost and complexity of compliance, improve financial integrity across the industry, result in the better use of funds allocated to healthcare, and lead to better consumer protection.
Several challenges for the medical schemes industry were identified if the NHI system is to be introduced. These include the maintenance of membership of younger and healthier members, changes in the conditions of employment of members, the affordability of cover provided to members, sustainability of current funding levels and cost structures, and the consolidation of medical schemes.
A significant percentage of medical schemes (71%) had contribution rate increases of between 5% and 10% for 2012, with hospital and specialist expenses driving these increases.
The majority of medical schemes believe that wellness programmes, disease and lifestyle management initiatives will reduce costs for schemes.
South Africa’s Competition Commission recently announced that it was considering an investigation into healthcare costs. More than half of medical schemes were of the opinion that such an investigation could be useful, while 38% believe that such an investigation is long overdue. The majority of participants (95%) were of the view that Prescribed Minimum Benefits (PMBs) paid in full result in excessive benefits being paid by medical schemes to the detriment of members. Participants further believe as there is no tariff control over what a provider can charge, members’ benefits may be at risk due to possible unwarranted, uncontrolled expenditure.
In March 2012 National Treasury issued draft regulations on the demarcation between health insurance policies and medical schemes. French says that the purpose of the regulations is to define more clearly what is classified as health insurance and ensure that consumers understand the nature of the service being provided to them in instances where there appears to be uncertainty and ambiguity in the legislative framework.
She says that the proposed regulations are likely to lead to a review by most providers of medical insurance to ensure compliance.
The most pressing issues identified by medical schemes in the industry include the costs of healthcare, followed by risk management and a high dependence on new technology.
A minority of medical schemes (35%) were of the view that members will move away from comprehensive cover to more essential hospital and specialist cover by 2015.
Schemes cited managing data and data quality as the major technology weaknesses within the industry. Almost half of the schemes have considered the role of e-health in reducing costs and improving accessibility.
A significant percentage of participants (70%) expect the intensity of regulation of medical schemes to increase substantially over the next three years. This is likely as a result of the pending Medical Schemes Amendment Bill as well as the increasing scrutiny of schemes by the Council for Medical Schemes. French says this is also not unexpected given the recent developments in respect of the payment of Prescribed Minimum Benefits.
Half of the schemes surveyed currently spend between 1 to 5% of their annual gross contributions on compliance. This is expected to grow with the increase in intensity in regulation.
Solvency and risk management
The majority of participants (81%) believe that the current solvency margin calculation is inappropriate and are in favour of a more risk-based capital approach. Furthermore, a significant percentage of schemes (62%) are not in favour of the new insurance contract accounting standard (IFRS 4 Phase II).
Top-ranked risk challenges include member attitudes towards medical cover, which may indicate that the target market may not realise the need for cover or not be willing to purchase cover. Compliance and regulatory requirements were also recognised as significant challenges.
The Firehouse Communications
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