Siyabulela Qoza of Sowetan Business spoke to Dr Penny Tlhabi, managing director of the Board of Healthcare Funders of Southern Africa, 25 August 2003. How has the industry transformed over the years? The healthcare industry generates about R40 billion a year with about half of that going to the private side of the business. In terms of consumption, this constitutes about 8,5% of gross domestic product. Most of the transformation has happened at the level of people served. People who earn more than R5 000 a month are well served and there are opportunities in the market of people who earn less money than that. Only about 10% of people in the market belong to medical aid schemes. White men still mainly control the schemes but there is movement taking place. Whether this movement is enough, or fast enough, is another question. Women are opting out of the industry because the working hours are not flexible. The training programme for specialists is not friendly to women. What are the opportunities for black economic empowerment within the industry? There are limited opportunities at the medical aid schemes level except for the administrators. At the moment 10% of total healthcare spend goes to administrators. Private hospitals and pharmaceutical companies attract 33% each. Neither of these industries is within our jurisdiction. But we are interested in their transformation and are aware of what is happening. The Government is planning to put all its employees into one scheme. There is huge interest in the transformation of the administrators because the Government will enter into contracts with administrators to serve its 800 000-strong workforce. Is there a need for government intervention? The private healthcare industry can emulate the financial services charter. The initiative is driven by the private sector. Besides, people are likely to commit to it more if they feel they were championing the cause. Is there room for growth in the industry? There is a perception that the quality of care in public facilities is deteriorating. The result has been that people who would not think of buying private healthcare are joining medical aid schemes because of the higher standard of healthcare. There is a lot going for the private healthcare industry. We need to make sure people who can afford private care are on medical aid. What is the effect of HIV/AIDS on healthcare provision and what do you expect going forward? There is pressure on public facilities. They will struggle because there are estimates that 30% of bed occupancy will be taken up by AIDS-related illnesses. The effect is expected to peak between 20 10 and 2015. This pressure may burst schemes because people would be claiming more than they put in. Schemes have been coming up with innovative ways of dealing with this. Are industry regulations moving in the right direction? We can understand that the government had to transform the industry primarily because access to healthcare was skewed. But we differ with the government on the social health insurance route it has taken because of huge income disparities in our country. The government needs to ensure that there is enough space for the private healthcare to operate profitably. Based on earlier proposals, the Government seems to want to play a bigger role in the provision and financing of healthcare. If you look at the unemployed, there is a need for the Government's role but there should be room for the private sector to cater for everybody else. How solvent are the medical aid schemes? We will know that at the end of the month when we get a report on the industry report on solvency. Is healthcare affordable in South Africa? About 16% of the population has medical aid cover, meaning 84% of South Africans cannot afford healthcare cover.
Low-income earners are a vast largely untapped market for the medical schemes industry. At the recent Discovery Health / Personal Finance Health Wise seminars, Penny Tlhabi, the managing director of the Board of Healthcare Funders, discussed the challenges schemes will have to overcome if they want to attract low-income members. The Department of Public Service and Administration's initiative to start a single medical scheme for all public servants is expected to be a catalyst for extending private healthcare to low-income groups. The proposed government scheme will be able to contract with a number of administrators, and is expected to use its large membership to negotiate a viable low-cost option. There is talk that this low-cost option could later be opened to all low-income earners - not just those in the public sector. The key issues driving the need to develop low-cost options for low-income earners are: the government's desire to redress past imbalances and ensure that all South Africans have access to quality healthcare; the move towards employment equity in the workplace; trade unions' demands for equal treatment for all employees; and, the deterioration of public health facilities, which is stimulating the demand for private healthcare. In addition, low-income options present the only real opportunity for growth in the medical schemes industry, as the higher-income market is already saturated. Despite the need for access to medical schemes, there has been little growth in new membership. The number of people who belong to medical schemes has remained more or less the same: there were about seven million members during 2001 - an increase of only 0.23 percent on 2000. These seven million members represent only 16 percent of the South African population. The medical schemes industry is highly competitive, with a substantial number of members moving between schemes. Research conducted by the Board of Healthcare Funders (BHF) last year showed that only three out of the 10 largest schemes surveyed increased their membership base. Despite medical scheme industry estimates that another seven million people could join low-cost medical scheme options, the uptake has been very slow, with only about 150 000 people currently in such options. Also, a significant portion of these new members consisted of people moving from one scheme to another, cheaper scheme, or from a high- to a low-cost option within their scheme. Reasons why people are not joining schemes include: shrinking employment in the formal sector of the economy; the unaffordability of membership; and, falling disposable incomes. Obstacles facing schemes The main objective of the Medical Schemes Act is to ensure that vulnerable groups, such as the elderly and people with chronic conditions, have healthcare cover. The Act made open enrolment and community rating compulsory for medical schemes. Open enrolment means you cannot be turned away by an open medical scheme that you want to join. Community rating means that schemes cannot make you pay a higher contribution because of your health or age. A scheme may only differentiate its contribution rates on the basis of your income and number of dependants. The Act also introduced a basket of essential benefits that all schemes have to provide, known as prescribed minimum benefits. However, while the medical schemes industry supports the objectives of the Act, the implementation of the legislation has had some unintended consequences, because membership of medical schemes is voluntary. One of these unintended consequences is that prescribed minimum benefits have made low-cost schemes unaffordable for low-income earners. In terms of the latest regulations under the Medical Schemes Act, the prescribed minimum benefits will be extended from January 2004 to included 25 common chronic conditions. In the past schemes have structured their benefits in such a way that many members who are in poor health are forced to join the more expensive options if, for example, they want to access chronic medicine benefits. This has forced members who cannot afford to pay the higher rates to buy down into the lower-cost options. As a result, the low-cost options have a lot less healthy members and their claims soar. The ultimate consequence of this is that the contributions on these options increase, making them less affordable. The Act requires that, by the end of 2004, schemes keep 25 percent of their gross contributions in reserve. Schemes have had to increase contributions to meet the reserve requirements, and these requirements do not take into account the real level of financial risk that schemes face. This is a highly significant driver of costs and it does not encourage growth in scheme membership. Other challenges facing medical schemes include: a growing burden of diseases such as tuberculosis, HIV/AIDS and malaria; a shortage of medical specialists in South Africa; and, a lack of competition among healthcare providers. The growing concentration of power among providers has made it difficult for schemes to enter into contracts with specialists and private hospitals. There is also a lack of hospital networks that are willing and able to manage the risks faced by medical schemes and, ultimately, members. This prevents low-cost options from lowering their costs by, for example, entering into a contract with a hospital in terms of which the hospital will treat its members for a fixed fee per day or per operation, and in this way share the risk between the scheme and the service provider. Costs in the private aging healthcare sector are increasing dramatically - between 1982 and 1997, the increase in real terms was 517 percent. These increases are being driven by the cost of new technology and drugs, the population and the fee-for-service system. (In the fee-for-service system, members pay a fee, set by the healthcare provider, for services they receive. Schemes and members have little control over the fee and there is a tendency by the service providers to overservice.) There are no real incentives, such as tax breaks, for low-income earners to belong to a medical scheme rather than rely on public healthcare.What is needed for low-cost schemes to succeed? A new business model must be developed for low-cost medical schemes so they can become viable. The model will require schemes to forge strategic partnerships with carefully selected healthcare providers on the basis of a shared vision, the ability to practise cost-effective medicine and integrity. The most important issue is the quality of the providers in the network. Another critical issue is information systems and how information is used to develop incentives for providers to practise cost-effective care.Measuring the quality of healthcare is also very important because, if used inappropriately, risk-sharing models may affect the quality of care of members. For example, if a doctor is paid a fixed fee per month to service all the members of a particular medical scheme, he or she may be incentivised to underservice his patients in an effort to maximise his profits. Incentives for administrators, consumers, schemes, and providers should be aligned through risk-sharing so that each one assumes a portion of the risk. It was also necessary for low-cost schemes to provide innovative, pro-active and well-managed HIV/AIDS benefits, and innovative benefits based on clinical best practice rather than crude financial limits, and for there to be incentives, including tax subsidies, for employers and employees to obtain and retain medical scheme cover. The use of co-payments and deductibles (where members pay a portion of the account) - where appropriate - for elective procedures, is important to expose consumers to the costs of healthcare and encourage them to act prudently. Furthermore, education programmes for members that enable them to make informed choices are critical to the success of these products, In conclusion there is definitely is a business opportunity for low-cost schemes, but it requires innovation and a can-do attitude. (Source: Personal Finance, 16 August 2003).