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.
Opening the private healthcare sector to low-income earners through affordable medical scheme membership is part of a broader
agenda to transform healthcare in South Africa, Penny Tlhabi says.
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, Tlhabi says.
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.
Tlhabi says 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, Tlhabi says.
Despite the need for access to medical schemes, there has been little growth in new membership. Tlhabi says 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
Tlhabi says 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. (The BHF is a voluntary association that represents medical schemes in South
Africa, Botswana and Namibia.)
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.
Tlhabi says the 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, Tlhabi says 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, Tlhabi says.
Affordability is the most critical issue facing the medical schemes industry, Tlhabi says.
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.
Another factor affecting affordability is that schemes are required to have an onerous level of reserves.
The Act requires that, by the end of 2004, schemes keep 25 percent of their gross contributions in reserve. Tlhabi says
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, Tlhabi says. This is a highly significant driver of costs and it does not
encourage growth in scheme membership, she says.
Tlhabi says 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
She says 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.
Tlhabi also says 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, Tlhabi says.
This new 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
Incentives for administrators, consumers, schemes, and providers should be aligned through risk-sharing so that each one
assumes a portion of the risk, Tlhabi says.
It was also necessary, she said, 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.
Tlhabi says 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, Tlhabi says.
In conclusion, she says 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).