01 November 2016

Draft Demarcation Regulations Tabled in Parliament

Submitted by: MyPressportal Team

Regulations only serve to replicate the inflationary and unsustainable provisions of the Medical Schemes Act within the health insurance market

Opinion by Michael Settas, Director – Kaelo Xelus; This email address is being protected from spambots. You need JavaScript enabled to view it.

The joint release last Friday by National Treasury (NT) and the Department of Health (DoH) of the draft demarcation regulations for tabling in Parliament, has simply replicated the inflationary and unsustainable provisions of the Medical Schemes Act within the health insurance market.

The Demarcation regulations will dictate what healthcare products insurers can market and under what conditions. The conditions under these regulations are these onerous provisions:

  • Open enrolment (i.e. anyone can join, age or health aside);
  • the removal of any underwriting ability for insurers and;
  • elimination of premium rating in accordance with risk (i.e. everyone must pay the same premium regardless of claims).

Healthcare costs are almost always higher than inflation but, by replicating the medical scheme provisions outlined above, will push them to levels way beyond what consumers can afford. This indicates that there remains unjustifiable denial from regulators that the private healthcare sector is in an unsustainable cost spiral.

An analysis of private hospital costs from 2000 to 2012 show that in real terms, cost doubled. The cost trajectory tells us that by 2028, they will have doubled again. Medical schemes, which carry the bulk of these costs, rank within the top 5 highest household expenses for many South Africans. And next year they will be increasing contributions by double CPI and, very importantly, benefits will simultaneously be declining.

The decline in benefits mean that consumers carry a double cost burden – the medical scheme contributions that rise at double CPI and the mounting out-of-pocket healthcare costs they carry - because medical schemes are forced to reduce or carve out benefits.

In a twist of irony, the reduction of medical scheme benefits over many years has been one of the main reasons that health insurers saw the demand and entered the gap cover market. It is estimated that nearly 1.25 million South African’s purchase supplementary gap cover, to fill the holes in their medical scheme cover, especially the high risk treatments such as surgery and oncology.

It is worth noting that neither medical schemes nor providers are the problem in this framework – the over-regulation in some parts and under-regulation in other areas of the healthcare market are, however, a fundamental problem.

In the presence of these problems and the resultant high levels of medical inflation, the regulators still, somehow, deem it prudent to subject the health insurance market to the same provisions that have made the medical scheme framework expensive and unsustainable!

What is also curious is that the DoH commissioned an inquiry into the unsustainable cost increases in private healthcare, via the Competition Commission (CC). The CC has undertaken substantial work thus far but has not yet released its findings and recommendations. However, looking at the Inquiry’s wide-ranging and comprehensive proceedings thus far, there can be no doubt that fundamental restructuring of the private healthcare sector will be submitted by the CC as necessary to arrest rampant costs.

This begs a question - why does NT and DoH not wait to see what recommendations are made by the Inquiry before enacting any changes to the healthcare market?

The one positive component of the inquiry is that it has holistically focused on both providers and medical schemes. These two sectors are interdependent and any imbalance in the ability of one sector to negotiate adequately around price and quality, will cause inflation. This has been a considerable part of the industry’s problems for almost two decades - isolated regulation without considerations of the impact on the entire sector.

Regulation 8 of the Medical Schemes Act declared nearly 10 years ago that a prescribed minimum benefit must be paid at any cost that a provider charges, no matter how high.  Such financial imprudence, along with these recent Demarcation regulations, represents perfect examples of regulation in isolation without consideration for cost and sustainability.

Regulators have a duty to consider new laws holistically, and not to regulate the different sectors in isolation without due consideration of the overall consequences. The release of the Demarcation regulations is an incongruous act – on the one hand, an inquiry into the high cost of private healthcare is underway, and on the other, regulators are adding another cost burden for consumers to bear within the same environment.”

About KaeloXelus

Michael Settas is a director of Kaelo Xelus which provides a continuum of health insurance products, primary care products and wellness services designed to enhance the physical and psychological wellbeing and overall health of South Africans.  Its services include medical gap cover insurance, executive health programmes, on-site clinics, executive and staff training workshops, a fully-fledged employee assistance programme (EAP) and primary healthcare products.

Published in Health and Medicine