Medical Aid Schemes, Medical Insurance and the Low-cost Benefit Option I
23 April 2020
In August 2019 the Minister of Health introduced the National Health Insurance Bill[i] (“NHI”) to Parliament. Many South Africans have voiced their opinions, as in these economically precarious times all one truly has is one’s health.
The Council for Medical Schemes (“CMS) has recently pronounced on its view on the way forward. Before that, medical aid schemes had been rather vague on the topic.
THE CMS ANNOUNCEMENTS
On 4 December 2019 the Council for Medical Schemes (“CMS”) released a circular[ii] which stated two very important decisions. First, there would be no Low-Cost Benefit Options (“LCBO”) allowed for low-income market segments in future. Second, no products based on the Demarcation Exemption Framework and Medical Schemes Act[iii] (“MSA”) would be allowed beyond 2021.
Circular 80 further noted that the decision was made to align the market with the NHI which is a “key priority in the national health policy objective”[iv]. Circular 80 concludes by reaffirming that all products failing to comply with the decision will be illegal from the end of March 2021.
WHAT THIS MEANS
On 13 December 2019 the CMS published an explanatory circular[v] that provided ample support for Circular 80’s decision. Circular 82 begins by reassuring the reader that LCBOs “were developed to extend coverage to a wider proportion of the population by improving affordability of healthcare financing options, in a controlled environment”[vi]. The process began in 2015 with a discussion of a LCBO Framework[vii] which was followed by request for proposals[viii] and guidelines[ix].
With regard to the Demarcation Regulatory Framework sections 72[x] and 70[xi] came into effect on 1 April 2017. These provisions “identified health and policy contracts that conducted the business of a medical scheme and remained insurance contracts outside the regulatory provisions of the [MSA]”[xii]. On 15 March 2017 the CMS notified the industry that the Exemption Framework had been completed and provided potential providers guidelines on how to apply for exemption in terms of section 8(h) of the MSA.[xiii]
In 2019 the CMS alerted providers that they should submit renewal applications for extension until 31 March 2021.[xiv] The CMS’s report noted the challenges associated with the introduction of LCBO in the current economic circumstances.[xv]
The CMS stated that, after having considered various facts, including the present state of the macroeconomic and socioeconomic landscapes, it was not in the country’s best interests to continue issuing exemptions.[xvi] The CMS noted that a poorly performing economy directly affected the continued ability of medical schemes members and policyholders of insurance products from accessing healthcare.[xvii] Further considerations included the infeasibility of government and employer subsidies to allow low-income access to private sector healthcare;[xviii] regulatory arbitrage opportunities;[xix] and the administrative burden created within the regulatory environment[xx].
It is clear that alignment with the NHI is the reason for the decision. Notwithstanding various views on the NHI (read the HSF’s submission here), it is important to consider the CMS reasoning. Relevant is the Competition Commission’s Health Market Inquiry (”HMI”),[xxi] and what it had to say about medical aids, specifically option standardisation and simplification, scheme consolidation and prescribed minimum benefits (“PMB”).
The HMI was an inquiry into the state of competition in the private healthcare sector, a complex issue.[xxii] This complexity resulted in an inability by members to compare scheme benefits and to enjoy the benefits of innovation.[xxiii] The HMI further found that funders were not accountable to beneficiaries nor were they beneficiary-centric.[xxiv] The HMI highlighted the importance of a comprehensive standard base benefit option across all schemes. However, until such time as the review of Prescribed Minimum Benefits (“PMB”) is concluded the prioritisation and the accompanying costing cannot be finalised.[xxv]
The CMS expands on the HMI’s findings that beneficiaries are not at the centre of the health funding market with the results of its own benefit option classification exercise.[xxvi] The CMS notes that “a key result of the exercise was that similar health service consumption bundles are not homogenous in underlying financial and demographic indicators. This raises additional concerns that beneficiaries are finding it difficult to distinguish between benefit designs. This is further complicated by the proliferation of benefit options”.[xxvii] A standardised benefit regime would be beneficial to those utilising the products.
In 2018 the CMS began a discussion regarding the consolidation of medical schemes[xxviii] and their inherent requirements[xxix]. PMBs took centre stage in this discussion with respect to their affordability and clinical adequacy.[xxx] The HMI noted their importance to creating a social security floor, furthering universal health coverage and preventing catastrophic health expenditure.[xxxi] However, the content of the PMB is in need of review, as noted above, to better reflect Primary Health Care (“PHC”) package which includes, inter alia, preventative and palliative services.[xxxii]
The CMS believes that the above review of PMBs will offer better outcomes than the present LCBO and Demarcation products as they do not “align with the social solidarity principles of healthcare”.[xxxiii] It also points out that the administrative costs of LCBOs offered by medical insurers are often very high in relation to benefits.
The CMS’s Circular 80 decision was thought out on the assumption that the NHI will go ahead in light of current government policy. However, because it focused on the longer run, it has left those with LCBO medical insurance without cover in the shorter run. This has created a flurry of objections from stakeholders, with which the CMS has had to engage.
By Chris Pieters, Legal Researcher, HSF, 23 April 2020
[ii]Circular 80 of 2019: Lost Cost Benefit Option & Demarcation Products (“Circular 80”)
[iii] Act 31 of 1998
[iv]Circular 80 page 1.
[v]Circular 82 of 2019: Lost Cost Benefit Option & Demarcation Products (“Circular 82”)
[vi]Circular 82 page 5.
[vii]Circular 9 of 2015: CMS Discussion on the Introduction of a Low-Cost Benefit Option (LCBO) Framework (“Circular 9”)
[viii]Circular 37 of 2015: Request for Proposal – Benefit Design and Pricing of a Low-Cost Benefit Option (LCBO)
[ix]Circular 62 of 2015: Low-Cost Benefit Option (LCBO) Guidelines
[x]Section 72 of the Long-term Insurance Act 52 of 1998
[xi]Section 70 of the Short-term Insurance Act 53 of 1998
[xii]Circular 82 page 5
[xiii]Circular 19 of 2017: Demarcation Exemption Framework
[xiv]Circular 18 of 2019: Status Update on the Demarcation Regulations and the Development of a Low-Cost Benefit Package
[xv]Discussion Document: Development of Low-Cost Benefit Options within the Medical Schemes (“LCBO Report”)
[xvi]Circular 82 page 6.
[xvii]Circular 82 page 7.
[xviii]Circular 82 page 7.
[xix]Circular 82 page 8.
[xx]Circular 82 page 8.
[xxii]Circular 82 page 9.
[xxiii]Circular 82 page 10.
[xxiv]Circular 82 page 10.
[xxv]Circular 82 page 10.
[xxvi]Circular 82 page 10.
[xxvii]Circular 82 page 10.
[xxviii]Circular 42 of 2018: Draft Medical Schemes Consolidation Framework
[xxix]Circular 28 of 2019: Update of Medical Schemes Consolidation and Low-Cost Benefit Options Framework
[xxx]Circular 82 page 12.
[xxxi]Circular 82 page 12.
[xxxii]Circular 82 page 13.
[xxxiii]Circular 82 page 13-14