The Costing of Prescribed Minimum Benefits January 2003

PMB Study Data Data from Medscheme Data Warehouse Data covers 2001 calendar year, extracted in July 2002 Data fully run-off, no adjustment for IBNR 90 options 31 schemes 18.071 million beneficiary months of data Average exposure of 1,505,917 beneficiaries

Cluster Analysis and Applicability to the Industry

Cluster Analysis Different clusters experience different benefit utilisation, costs and disease profiles. Provider behaviour differs by cluster, even within the same hospital facility. Four distinct clusters: High contains options with older, 'whiter' members with high utilisation; Medium-older contains options with medium utilisation and older members; Medium-younger contains options with medium utilisation and younger members; and Low contains options with younger, 'blacker' members with low utilisation.

Cluster Analysis

Cluster Analysis Study contains more Low cluster beneficiaries than the industry. For industry comparisons, use Weighted industry price. This uses 50% of the costs of the Low cluster and 100% of the other clusters. Low cluster is more relevant to the emerging low-cost option environment. High cluster is used to give an upper limit to the PMB price. Would only be applicable to a few high utilisation options.

Cost of PMBs

Claim Value by Status Centre for Actuarial Research Centre for

Proportion of Total Cost of PMBs by Disease Chapter Centre for Actuarial Research Centre for Actuarial Research

Average Cost of PMBs by Disease Chapter Centre for Actuarial Research

Cost of PMBs by Age

Incidence of PMB Admissions by Age 50 100 150 200 250 300 350 400 450 - 1 4 5 9 10 14 15 19 20 24 25 29 30 34 35 39 40 44 45 49 54 55 59 60 64 65 69 70 74 75+ All ages Incidence Incidence All Ages 97.6850

Average Cost of PMBs by Age 18,000 16,000 14,000 12,000 10,000 Average Cost R9 127 8,000 6,000 4,000 Average Cost for All Ages 2,000 0-1 1-4 5-9 75+ 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 All ages Centre for Actuarial Research

Raw PMB Price by Age (pbpa) 0-1 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+ All ages Average Price for All Ages R 891.56 pbpa Centre for Actuarial Research

Raw PMB Price by Age and Cluster (pbpa) Centre for Actuarial Research

Adjustments to the Raw Price of the PMB Package

Adjustments to Raw Price Uncertainty in Definition of the PMB Package Recoding the OUT Group Recoding the NC Group Costs of hospital management programme Costs of hospital and related claims administration Costs of chemotherapy and dialysis Costs related to HIV/AIDS Estimate of the cost of ambulatory care Costs of ambulatory administration Reduction for cost of delivery in the public sector

Full Price of PMB Package Four components : In-patient PMB package price based on full data in study (high degree of certainty) Portion of price for which uncertainty exists in PMB definition (proportion to include of NC and OUT) Margin added for ambulatory costs Non-healthcare costs. Note: Prices should not be used blindly in pricing work. Contact a professional for assistance.

Full Price of PMBs (excl CDL) Centre for Actuarial Research

Conclusions

Improvements to PMB Definition All stakeholders need an unambiguous definition of the PMB package. The Council for Medical Schemes is requested to reconsider the definition of PMBs in the Regulations and to include clear diagnosis and procedure codes in an amendment as soon as possible. Tighter definition of PMBs would ensure more focussed attention on accurate coding from providers and administrators. Attention should be given to the nature of the chapters and to bringing them in line with clinical practice or a particular coding standard.

Comprehensive Crosswalk Provides a powerful tool for rapid application of PMB status to hospital admissions based on ICD-10 coding Strongly recommend that this should be made freely available to other medical schemes and administrators, in order to improve their understanding and management of PMBs. Recommend utilising this tool, or one developed from this work, to define and manage the PMB package in future.

The Costing of the Chronic Disease List January 2003

Registration of Beneficiaries for Chronic Medicine Other Chronic Conditions 22.9% CDL Conditions 77.1%

Prevalence of CDL Registrations Centre for Actuarial Research

Beneficiaries Registered for CDL Conditions

Cost of Each CDL Condition

Average Cost per Case Centre for Actuarial Research Centre for Single diseases only

Average Cost per Case Centre for Actuarial Research Multiple diseases

Prevalence All Diseases

CDL Package by Age

Age of Claiming Beneficiaries for Selected Diseases Centre for Actuarial Research

CDL Prevalence by Age 600 500 400 300 200 100 0-1 1-4 5-9 10-14 15-19 100 200 300 400 500 600 0-1 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ All ages Prevalence per 1000 beneficiaries

Average Cost of CDL by Age 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ All Ages Average Cost per case pa

Raw Price of CDL by Age 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ All Ages Price per beneficiary pa

CDL Package by Cluster

Raw Price by Cluster

Raw Price High vs. Low Cluster Centre for Actuarial Research

Differences Between Clusters Age profile differences explain roughly two-thirds of difference in raw cluster prices. Other differences are probably due to a combination of “the four P’s”: variation in Prevalence rates of important conditions; Presentation or manifestation of conditions; Provider choice (GP vs. specialist and the management or prescribing habits of each); and benefits available within the health care Plan.

Adjustments to the Raw Price of the CDL Package

Adjustments to Raw Price Haemophilia Removal of three diseases from final Regulations Cost of diagnosis and medical management Adjustment for compliance Adjustment for limits Adjustment for co-payments Costs of chronic medicine management programme Costs of administration Reduction for cost of delivery in the public sector

Full Price of the CDL Package

Full Price of CDL Package Four components: Medicine component, based on full data in study (high degree of certainty) Portion of price for which uncertainty exists until package is fully defined and allowance for impact of package being mandatory Amount added for medical management costs Non-healthcare costs. Note: Prices should not be used blindly in pricing work. Contact a professional for assistance.

Full Price CDL Package

Conclusions

Price in Mandatory Environment Expect change in member and provider behaviour from existing environment. Uncertainty exists in price until package is fully defined. Have included an effective 30% margin on medicine component of CDL package. Consortium opinion that collective margin of 30% on medicine component is sufficiently conservative to cover this uncertainty in the pricing.

Need for Mandatory Package Community rated price

Need for Mandatory Package Real danger that open schemes will pursue more aggressive self-seeking behaviour and limit chronic medicine benefits to discourage older members and improve their community rate relative to their competitors. Substantial broker activity and churning of members worsens this incentive. A mandatory minimum package of chronic medicine and management benefits is essential for reducing opportunistic behaviour by some schemes.

Further Policy Issues Membership of medical schemes needs to be compulsory, rather than voluntary, for medium to higher income groups to stabilise the system. A risk equalisation system between medical schemes, based on the Prescribed Minimum Benefit package will reduce the opportunistic profiting from risk selection still further.

Composition of the CDL List Brief did not extend to consider diseases outside of the draft list and whether any should have been included. Need for a process of chronic disease prioritisation in medical schemes in order to inform the rationing process in future.

Definition of CDL Package Draft of Treatment Guidelines for Chronic Disease List Conditions Based on Standard Treatment Guidelines and Essential Drugs List published by DoH in 1998. Appoint task team for documenting and maintaining treatment algorithms for CDL conditions.   Actuarial and pricing expertise to estimate the price of the algorithms. Iterative process of refining algorithms. Project manager to ensure process completed in time for pricing in August 2003 if implementation is 1 January 2004.

Complementary and Traditional Medicine Serious concerns about the implications of legislating the algorithms for CDL conditions. Only one approach to treatment will receive funding from medical schemes: entrenchment of an allopathic approach to treatment, largely based on drug interventions. Hard won legal freedoms to operate must not be negated by preventing funding of complementary medicine and African traditional medicine for CDL conditions. Allied Health Professions Council with 11 modalities. Consumers will increasingly question health plans. Inclusion unlikely to be simple and debate will be vigorous.

The Impact of PMBs on Affordability January 2003

Approach to Affordability Compare price of components of PMB package to reported benefits and contributions of medical schemes. Industry level Scheme level Option level Compare price of PMB package to published contribution tables for open scheme options. Focus on low-cost options. Compare price of PMB package to income levels of existing members and potential members of medical schemes. Impact of employer and per capita subsidies.

Price of the PMB Package

Price of Complete PMB Package

Private Sector PMB Package per beneficiary per annum

Non-Healthcare Expenditure on PMB Package Well below Registrar’s benchmark of 10% of total expenditure

Public Sector Complete PMB Package

Public Sector PMB Package per beneficiary per annum

Price of PMB Package by Age 2,000 4,000 6,000 8,000 10,000 12,000 1-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ Missing All ages Price pbpa Total CDL package Total Outpatient package Total Inpatient package Complete PMB package Public sector

Price of PMB Package by Age Note that for all age bands over 40, the PMB price by age exceeds the community-rated PMB price. This explains the incentive open schemes have to attract and retain younger and healthier members.

Complete PMB Package for family of four per month

Affordability Relative to Reported Benefits and Contributions

Source : Registrar’s Returns 2001 Beneficiaries 2001 Source : Registrar’s Returns 2001

Source : Registrar’s Returns 2001 Total Benefits Centre for Actuarial Research Centre for Actuarial Research Source : Registrar’s Returns 2001

Source : Registrar’s Returns 2001 Total Contributions Centre for Actuarial Research Centre for Actuarial Research Source : Registrar’s Returns 2001

Non-Healthcare Expenditure 752 496 676 - 169 110 113 90 171 5 R 0 R 100 R 200 R 300 R 400 R 500 R 600 R 700 R 800 R 900 R 1,000 PMB Low Cluster PMB Industry Weighted PMB High Open Schemes Restricted Schemes All Registered Per Beneficiary per Annum Other Non-Healthcare Administration and Managed Care 921 501 786 Centre for Actuarial Research Source : Registrar’s Returns 2001

Source : Registrar’s Returns 2001 Public Sector 1,551 2,157 3,798 5,475 5,625 5,520 1,400 2,425 R 0 R 1,000 R 2,000 R 3,000 R 4,000 R 5,000 R 6,000 PMB Low Cluster PMB Industry Weighted PMB High Open Schemes Restricted Schemes All Registered Per Beneficiary per Annum Private Sector Public Sector 1,016 Centre for Actuarial Research Centre for Actuarial Research Source : Registrar’s Returns 2001

Exempt Scheme Benefits 2000 Source : Registrar’s Returns 2000

Affordability Relative to Published Contribution Tables

Options Available to Benchmark Family Centre for Actuarial Research Source : CARE Monograph

Primary Care Network Options 843 638 728 966 730 824 657 576 780 904 732 480 841 810 672 635 321 489 100 200 300 400 500 600 700 800 900 1,000 Fedsure Larona PrimeCure Ingwe PrimeCure Ingwe CareCross Medihelp Nucleus Medimed PrimeCure Medimed ECIPA, UDIPA Metropolitan Primary Plus MSP/Sizwe PrimeCure MSP/Sizwe Ecipamed MSP/Sizwe MediCross NMP PrimeCure Protector Health Primary Protector Health Primary Plus Provia SilverCure Spectramed Spectra Alliance Topmed Bophelo Network Vulamed Standard Low cluster PMB Public Sector Low cluster PMB Private Sector Contribution per family per month 280 Centre for Actuarial Research Source : CARE Monograph

Affordability Relative to Income

Income Levels Medical Scheme Beneficiaries Source : OHS 1999

Income Profile Medical Scheme Beneficiaries Centre for Actuarial Research Centre for Actuarial Research Source : OHS 1999

Possible SHI Income Earners Part of a medical scheme Potential SHI Public Sector Centre for Actuarial Research Source : OHS 1999

Conclusions

Conclusions on Affordability Comparing actual benefit expenditure and contributions to PMB package: at industry level, PMB package was well covered. There should thus be no upward pressure on contributions from Prescribed Minimum Benefits. Comparing published options prices to PMB package: showed conclusively that the current packages on offer by open schemes were way in excess of the price of the PMB package for the industry. In some cases the prices were four or five times the price of the PMB package.

Conclusions on Affordability The conclusion must be that there is substantial room to reduce the current benefit offerings in the industry to something closer to the price of the PMB package plus an additional amount for routine primary care. The industry needs to critically examine benefit offerings for 2004 and begin the designs with a focus on the PMB package.

Policy Issues

Understanding of PMBs It has become apparent during this research that the introduction of Prescribed Minimum Benefits with effect from 1 January 2000 has barely impacted the industry. Very few schemes are able to isolate PMB expenditure from other benefits. Of even greater concern is how few medical practitioners seem to have heard of PMBs. Thus at the critical interface with patients there is little knowledge of the rights of medical scheme beneficiaries to treatment for the PMB conditions. It is certainly not in the interests of schemes to educate practitioners and this critical role must be taken on centrally by the Department of Health or the Council for Medical Schemes.

Community-rated PMB Price The comparison of options prices in open schemes for the benchmark family shows a wide divergence of prices. Members should be facing a common community-rated price for the PMB package and not a price determined by each scheme according to its own demographic profile and illness burden. Now that a price has been conclusively determined for the PMB package for the industry, this can facilitate work on a risk equalisation mechanism between schemes that covers the benefits in the PMB package.

Future Pensioner Philosophy 7% 1% 6% 16% 60% 4% 12% 15% 26% 43% 0% 10% 20% 30% 40% 50% Eligibility Criteria Changed Cap Benefits Cash or Benefits in lieu of Medical Cap Company Contribution Do Not Offer Benefits to New Employees 1999 2001 Source : OMHC Health Survey 2001

Vulnerability of Pensioners From the study findings, it is evident that pensioners are already vulnerable and that they will increasingly find contributions to medical schemes difficult to afford, given that medical contribution increases have exceed pension increases. Added to this is the changing structure of employee benefits in such a way that future pensioners will be unlikely to have a subsidy for medical benefits in retirement. The study describes the subsidy issue as a future time bomb and this issue needs to be placed on the agenda now.

Impact of Per Capita Subsidy

Per-capita Subsidy The study also attempts to put into context the per capita subsidy mooted in the Taylor Committee report. It was demonstrated that this subsidy could have enormous impact on the affordability of healthcare for low-income families. This impact is subject to the final amount of the subsidy and the exact form it will take. There is no doubt that a subsidy of this nature has a far-reaching impact on affordability of the PMB package for low-income groups and clarity on proposals is now needed.

Public Sector Contracting The price of the PMB package in the public sector, which lies at the heart of affordability for the low-cost options and the Bargaining Council schemes, now needs further work by the public sector itself. Medical schemes need to know at what price they can contract for the delivery of benefits in the public sector and these contracts need to be facilitated at a national level. The impact of this additional substantial network to the current hospital networks offered by the private sector should have a galvanising effect on hospital benefit negotiations for 2004.

Total Expenditure on Prescribed Minimum Benefits To put the size of the business in context, total expenditure on the PMB package using the Weighted industry price would have been R 14.573 billion in 2001. The estimated price for delivery of the package in the public sector would have been R 9.460 billion. This covers only registered schemes. A further amount of R 0.268 billion would be added to the public sector total for those Bargaining Council schemes reporting in 2001.

Centre for Actuarial Research A Research Unit of the University of Cape Town (CARE) Centre for Actuarial Research A Research Report Prepared Under Contract for the Council for Medical Schemes