Revision of the Benefit Framework for Medical Schemes Office of the Registrar of Medical Schemes

Context

Minimum Benefits – need first to understand strategic framework of the health system Public and private sectors are part of the overall health system Different income groups have different needs and preferences Entitlements need to be harmonized in a manner that will not prejudice social solidarity in any particular sector Minimum benefit must be as comprehensive as possible and include all levels of care The minimum benefit should be explicit and subject to a legislative framework

Minimum Benefits – need to understand strategic framework of the health system The establishment of minimum benefits requires an ongoing process of engagement between society and government (not just the industry stakeholders) Benefits need to adjust as the affordability constraint on the country changes Objective criteria must be established to prioritize what should be included or excluded from the package Objective standards and procedures need to be established to ensure that provision is cost-effective without compromising access and quality

Strategic framework for understanding minimum benefits – emerging concept Public sector indemnifies users for services not covered by insurance instead of using a means test Complementary insurance Hospital: public sector (no means test) Medical Schemes – Comprehensive cover consistent with PMB Minimum package for the country Out-of-hospital: public sector (no means test) LIMS – insured out-of-hospital Supplementary insurance Substitutive insurance Low-income High-income

Circular 8 – Medical Schemes

CONTEXT Risk Equalization Fund Commercial medical schemes predominate Require benefit framework that is consistent with the objectives of the arrangement Remove gaming opportunities Commercial medical schemes predominate Members need to understand what they are buying Providers do not price compete and are insensitive to affordability issues

PROBLEMS WITH SCHEMES Silo design permits excessive risk-rating Section 29(1)n is too restrictive and limits beneficial scheme designs REF requires an industry-wide community rate which cannot reasonably be regulated in terms of the existing Act Medical savings accounts are an anomaly in scheme design and require a more flexible framework

OBJECTIVES Remove fragmentation Remove risk-selection in relation to core benefits Improve benefit transparency Improve transparency of contributions Improve access to PMBs Remove opportunities for the arbitrary denial of benefits Improve the quality of price competition between schemes Foster the development of selective contracting

Existing Medical Schemes Environment Options PMB PMB PMB PMB PMB PMB PMB PMB PMB Scheme 1 Scheme 2 Scheme 3 Supplementary benefits Prescribed Minimum Benefits

Revised structure with expanded PMBs REF ensures the sustainability of a considerably more comprehensive PMB – scheme benefits also more standardised Supplementary benefits Prescribed Minimum Benefits Prescribed Minimum Benefits Prescribed Minimum Benefits Prescribed Minimum Benefits Scheme 1 Scheme 2 Scheme 3 Risk Equalization Fund

BENEFITS Define ‘benefits’ separately from the provider Coverage Provider of coverage Scheme common benefits Mandatory PMBs All hospital benefits (not doing this will permit risk-selection by the back-door) Supplementary benefits Voluntary Offered via ‘benefit options’ Out-of-hospital only

PROVIDER CONTRACTS - PRICING A differentiation from the community rated contribution will be permitted, where this involves a limited choice of provider which can be selected voluntarily by the member This to apply to both the ‘common benefits’ and ‘supplementary options’ This opportunity would apply differently where chronic benefits are concerned Discount provided only to the chronic member Scheme as a whole to benefit from the discount Non-chronic members will not be permitted a specific contribution reduction for their choice of provider

CONTRIBUTIONS Contributions become flat rate with no differentiation between principal member, adult dependant and child dependant Ceiling on additional contributions for dependants be limited to a family of three Family be defined for the purposes of determining contributions Consideration of an extension in the age of a child dependant to cater for continuing education Supplementary benefits ‘community rated’ by option Non-health portion of the contribution made explicit, with admin, managed care and other expressed as a flat rate, and broker payments as prescribed

MEDICAL SAVINGS ACCOUNTS Two options: Option 1: Included as a deposit and credit facility offered via the scheme – but outsourced to banks Option 2: External to schemes A major obstacle in retaining MSAs in schemes involves the administrative burden Tax advantage will in all likelihood be removed from MSAs irrespective of whether they are inside or outside a scheme Existing arrangements are easily replicated as low-ceiling routine risk benefits – which can in any case be provided Feedback on this issue would be useful

FINANCIAL ASPECTS No cross-subsidization should occur between the ‘scheme common benefits’ and ‘supplementary benefit options’ Cross-subsidization be permitted between supplementary benefit options – but only where it moves from low risk groups to high risk groups The ‘supplementary benefit options’ and ‘scheme common benefits’ be financially ring-fenced, with separate reserving

Useful issues for feedback PMB expansion Medical savings accounts Financial ring-fencing (reserving) Timing Voluntary 2007? Mandatory from 2008 Pricing of supplementary benefits Rating bands Community-rated Tariff-setting in relation to common benefits and PMBs (risks, options, NHRPL)

CONSULTATION PROCESS Final inputs required by end March 2006 Provisional framework will be incorporated in legislation Draft legislation approved by Cabinet will be Gazetted for comment – this will include the REF framework Results of the consultation process will be incorporated into the final draft of the legislation submitted to Cabinet in April 2006

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