Sub heading Demarcation Debate Presented by Butši Tladi Live without regret

Agenda What is the ‘demarcation debate’ Types of products Alleged problems with health insurance Empirical evidence Defining the problem Objectives Provisions Limitations Results Medical Schemes Act 1998 Responding to the problem Case studies Industry submissions Independent research Gap Cover

What is the demarcation debate?

 Medical Schemes vs Health Insurance  What is ‘the business of a medical scheme’?  Medical schemes are vulnerable given the stringent provisions of the Medical Schemes Act  Main categories of Health insurance products include:  Gap Cover  Top-up cover  Hospital cash plans What is the Demarcation Debate?

Undermine the principles of social solidarity underpinning medical schemes Attracts the young and health members away from medical schemes Policy holders think they are buying a medical scheme

The Medical Schemes Act is underpinned by principles of Social Solidarity

 The objectives included the need to:  Prevent ‘dump on the State’ due to low limits and exclusions  Increase the number of people covered by medical insurance  Improve financial sustainability  Improve governance  Maximum cross subsidy between – young and old, health and sick Medical Schemes Act and its intentions

 Open enrolment and guaranteed acceptance for all eligible applicant  Community rated contributions  Limited underwriting:  3 months general waiting period  12 months waiting period for pre-existing conditions  Late joiner penalties Medical Schemes Act and its provisions

 Regulatory developments that were anticipated, but never happened:  Mandatory cover all employed people  Risk Equalisation Fund  Failure to implement the above has left the environment vulnerable to:  Anti-selection  Uneven ‘playing fields’ between schemes – particularly favourable for schemes with good profiles, to the detriment of schemes with poor profiles Medical Schemes Act and its limitations

 Results for medical scheme industry:  Stagnant membership – that is ageing  Above inflation cost increases and premiums that are unaffordable to the majority of people  Cut in benefits and the introduction of co-payments for procedures  Unregulated prices for doctors and hospitals  Increasing disease burden Medical Schemes Act and its results

 A microcosm of a bigger health challenge facing the country  The public sector does not provide a viable solution  A public sector that is not copying with demand  The quadruple burden of disease –  HIV/AIDS and TB  Maternal and child mortality  Diseases of lifestyle  Violence and injury  Like in the private sector, treatment is hospi-centric Medical Schemes Act and its results

Are Health Insurance Products a necessary response to the challenge?

 Cost of equivalent gap cover in a medical scheme is costly compared to a stand alone product  Addresses the problem of member affordability  Supports rather than competes with medical schemes  Negative impact on policy holders if withdrawn  Interim solution for shortcomings in medical schemes Reasons for the existence of gap cover products

Rate of cover by medical scheme options Re-imbursement category Number of options at rate Number of main members Percentage of sample members 100% options % % options % 150% options ,5% 200% options % 300% options ,5% Totals %

 Restricted scheme:  7,000 members; 3 options  Considered impact of doubling reimbursement rate to 200% for in-hospital treatments  Compared risk claims for defined group on open scheme  Main benefit difference – reimbursement rate for in-hospital claims  Outcome  Risk claims for comprehensive option 2.5 times higher  Contributions only 1.2 times higher  Conclusion  Contributions not sufficient to sustain option  Option reliant on surplus-achieving options to survive Case study 1:

 Self-administered restricted scheme  3,000 members; 1 benefit option  Considered % increase required (over and above inflation) to provide reimbursement rates above 100% for in-hospital treatments Case study 2 Multiple of Scheme Tariff Claim Cost PMPM Additional PMPM Contribution Required on 1 January Percentage Additional Contribution Required Over and Above the “Base” Increase 100%R 3, %R 4,000R2497% 200%R 4,249R 49813% 250%R 4,498R 74720% 300%R 4,747R 99627%

 Analysed 2012 option selection for 125,000 members  Outcome:  93% remained on current option  4% upgraded their option  3% downgraded their option  Conclusion:  Affordability drives benefit option choice  This view is supported by the CMS “The study revealed that the most common reason why members change from one option to another is due to affordability, i.e. when contributions become too expensive and unaffordable, members buy down to cheaper benefit options.” Addresses the problem of member affordability

 Member on Hospital plan with cover at 100%  Choices available to increase in-hospital reimbursement 1. Upgrade option to 200% for in-hospital treatments 2. Buy gap cover with in-hospital cover up to 450% Case study 3

Case study 3: Continued Family Size * Percentage Increase in Contribution / Premium Upgrade OptionPurchase Gap Cover ** P16.4%11.4% PA18.9%6.5% PAC18.4%5.3% Family Size Combined Net Monthly Income R 7,500R 12,500R 17,500R 22,500 P0.7%0.4%0.3%0.2% PA3.1%1.8%1.3%1.0% PAC4.0%2.4%1.7%1.3% **Assume gap cover at R120 per familyCosts family extra R300 pm (1.7%) to upgrade option compared to gap cover at R120 pm

 Survey based on 90% of all Gap Cover membership:  Members have good understanding of the scope of cover of gap products and did not view it as a replacement for medical scheme  Concern over unpaid medical bills was the main reason for buying the product  85% of policy holders did not downgrade cover after buying gap cover  96% said that gap cover gave them peace of mind  77% would incur debt in respect of medical costs in the absence of gap cover  44% would not be able to upgrade to higher benefit options in event that gap cover is removed Independent research

 There has been over-whelming response to the Draft Regulations  Driven by business interests as well as a strong social conscience:  About the right of individuals to protect themselves against financial exposure  Contrary to objectives of NHI, which recognises co- existence with health insurance Industry submissions

 No need for gap cover products if medical scheme environment was efficient  Products exist in direct response to systemic shortcomings in medical scheme environment  Disingenuous to argue that gap cover products and health insurance are responsible for medical scheme ills  Medical schemes need to resolve own problems  No mandatory membership  No Risk equalisation  No regulated provider tariffs Conclusion

 If Draft Regulations are passed:  There is no provision for gap cover products  Survival will mean significant and costly restructure  Doctors will not charge less and members will be exposed to ‘gaps in cover’  There will be increased reliance on the State for care  Considerable impact to policy holders who cannot afford to upgrade their medical scheme option  Impact on medical schemes is small – less than 10%  Impact on policy holders would be significant  300,000 directly affected  No affordable alternative available! Conclusion

The proposed Regulations will make medical schemes more secure?

”Practical reality has shown that there exists a need for this type of insurance and there seems to be no reason why it should not be permitted” Judge in the case of Guardrisk vs Council for Medical Schemes

THANK YOU

Questions