1. The Costing of Prescribed Minimum Benefits
January 2003

2. 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
million beneficiary months of data
Average exposure of 1,505,917 beneficiaries

3. Cluster Analysis and Applicability to the Industry

4. 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.

5. Cluster Analysis

6. 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.

7. Cost of PMBs

8. Claim Value by Status Centre for Actuarial Research Centre for

9. Proportion of Total Cost of PMBs by Disease Chapter
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10. Average Cost of PMBs by Disease Chapter
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11. Cost of PMBs
by Age

12. Incidence of PMB Admissions by Age50
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

13. 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
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14. 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 pbpa
Centre for
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15. Raw PMB Price by Age and Cluster (pbpa)
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16. Adjustments to the Raw Price of the PMB Package

17. 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

18. 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.

19. Full Price of PMBs (excl CDL)
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20. Conclusions

21. 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.

22. 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.

23. The Costing of the Chronic Disease List
January 2003

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

25. Prevalence of CDL Registrations
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26. Beneficiaries Registered for CDL Conditions

27. Cost of Each CDL Condition

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

29. Average Cost per Case
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Multiple diseases

30. Prevalence All Diseases

31. CDL Package by Age

32. Age of Claiming Beneficiaries for Selected Diseases
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33. 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

34. 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

35. 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

36. CDL Package by Cluster

37. Raw Price by Cluster

38. Raw Price High vs. Low Cluster
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39. 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.

40. Adjustments to the Raw Price of the CDL Package

41. 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

42. Full Price of the CDL Package

43. 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.

44. Full Price CDL Package

45. Conclusions

46. 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.

47. Need for Mandatory Package
Community rated price

48. 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.

49. 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.

50. 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.

51. 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.

52. 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.

53. The Impact of PMBs on Affordability
January 2003

54. 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.

55. Price of the PMB Package

56. Price of Complete PMB Package

57. Private Sector PMB Package per beneficiary per annum

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

59. Public Sector Complete PMB Package

60. Public Sector PMB Package per beneficiary per annum

61. 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

62. 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.

63. Complete PMB Package for family of four per month

64. Affordability Relative to Reported Benefits and Contributions

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

66. Source : Registrar’s Returns 2001
Total Benefits
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Source : Registrar’s Returns 2001

67. Source : Registrar’s Returns 2001
Total Contributions
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Source : Registrar’s Returns 2001

68. 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
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Source : Registrar’s Returns 2001

69. 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
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Source : Registrar’s Returns 2001

70. Exempt Scheme Benefits 2000
Source : Registrar’s Returns 2000

71. Affordability Relative to Published Contribution Tables

72. Options Available to Benchmark Family
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Source : CARE Monograph

73. 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
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Source : CARE Monograph

74. Affordability Relative to Income

75. Income Levels Medical Scheme Beneficiaries
Source : OHS 1999

76. Income Profile Medical Scheme Beneficiaries
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Source : OHS 1999

77. Possible SHI Income Earners
Part of a medical scheme
Potential SHI
Public Sector
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Source : OHS 1999

78. Conclusions

79. 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.

80. 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.

81. Policy Issues

82. 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.

83. 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.

84. Future Pensioner Philosophy7% 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

85. 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.

86. Impact of Per Capita Subsidy

87. 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.

88. 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.

89. 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  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.

90. 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