1. Consolidation of Medical Schemes Christoff Raath 22 August 2017
<Nice cover picture

2. What is NHI?
A system designed to pool funds to provide universal access to quality, affordable health services for all South Africans.
Will be implemented through the creation of a single fund.
Services free at point of care.
Funding based on ability to pay; Benefits in line with needs.

3. NHI Ideology “what” Implementation “how” Ideology vs substance
“Equality”
“Affordability”
“Quality”
“Accessibility”
Funding?
Pooling?
Supply capacity?
Service delivery?
Administration?
NHI
Questioning issues of substance often construed as questioning the ideal itself

4. Administrative economies of scale
Why the emphasis on “pooling” and a single NHI fund?
Risk fragmentation
Prevent clusters of young-and-healthy lives
Administrative economies of scale
Costs could reduce to say 3% (medical schemes currently at 11%)
Monopsony purchaser benefit
Ability to purchase at lower prices
These could be plausible reasons why the white paper talks about a single fund
Single fund can perhaps run non-health at 3% (compared to medical schemes currently 11%)
Monopsony purchaser: single fund can push prices of providers down?

5. How does consolidation of medical schemes get us closer to NHI?

6. Administrative economies of scale
How do NHI pooling principles manifest in the medical schemes industry?
Risk fragmentation
Are small restricted schemes younger or older than large open schemes?
Administrative economies of scale
How do small restricted schemes’ non-health expenditure compare to large open schemes?
Monopsony purchaser benefit
Do larger schemes necessarily negotiate lower prices?

7. Could these be conflicting objectives?
Role of the Council for Medical Schemes
Section 7(b)
Control and coordinate medical schemes in a manner complementary with National Health Policy
Section 7(a)
Protect the interests of medical scheme beneficiaries
Could these be conflicting objectives?

8. Acting Registrar presentation at BHF

9. Acting Registrar presentation at BHF

10. Potential ways in which consolidation could potentially be pursued
Consolidation for the sake of consolidation
Potential ways in which consolidation could potentially be pursued
Small schemes - Regulation 2(3) read with Section 27(d)
Loss-making options - Section 33(2)(b)
Restricted scheme eligibility criteria
As per restricted scheme definition in Section 1
“employer or trade or industry or calling”
Small schemes – Debbie will talk about that
Loss-making options? - You will talk about that
Restricted schemes – based on Insight’s experience it would appear as if some schemes, especially those with multiple employers as the eligibility criteria, could be targeted

11. Impact of closing small schemes (< 6 000 members)
Pensioner ratio by scheme size
(No. of members)
Solvency % – Small vs. Large open schemes
Small schemes have large legacies of pensioners. This may be precisely why their existence has been tolerated by the regulator up to now. Many of these pensioners enjoy the benefit of income bands and comprehensive benefits. These schemes have established large reserves in order to be able to cater for the needs of these pensioners in the long run. Pensioners are likely not able to find similar levels of cover on open schemes
* Source: Calculated from Council for Medical Scheme Reports (2015)

12. Market Curve – Benefit Richness vs. Cost
Impact of closing small schemes
On average, open fund members pay more than restricted fund members for the same benefits
Market Curve – Benefit Richness vs. Cost
2017 Cost PMPM
Benefit Value (Signal Model)
* Source: Insight Signal Model (2017)

13. PRMA considerations Open vs restricted scheme contributions since 2000
Many small restricted schemes are backed by employers with post-retirement subsidies
These pensioners have an expectation of continuing to enjoy comprehensive benefits, often on a low income band, subsidised by employer
If the scheme ceases to exist, pensioners could question whether the employer is still meeting their reasonably expected employee benefits
Employers have a significant interest in keeping contribution increases low
Indexed at 100 in 2000 Source: CMS Annual Reports

14. + 84% Impact of closing small schemes (< 6 000 members)
Gross non-health expenses + Broker fees per life per month
+ 84%
Small
* Source: Calculated from Council for Medical Scheme Reports (2015)

15. Income cross-subsidies
Impact of closing loss-making options
Social solidarity
Risk cross-subsidies
Income cross-subsidies
The founding principle of medical scheme regulation (and NHI policy) is social solidarity: a combination of
Risk cross subsidies (healthy to subsidise unhealthy)
Income cross-subsidies (high income to subsidise low income)

16. Typical multi-option scheme – cross-subsidies used to effect social solidarity
Income cross-subsidy
Risk cross-subsidy
Comprehensive options
Low-cost options
Closure of loss making options will actually affect most vulnerable
Loss
Surplus
Surplus
Surplus
Loss
Closure of loss-making options will harm the interests of most vulnerable medical scheme members: high-claiming (unhealthy) members in comprehensive options, and low-income members in low cost options

17. Concluding remarks
Policy uncertainty and political desire to effect change
“Consolidation” narrative emerges as a strong theme
Risk of careless and poorly analysed and detrimental policy changes
Current consolidation drive likely harmful to most vulnerable beneficiaries
Schemes or options superficially deemed non-compliant were historically allowed to persist for specific and sound reasons…
…so it should not come as a surprise that those reasons are threatened if closure or consolidation is contemplated
Risk of a new “missing middle” emerging, ironically in the pursuit of Universal Health Coverage
Ongoing research and analysis a necessary part of the response

18. Does this represent a conflict?
Questions
Section 7(b)
Control and coordinate medical schemes in a manner complementary with National Health Policy
Section 7(a)
Protect the interests of medical scheme beneficiaries
Does this represent a conflict?