Health-care costs have increased at rates significantly above general inflation over the past 10 years. Much of this has been ascribed to the deteriorating rand exchange rate and the fact that a large proportion of medicines, consumables and technology is imported.
Until last year, this theory appeared plausible, but many employers and members are now asking some piercing questions in light of the strengthening of the rand.
"The evidence that the strengthening of the rand against major currencies over the past year affects health-care costs is supported by the excellent results that have been published by the big hospital groups," says Jacques Malan Healthcare MD Johan Human.
"At the same time, medical schemes are being asked to increase their contracted fees to hospitals for 2004 by amounts significantly higher than consumer price inflation. The regulator will be asking trustees to justify these increases, and members should also be asking the same questions."
There is no single factor causing medical aid price increases, according to NMG Consultants & Actuaries corporate actuarial manager Kerry Rosettenstein.
Medical schemes cite the cost of prescribed minimum benefits (PMBs), solvency requirements and new technology as the primary drivers of medical inflation, while others have cited broker commissions and administration fees as contributing factors.
However, Rosettenstein points out that since most medical schemes were offering the PMB during 2003, the increase attributable to it is limited.
Broker commissions were also reduced by about 20%/contract between 2002 and 2003, while administration fees have been capped for many schemes.
The argument about the cost of new technology is also wearing a little thin in the wake of a strengthening currency. So why the need to increase contributions?
"A large proportion of the current increases is attributable to the cost of private hospitals, specialists and pharmaceuticals," says Rosettenstein. "The Council for Medical Schemes (CMS) should be investigating the underlying causes of these spiralling costs instead of forcing medical schemes and their brokers to shoulder responsibility for medical inflation."
She says rather than taking the schemes to task, the council should examine the regulatory environment it has created. For instance, she says the council has not approved many reinsurance contracts for 2004, forcing medical schemes to take on more risk than before, resulting in higher contributions.
The requirement of having a minimum solvency level of 25% by the end of 2004 is also putting pressure on the schemes.
To bring costs under control, she says schemes will need to elevate the use of managed-care tools to a new level. The result will be a reduction in the present fee-for-service environment, more co-payments/deductibles for procedures, increased use of capitation arrangements, and consolidation between schemes.
But getting hospitals to lower their prices is easier said than done, argues Human.
For starters, the balance of power between medical schemes and private hospitals favours the latter. Hospital groups could refuse to contract with a particular scheme, especially a smaller scheme, that refuses to reimburse at acceptable rates.
The medical schemes industry is also limited in its attempts to wield collective bargaining power by the competition commission.
Should schemes and the hospitals not come to an agreement on tariff increases in the short term, members may in future be exposed to paying a portion of the hospital bill - something that is difficult for scheme trustees to justify and can result in a loss of members.
"The debate about how to address extraordinary health-care inflation should take into account the complexity of any health-care system," says Human. "Simplistic solutions will not produce a sustainable result that is in the interest of all concerned, but big systemic changes have to be made, if this is to be achieved."
