Is it time for an overhaul of the medical aid industry?
Governance problems continue to plague medical schemes, the pool of members has hardly grown from 2,8m principal members and non-health-care costs are rising faster than some of those directly related to health care, according to the Council of Medical Schemes' (CMS) 2004/2005 report.
Medical schemes paid medical specialists 6,9% more than in 2003/2004 and general practitioners' remuneration declined by 3,1%. Administration expenditure, by contrast, grew by 12% in open schemes, to R5bn, the report says.
The problem is medical schemes are not-for-profit organisations, governed by trustees, though the providers earn a profit. "We need to rethink the administration model," says Vishal Brijlal, the executive of research and advocacy at the Board of Healthcare Funders.
Non-health-care costs comprise a number of elements such as commission paid to health-care brokers. Expenditure on managed health care, though falling under non-health-care costs, is a grey area because it affects health services given to members.
Brijlal suggests that rather than schemes paying a fixed administration fee per month or per member per month, they should pay administrators per service delivered.
He also says the basket of services provided by administrators should be stripped out. "If the business of administration were broken down into service areas, schemes could then choose which services they needed," says Brijlal.
The cost of administration in the medical schemes market, which is dominated by five large administrators, should be decreasing.
But the council says that despite the concentration of market power in the large administrators, there appears to be little or no economies of scale reflected in the level of administration fees. As non-health-care costs have risen, the claims ratio has decreased slightly from 79,6% in 2003 to 79,2%. "It would seem that claims are not necessarily putting upward pressure on contributions," says the CMS.
The council is also concerned that claims paid from savings accounts increased by 9,5% to R4,6bn from 2003. "There is a move towards benefit designs requiring a greater proportion of benefits to be funded out of members' savings rather than from the general risk pool," says the council report. "Members seem to be funding more benefits out of their own pockets."
The council says establishing an arm's-length relationship between the scheme and the administrator is vital not only for governance, but to keep administration costs down.
That's brought the old debate of demutualisation to the fore. At present, medical schemes are "owned" by their members. Demutualisation would transform companies into for-profit entities with shareholders instead of members.
Discovery Health MD Barry Swartzberg says demutualisation could improve governance and affordability. But Brijlal says there would have to be checks and balances put in place: "You don't really want a form of demutualisation where a holding company ends up buying back all the shares from members who don't really have an interest in owning them."
Health Corp director Neels Barendrecht says managed care companies are starting to take more risk, including managing claims. "Administration has become a commodity, it's how claims are paid and how risk is managed that will set administrators apart," he says.
Brijlal suggests that medical schemes should be encouraged to invest in administration infrastructure themselves. "This way if the scheme wanted to change administrators, it would not have to reinvest in systems each time it changed administrators," he says.
Barendrecht says this model is unlikely to work as long as schemes remain not-for-profit entities.
The council has worked hard to ensure that schemes treat good and bad risks equally, provide a basic package of benefits and are independent from administrators. But if government is to expand private health cover to lower-income workers, it will have to reconsider the fundamentals of the industry. That may require some tweaking of the regulatory framework if not a complete overhaul.
