Rising medical costs have led to schemes implementing a range of measures to control these costs. Unfortunately, this increases complexity for the individual and often results in higher out-of-pocket expenses due to difficulties in understanding how their medical scheme covers claims. While communication and education could offer partial solutions, technology also makes it possible for experts to absorb the management of some of that complexity.
In Benefits Barometer 2013: The employee benefits system, we showed how healthcare costs keep rising in South Africa. In 2014 the trend has continued and in response, funders of healthcare – primarily medical schemes – have had to become ever more innovative in managing these costs. However, such innovation introduces further complexity which might actually be causing total costs to increase for members.
Because the demand for medical care is potentially unlimited, balancing demand and supply through prices becomes particularly tricky. National Health Insurance, in an ideal form, could improve some outcomes, but will be subject to the same tension.
Because of rising healthcare costs, funders of healthcare have to be more innovative in managing these costs
Total healthcare costs are increasing for a number of reasons, including, but not limited to:
All of this means medical inflation runs higher than consumer price inflation. Over the last 13-year period, medical care and health expenses inflation has been on average 8.2% per year, while CPI inflation was 5.9% per year4, resulting in a gap of 2.3% per year. During the same period, the average medical scheme contribution inflation was 7.5% per year, showing that actual increases in medical scheme contributions per principal member exceeded CPI inflation by at least 1.6% per year.
These gaps have reduced in recent years and this is most likely as a result of pressure from medical schemes in managing the costs charged by providers. While this would have a direct impact on medical scheme contribution increases, the further reduction in the gap between medical scheme contribution inflation and CPI inflation appears to be a result of option buy-downs (when members move to a benefit plan with less comprehensive cover) and a reduction in the number of dependants covered by the policy due to affordability constraints.
The increases in medical scheme contributions are based on the average contribution per principal member per month, and allow for normal medical scheme contribution increases, as well as buy-ups and buy-downs to other benefit options. Changes in contributions due to family size or family composition are also taken into account and as a result, these increases do not reflect pure increases in medical scheme contributions, which will be higher.
If this trend continues, a bigger proportion of an individual’s salary will go towards healthcare spending each year, which will eventually become unsustainable. The graph on the next page shows how the proportion of income directed toward medical scheme contributions will increase over time, assuming that the individual currently contributes 15% of salary towards medical aid cover and that their contributions increase by 1%, 2% or 3% higher than salary inflation respectively.
If annual increases in medical scheme contributions are 3% above annual salary increases, then after 40 years an individual could be directing nearly half of their income towards medical scheme contributions.
An individual who starts off with a contribution rate of 15% towards medical aid cover, could be spending half of their income on healthcare after 40 years.
In an attempt to reduce the overall costs of healthcare, medical schemes are introducing various types of cost-management techniques, some of which directly increase the complexity for individuals.
These include, among others:
Alternative reimbursement models where the costs for certain procedures performed in hospital are negotiated upfront with the hospital group. For example, the fee for surgically removing an appendix may be agreed at a specific price. So, regardless of the actual cost of the appendectomy, the medical scheme will only pay that price and the hospital will benefit if the actual cost was lower or face a loss if the actual cost is more.
These alternative reimbursement arrangements help medical schemes to stabilise costs, but more importantly, incentivise hospitals to be more efficient when performing procedures. A more efficient hospital would be able to reduce the actual cost of performing a procedure, thereby benefiting from the difference between the actual cost and the fee charged. Clearly, these types of arrangements would only work under tight monitoring and management of the quality and outcomes of care to avoid shortcuts being taken to reduce costs.
Many medical schemes have approved medication lists where they pay in full for medication on these lists. Sometimes the lists will be as simple as 'generic medication is paid in full', but at times the lists can become extremely complex and difficult to understand. The justification for these medication lists is to steer members towards medication that is not only cheaper, but also more effective in treating conditions and therefore keep follow-up costs to a minimum.
Reimbursing service providers more when they perform procedures in doctors’ rooms and not in hospital. This should reduce the overall costs associated with certain procedures as the ward and theatre fees and the costs of anaesthetists and nurses are not incurred. To encourage this movement from in-hospital procedures to in-room procedures, some medical schemes impose co-payments for treatment obtained in a hospital. Members who are not aware of these conditions may choose to access care through hospitals without realising that they may incur a co-payment.
Disease management programmes specify treatment plans and medicines that individuals must use if registered for certain diseases, such as chronic conditions. The treatment plans are designed to provide more appropriate and efficient care to individuals, with the intention to reduce complications and overall costs in the long term. This again is an area where confusion may arise for individuals.
Introducing networks and designated service providers (DSPs) where members must access their healthcare services from specific, defined service providers for their claims to be paid in full. The justification for this is that medical schemes will negotiate reimbursement rates with these providers upfront, allowing for better management of overall costs as well as better control over negotiations. If members don’t want to incur copayments, they will visit providers who participate the network. Providers, wanting to ensure that their patient numbers do not decrease, may opt to join the network.
The intention of cost-management measures is to reduce overall healthcare costs, but these measures can sometimes be so complex that without effective communication and member education, individuals may actually face higher total costs through additional out-of-pocket payments. When individuals don’t follow the rules, either by choice or lack of understanding, it can result in out-of-pocket expenses. Situations in which out-of-pocket expenses can arise include:
The list above is not exhaustive but illustrates how individuals could easily break some of their scheme’s rules. While these rules are designed to help manage costs and thereby benefit the member, their complexity sometimes makes it difficult for individuals to follow. It is therefore extremely important that members are well-informed and better guided to make the best decisions. Possible regarding their health.
While cost-management techniques may assist to reduce overall costs and hence the management of future increases in contributions within medical schemes, this may be outweighed by additional out-of-pocket expenses if members do not fully understand how to use their benefits efficiently.
How do we manage this in the current environment? Effectively, these techniques mean that the responsibility and costs are transferred from the experts who developed them to the members themselves, who naturally have a more limited understanding. It should therefore be up to these experts to ensure that members are adequately educated so that they can make informed decisions.
Discovery Health Medical Scheme introduced telemetric glucometers into their benefits for 2014. Members registered on the chronic illness benefit for diabetes qualify for a telemetric glucometer, whereby they can actively monitor their blood sugar levels, and this information is transmitted to their smartphones via Bluetooth. If they are registered with HealthID, their doctors can also monitor their blood sugar levels and better understand patterns and key drivers.
With the medical scheme environment in its current form and while we wait for the outcome of the Competition Commission's inquiry into the private healthcare sector*, communication seems to be the main solution available. The reality is that balancing complexity and affordability is likely to remain a challenge into the future. Where possible, experts need to manage that complexity for individuals among themselves (for instance, between schemes and providers, such as doctors) and provide what is crucial for individuals in an easily digestible form.
1 This relates to any professional in a service-related environment, such as teaching
2 Baumol (1967)
3 Mike et al (2005)
4 Statistics South Africa
5 Council for Medical Schemes Annual Reports
6 Section 29A, Medical Schemes Act 131 of 1998
7 Mike et al (2005)