You and Your Money
Presenter: Bryan Hirsch Guest(s): Tlhabi, Romberg
Summit TV personal finance expert Bryan Hirsch speaks to Steven Romberg executive director of Sasfin Financial Advisory Services and Dr Penny Tlhabi corporate and public affairs Discovery Health about the cost of funding healthcare and what risks you should not be taking
Bryan Hirsch: Welcome to You and Your Money. Our subject is medical aids and health insurance. By now members of medical aids throughout South Africa would have paid their first increased premiums for 2010 and the increases that range between 9% and 19% are certainly far higher than the official inflation rate. There’s also much concern by the private sector about the proposed national health insurance (NHI) system - but the only working solution is a partnership between public and private sector. The government has said that the private sector is not under real threat which is very positive and the original NHI proposal is unlikely to see the light of day in its present form after Cabinet requested an overhaul. Steven, you’ve obviously come through a very difficult 2009 with all the renewals - how are companies and their employees actually going to deal with the increases across the board?
Steven Romberg: Let me start off by saying it is difficult - especially with economic circumstances in South Africa, and the increases that you mentioned of between 9% and 19% - but one of the trends that we have been seeing is more and more people within companies want more education so we are visiting corporates saying “these are the changes” and we are seeing more and more of their employees coming to us and actually listening to what we have got to say and taking our advice. One of the things that employers don’t do as much any more is they don’t contribute - so most of the costs are on the back of the members themselves so they are becoming more educated, they’re understanding the plans more and making better choices for better plans going forward into the new year.
Dr Penny Tlhabi: The other trend that we are seeing is a “flight to quality” so Discovery is seeing record growth in January 2010 - we’ve seen about 100,000 people joining Discovery - so in times of trial and tribulation people tend to flee to quality and look for value for money and companies like Discovery thrive in circumstances like that.
Bryan Hirsch: Do you think that the Minister encourages or discourages a lot of the consolidation? There seems to be a bit of consolidation coming through - I think people need to understand what medical aids can and can’t afford…
Dr Penny Tlhabi: I would assume they would encourage consolidation to find the economies of scale - and the larger the risk pool the better the experience, and you don’t see a lot of variability in experience going from one year to the next. If I was a regulator I would encourage more consolidation because it gives stability and predictability to the market.
Bryan Hirsch: We have caller David on the line from Cape Town...
David: Why is NHI being driven at such a speed?
Bryan Hirsch: We will come back to that. Steven, your comments?
Steven Romberg: On the back of Penny’s comments is the sustainability of medical schemes - I think the Department doesn’t want to see medical schemes falling by the wayside because at the end of the day that means lives are falling by the wayside, and other people covered by medical schemes are now going to have that risk moving onto other medical aids. Just to get back to the very first question that you asked - not only employers but what are members doing out there with the high increases? Something that we were discussing was are we seeing a general downgrade trend in members? To be honest with you the answer is no. I know Penny has got statistics - but personally when I go out to members I don’t think they’re downgrading. They understand the benefits that they are getting and they’re making the right choices. We are seeing a lot of medical schemes bringing in new types of products where members co-pay to reduce the overall contribution but members are aware of what they need to pay for and what they need to be covered for going forward.
Bryan Hirsch: Steven, let’s just understand buying down - it’s not a question of wanting to buy down it’s about affordability. You were saying we’ve seen a cut back in tax benefits of medical aids for younger people - certainly under the age of 65 - so we are not getting the same tax benefits. We’ve seen these high increases of 9% to 19% and you’re not getting the same deductions so after tax it’s quite a substantial amount out of the employee’s package and you’re saying that they’re still not buying down?
Steven Romberg: It is a substantial amount. The statistics say about 80% of beneficiaries who earn over R15,000 are already on a medical aid but under 50% of those who earn under R4,000 are on a medical aid - so there is no doubt that there is an affordability issue - but people are becoming more aware of what they are purchasing so at the time of purchasing a medical aid they are purchasing something that they believe will stand them in good stead in times to come. Yes, circumstances change - people become chronic, things change within families - but at the end of the day they understand that and that’s why people are becoming much more educated in what they are choosing and what they require.
Dr Penny Tlhabi: Actually we are seeing the exact opposite - we are seeing people buying up. We understand this phenomenon - in a recession people are worried about their healthcare, and they want to make sure that they are fully covered. The may scale back on other things - but healthcare is the last thing to go so we are actually seeing people buying up. What we are doing is we are creating a new category of buyers. We are seeing that 30% of people who are coming to Discovery are buying the lower end products - but that is a new market that we are creating so the lower end market has grown by 13% over the past few years – but people in a recession are worried about quality healthcare and they don’t buy down so that’s the last thing to go.
Bryan Hirsch: I’m pleased you spoke about the quality of healthcare. Let’s understand worldwide medical trends and changes in medical technology - and the reluctance of many medical aids to be able to buy a lot of the drugs that are available internationally - but before you answer that I would like to ask you about whether you think doctors in South Africa and certainly specialists can look a patient in the eye and say “I’m giving you the best possible treatment in terms of your requirements” knowing that the patient may not be able to afford the drugs that are required to provide for that treatment, and knowing that the medical aids are not going to pay for these new drugs that are available and the improvements from the 1990s in healthcare to 2010 and onwards?
Dr Penny Tlhabi: I think the role of medical aids - we have to understand that money is entrusted with us to manage and administer, and we have to make decisions about what to pay for. That money is not infinite - we have limitations on how much we can spend. We have to make these decisions based on evidence so what we do for instance at Discovery is we pay for new medicines as long as there is evidence to back their effectiveness. The problem is that we have a lot of experimental medicines being introduced into the country and then doctors expect us to pay for experimental medicines - but if there are good quality medicines and it’s been proven to be effective we will pay. We expect that doctors will sit down with a patient and take into consideration their circumstances - including their financial circumstances - and come up with a plan that will suit the patient’s needs including their financial needs so that people in South Africa can get the best quality medicine.
Bryan Hirsch: So a doctor can look me in the eyes and say “I know there is something available - I am giving you the best possible treatment…”
Dr Penny Tlhabi: Yes, I think that’s exactly what happens. You have to understand that there are constraints everywhere in the world and not just in South Africa so somebody has to make decisions about how to ration care. I believe we have the best quality medicine available here in South Africa.
Bryan Hirsch: We are going to take a break - we will come back to that question about NHI and about co-payments and members being aware of what they may end up having to pay…
commercial break
Bryan Hirsch: We have an email from Desiré in Vryheid “I’m 74 - please explain why one has to pay a late joiner’s fee if I’ve never been on a medical aid?” Penny has spoken about drugs and she’s given a convincing argument that South Africans are getting the best medicines - but let’s just talk about co-payment. We are talking about medical aids going up so before we talk about co-payments I’d like to ask have benefits decreased in any way, and are members aware of the possibility that there may be a major medical expense and they may be called upon to pay some of those costs?
Steven Romberg: There’s a couple of issues there. Let’s actually start off with shortfalls - that’s not even co-payments but shortfalls - I made the point earlier that more and more members are becoming educated, and the role of brokers is to explain what’s happening in the market - but in essence one of the things that I wanted to touch on was that I think there is a partnership between the medical scheme, the provider of services being the doctors, and the members. It’s a three-way party - and they all have to negotiate and try and come to an agreement be it on the medicines or pricing. I think what we are seeing is a lot of medical schemes are trying to associate themselves with specialists and providers of services in order to try and get a discount or a reduced rate for members so members aren’t out of pocket as much. When it comes to co-payments it’s a different scenario - one of the things that a lot of the medical schemes have tried to do in order to control costs - because like you said costs spiralled 9% to 19% in the market today from all sides. We talk about the doctors’ increase of 7.9% and the National Health Reference Price List (NHRPL) and that’s just temporary. They forsee it being a bit more going into the future and they need to control costs. How do medical schemes control costs? By putting co-payments in place. What are co-payments? That’s where at the end of the day a member might need to pay a certain amount for a procedure where the medical scheme will cover the majority and in doing that reduce the premium. It’s very similar to short term insurance where you have a small excess that you have to pay but the insurer pays the greater amount.
Bryan Hirsch: I just want to take Grant’s call…
Grant: What do I need to watch out for if I downgrade to a lower cost scheme on my medical aid?
Bryan Hirsch: Steven, you compared co-payment to short-term insurance - I know with my motor car if I have an accident the excess is R1,000 - but this could be a percentage of the total medical claim?
Steven Romberg: Not necessarily. Most co-payments have got a rand value amount that you know you’re going to pay. Discovery and Momentum and a number of other medical schemes actually give you a rand payment based on what plan you are on so you know when you are joining that plan what your co-payments are, and for what procedures. That’s not only the rand value but for the actual procedure as such so at the end of the day it’s there in black and white.
Bryan Hirsch: We have caller Patrick on the line…
Patrick: Do some medical aids impose limits on hospitalisation, and what happens to any financial difference? The other question is how does the member fund this?
Bryan Hirsch: Penny, you wanted to come in there?
Dr Penny Tlhabi: There are other strategies that medical schemes put in place other than just imposing co-payments because maybe that’s a bit of a crude strategy. What we do is we contract selectively with providers - so we go out there and find doctors who are willing to charge the fees that we pay, and we protect members from gaps in payments by making sure that we have contracted with these doctors so when a member walks into a doctor’s rooms the member knows they won’t have any gaps in cover. That’s the strategy that we’ve taken and it seems to be working very well - so we are moving away from co-payments into networks and into selective contracting with providers.
Bryan Hirsch: It’s a question of affordability so what happens if I don’t have the money for that co-payment?
Dr Penny Tlhabi: That’s why you would have to go to one of the doctors that’s in the network who have contracted into the medical scheme and have agreed to charge the contracted rate. In that case you would be protected from any gaps in cover and from any co-payments…
Steven Romberg: I just want to extend that because I think the whole basis of what we have spoken about tonight is affordability and the sustainability of medical schemes. What are medical schemes doing - are they increasing or decreasing that? When members are choosing plans that’s based on benefits and premiums - what can one afford, and what do they require? If you want a top-of-the-range plan you are going to pay top dollar - but if you want something that’s slightly below the top-of-the-range where you might pay a lower premium you are going to have certain limitations and restrictions. I think it was Patrick who raised the point of hospitalisation - that’s another way of reducing premiums. How do you reduce premiums? You reduce the limits in hospital. There’s a number of medical schemes really at the lower level where they impose a limit on hospital because it limits the risk. What happens if you reach that limit? Unfortunately they either knock on your door and say “can you pay cash?” or they move you to the closest public facility. Unfortunately that’s the process…
Bryan Hirsch: That can’t be right? I’ve been seeing a doctor for years in a particular hospital - I now end up in that hospital and I use up to the limit - now they’ve got to move me?
Dr Penny Tlhabi: I think the best thing to do is to advise members to stay away from plans that limit hospital care...
Bryan Hirsch: That’s the point that Patrick was asking - are there some schemes that have no limit? That’s an important component when you choose a medical aid. We have caller Mark on the line...
Mark: I would like to ask the lady from Discovery why they are not accepting Transnet members onto their health plans?
Bryan Hirsch: Let’s see if Penny can answer that?
Dr Penny Tlhabi: I will stay away from that because the matter is in front of the Regulator - there are some legal issues surrounding that. I’m not the best person to take on that question. It has serious implications for the industry - it can create systemic problems for the industry. It’s not a Discovery problem. We are taking it up with the Regulator.
Bryan Hirsch: Let’s just go back to Grant’s question about downgrading - what should you look out for when you do downgrade?
Steven Romberg: I think we have touched on one or two things. Firstly the limit on hospital - is that going to be a risk? What is your main feature? Are you more worried about in hospital and those expenses or are you worried about out of hospital expenses? When Grant takes a look at downgrading understand what you are losing out on when you move from the plan that you are on to the plan below that. Also, understand how much more you are going to have to pay in when you are seeing doctors or specialists or going into hospital. There are schemes out there that have limits of R500,000 in hospital - today believe it or not that isn’t a large amount of money. You don’t want to be forking out the money above that. I think for everyone when you are taking a look at your medical aid identify your needs - let your broker do a full needs analysis for you and what’s important. Is it hospital, is it chronic or day-to-day? At the end of the day that will give you a better picture of where you should be.
Bryan Hirsch: Steven, it doesn’t cost more to use a broker does it? It’s built into the rates - but you are getting that extra advice and certainly at the levels you need. That’s not for the general day-to-day - there you contact your medical aid. You don’t want to go through a broker but where you need some specialised advice on these types of things. When we come back we are going to answer David’s question why is NHI being driven at such speed? I am not sure it is! We are also going to deal with Desiré’s question from Vryheid - she is 74 so there’s a late joiner’s fee.
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Bryan Hirsch: David’s question why is NHI being driven at such speed - is it still being driven at the same speed that we saw happening last year?
Dr Penny Tlhabi: Let’s just take a step back and think about the objectives of the NHI. What they are trying to achieve through the introduction of NHI is to increase funding to the public sector to reduce the inequities that exist between the public and the private sector and to improve access and quality of care for the larger majority of the people in South Africa. At some stage last year we were worried that the changes - and these are big reforms - were being driven at a very high speed but I think now there is a sense of pragmatism. They’ve just announced a committee that will advise the Minister on the NHI. I think it will unfold but I think there is a lot of pragmatism and everybody is trying to find a better workable solution. I think the most important thing is going to be the cost. As you know with the recession the fiscus has collected less money so I don’t think there is a lot of money around to even think about introducing something as big as NHI that can cost the country upwards of R100billion. I think that we will progress in terms of the discussions and debates around NHI but I think there will be a more pragmatic approach because there are some realities out there.
Bryan Hirsch: Who makes up this committee? Is it drawn from all walks of healthcare? Are they taking professionals in from the healthcare industry? That’s important…
Dr Penny Tlhabi: They have selected a wide range of people with varying expertise. I think it is a well constituted committee.
Bryan Hirsch: You said earlier that there has been a big change - I asked you if medical aids are reaching out to lower income groups and you said that you’ve seen quite a big move and quite a big change but put that in context in terms of the numbers. We have 48 million people in South Africa…
Dr Penny Tlhabi: When you look in terms of the numbers of the potential size of the market out there of course we’ve just scratched the surface - for instance at KeyCare we have about 70,000 people on the lowest plan - so if you compare the numbers with the size of the market out there it’s barely scratching the surface. There are huge opportunities for growth with 30% of our new business at Discovery now going to the lower income market in terms of KeyCare so we are very optimistic about the opportunities. We are investing quite a lot in understanding the market and give a lot in products that respond directly to the needs and therefore the affordability levels of this market.
Steven Romberg: I think just based on that like you said the lower income market is growing. There’s plus minus 7.8 million people at the last count taken in 2009 on medical schemes - and most of that growth is coming through the lower end market. I think with NHI on the table a lot of the prior regulations and talk about lower income medical schemes (Lims) has been put in the back and not really worried about but I think the change in the low-end medical schemes could create a much greater amount of people joining. We are probably seeing anywhere between five million and seven million as an opportunity to target at that level - but at the end of the day it comes down to the word affordability.
Bryan Hirsch: Desiré’s question - she’s 74 and asks “why do I have to pay late joiners fee?”
Steven Romberg: When the Medical Schemes Act in 1998 came in that changed the rules. What happened was medical schemes were allowed to impose three types of conditions - a three month general waiting period against members joining schemes and 12 months for specific condition - and at the same time what they did is they instituted a late joiner penalty for people who were over the age of 35 who had never been on a medical aid. We must remember at that time in 2000 they had about 16 month amnesty to the end of April 2001 where people could join without this late joiner penalty - but after that if you haven’t had a certain amount of years depending on your age it’s a whole calculation of membership where medical schemes can impose anywhere between a 5%, 25%, 50% and 75% late joiner penalty on your premium to recoup the premiums that you haven’t paid over time to really subsidise and limit their risk.
Bryan Hirsch: Does it matter how much you earn? If you are a low earner compared to a high earner will the same late joiner fee apply?
Dr Penny Tlhabi: It’s a formula - it doesn’t matter how much you earn. Just to emphasise a point that’s is one of the mechanisms that schemes have at their disposal to encourage young people to enter the system while they are still young because the system does rely on the younger and healthier of the population to subsidise the older people so we have to find ways of encouraging them to join.
Bryan Hirsch: Although there is great concern about the introduction of NHI government should be applauded for their realisation that it’s a long-term project and quick fixes won’t achieve the desired result. The key issue about healthcare is to identify and improve healthcare for the public - and all schemes should take this approach regardless of whether or not NHI is introduced. Although there is concern about the consolidation of the open medical scheme market and that requirements around capital at extreme may come under review there is always going to be a role for private schemes to play an important part, and members will always wish to purchase top up cover. It is likely that markets will grow as many of the population seek cover however current medical schemes may have to change the way they operate. To quote Heidi Kruger of the Board of Healthcare Funders access to healthcare is a basic right enshrined in the Constitution - access to healthcare is a moral issue - and it’s for this reason that policy makers are proposing an overall system.
Before acting on any advice that you may have heard please consult either with your medical aid and financial advisor. |