Revision of the Benefit Framework for Medical Schemes

1. Revision of the Benefit Framework for Medical Schemes Office of the Registrar of Medical Schemes

2. Context

3. Minimum Benefits – need first to understand strategic framework of the health system • Public and private sectors are part of the overall health system • Different income groups have different needs and preferences • Entitlements need to be harmonized in a manner that will not prejudice social solidarity in any particular sector • Minimum benefit must be as comprehensive as possible and include all levels of care • The minimum benefit should be explicit and subject to a legislative framework

4. Minimum Benefits – need to understand strategic framework of the health system • The establishment of minimum benefits requires an ongoing process of engagement between society and government (not just the industry stakeholders) • Benefits need to adjust as the affordability constraint on the country changes • Objective criteria must be established to prioritize what should be included or excluded from the package • Objective standards and procedures need to be established to ensure that provision is cost-effective without compromising access and quality

5. Strategic framework for understanding minimum benefits – emerging concept Complementary insurance Public sector indemnifies users for services not covered by insurance instead of using a means test Hospital: public sector (no means test) Medical Schemes – Comprehensive cover consistent with PMB Minimum package for the country Out-of-hospital: public sector (no means test) LIMS – insured out-of-hospital Supplementary insurance Substitutive insurance Low-income High-income

6. Circular 8 – Medical Schemes

7. CONTEXT • Risk Equalization Fund • Require benefit framework that is consistent with the objectives of the arrangement • Remove gaming opportunities • Commercial medical schemes predominate • Members need to understand what they are buying • Providers do not price compete and are insensitive to affordability issues

8. PROBLEMS WITH SCHEMES • Silo design permits excessive risk-rating • Section 29(1)n is too restrictive and limits beneficial scheme designs • REF requires an industry-wide community rate which cannot reasonably be regulated in terms of the existing Act • Medical savings accounts are an anomaly in scheme design and require a more flexible framework

9. OBJECTIVES • Remove fragmentation • Remove risk-selection in relation to core benefits • Improve benefit transparency • Improve transparency of contributions • Improve access to PMBs • Remove opportunities for the arbitrary denial of benefits • Improve the quality of price competition between schemes • Foster the development of selective contracting

10. Existing Medical Schemes Environment Options PMB PMB PMB PMB PMB PMB PMB PMB PMB Scheme 1 Scheme 2 Scheme 3 Supplementary benefits Prescribed Minimum Benefits

11. Revised structure with expanded PMBs REF ensures the sustainability of a considerably more comprehensive PMB – scheme benefits also more standardised Supplementary benefits Prescribed Minimum Benefits Prescribed Minimum Benefits Prescribed Minimum Benefits Prescribed Minimum Benefits Scheme 1 Scheme 2 Scheme 3 Risk Equalization Fund

12. BENEFITS • Define ‘benefits’ separately from the provider • Coverage • Provider of coverage • Scheme common benefits • Mandatory • PMBs • All hospital benefits (not doing this will permit risk-selection by the back-door) • Supplementary benefits • Voluntary • Offered via ‘benefit options’ • Out-of-hospital only

13. PROVIDER CONTRACTS - PRICING • A differentiation from the community rated contribution will be permitted, where this involves a limited choice of provider which can be selected voluntarily by the member • This to apply to both the ‘common benefits’ and ‘supplementary options’ • This opportunity would apply differently where chronic benefits are concerned • Discount provided only to the chronic member • Scheme as a whole to benefit from the discount • Non-chronic members will not be permitted a specific contribution reduction for their choice of provider

14. CONTRIBUTIONS • Contributions become flat rate with no differentiation between principal member, adult dependant and child dependant • Ceiling on additional contributions for dependants be limited to a family of three • Family be defined for the purposes of determining contributions • Consideration of an extension in the age of a child dependant to cater for continuing education • Supplementary benefits ‘community rated’ by option • Non-health portion of the contribution made explicit, with admin, managed care and other expressed as a flat rate, and broker payments as prescribed

15. MEDICAL SAVINGS ACCOUNTS • Two options: • Option 1: Included as a deposit and credit facility offered via the scheme – but outsourced to banks • Option 2: External to schemes • A major obstacle in retaining MSAs in schemes involves the administrative burden • Tax advantage will in all likelihood be removed from MSAs irrespective of whether they are inside or outside a scheme • Existing arrangements are easily replicated as low-ceiling routine risk benefits – which can in any case be provided Feedback on this issue would be useful

16. FINANCIAL ASPECTS • No cross-subsidization should occur between the ‘scheme common benefits’ and ‘supplementary benefit options’ • Cross-subsidization be permitted between supplementary benefit options – but only where it moves from low risk groups to high risk groups • The ‘supplementary benefit options’ and ‘scheme common benefits’ be financially ring-fenced, with separate reserving

17. Useful issues for feedback • PMB expansion • Medical savings accounts • Financial ring-fencing (reserving) • Timing • Voluntary 2007? • Mandatory from 2008 • Pricing of supplementary benefits • Rating bands • Community-rated • Tariff-setting in relation to common benefits and PMBs (risks, options, NHRPL)

18. CONSULTATION PROCESS • Final inputs required by end March 2006 • Provisional framework will be incorporated in legislation • Draft legislation approved by Cabinet will be Gazetted for comment – this will include the REF framework • Results of the consultation process will be incorporated into the final draft of the legislation submitted to Cabinet in April 2006

19. END