What should members be looking for when choosing a medical scheme? It’s not just about cost. Here’s a round-up of important considerations that may be overlooked.
As we approach year-end about 9 million South Africans will be choosing their medical scheme option for 2025. Prospective and existing members should give this matter serious consideration and be very curious when making this decision. Medical schemes are complex financial products and require time and attention to understand their benefits and limitations. Each medical scheme option has a monthly contribution that is linked to defined benefits set out in the scheme rules.
Types of medical scheme cover
The types of medical schemes available differ by “contribution” and “richness of benefits”.
Medical scheme options can be categorised as follows:
- Leaner benefits – namely hospital plans
- Partial cover plans
- Richer benefits – like comprehensive plans.
The leaner the benefits, the larger the potential for out-of-pocket expenses.
The choice of medical scheme option is more than a budget exercise. Look both at the scheme’s contribution increase, and the corresponding benefit changes made. Some schemes may opt for a lower contribution increase whilst they decrease benefits.
You want to select a scheme with effective health risk management, reducing waste and abuse, which is critical for the scheme’s financial soundness and viability.
The average gross contribution for medical scheme cover in 2022 was R2 163,06 per person per month.
The total gross contributions collected in 2022 amounted to R233 billion. The question we need to ask is how well was this money spent on keeping patients healthy.
Remember, medical schemes are financial products providing their membership with specific funding for the medical services they receive.
Number of medical schemes and options
There are many medical scheme options to choose from. In 2022 there were 71 registered medical schemes, of which 17 were open schemes. (Open schemes must accept any applicant regardless of age or health status as long as one pays the contribution – restricted schemes restrict membership to a specific employer or profession.)
Each registered medical scheme has a number of options that one can belong to. A recommended approach in making a choice is to select the medical scheme one feels is performing the best, and then to select the one option that meets your and your dependants’ affordability and health needs. The choice of medical scheme should be based on a number of objective criteria, and is best made with the assistance of a financial adviser.
How well the medical scheme is managed is critical to a scheme’s success. A medical scheme is managed by a board of trustees that should always act in the best interests of their members. The board of trustees has a collective responsibility to ensure they have the skills and knowledge to manage the scheme and the scheme risk – including health risk – effectively. The members should ensure that the trustees they have elected have the necessary skill and knowledge to act in their best interests.
Medical schemes are either self-administered or have an appointed third-party administrator. The administrator performs the day-to-day running of the scheme with functions that include membership, claims payment, call-centre management and financial management. The effectiveness of the administrator is important for the member’s experience. The board of trustees is responsible for appointing the most cost-effective administrator and for measuring the service levels.
Health risk management
There are a number of ways to manage the health risk of a medical scheme in an attempt to keep contributions affordable and achieve the desired patient health outcomes. It is a balancing act!
Crafting benefits to this end is both an art and a science and requires a high level of skill. Benefit design starts with providing benefits for health services that are medically necessary. In an attempt to make members aware of costs and take some responsibility for spend, the scheme may design the benefits to include benefit limits, co-payments, deductibles, scheme exclusions, and medical savings accounts. The effectiveness of benefit design in managing the use of benefits for what is medically necessary needs to be measured. There can be unintended consequences leading to an increase in the utilisation of benefits. A common example of an unintended consequence is being unnecessarily admitted to the hospital so that the medical scheme beneficiary can get the “out-of-hospital” benefits paid from the risk pool and not the member’s savings account.
In managing health risks for the scheme, the trustees can also contract with managed care companies to provide managed care programmes. Managed care programmes link a patient’s condition and severity to benefits, limiting the benefits to what is medically necessary. In this way, schemes manage fraud, waste, and abuse. Waste and abuse includes over-servicing, where the provider investigates and treats more than what the patient’s condition requires. The managed care programmes include designated service provider networks whereby schemes limit the choice of provider to one that is contracted with the scheme, pre-authorisation programmes, disease management programmes, formularies, and protocols. The board of trustees should measure the effectiveness of their managed care programmes in relation to cost savings and improving health outcomes.
Efficiency discounted options (EDO)
There has been an increase in the number of schemes with EDOs in the past few years. Efficiency discount options in medical schemes operate as a special dispensation whereby schemes offer discounts on monthly contributions by managing access to care to directly contracted networks of healthcare providers.
The aim of managed care programmes is to move towards care coordination with an emphasis on primary health care, restricting choice of provider to a scheme network and paying providers using alternative reimbursement models other than fee-for-service.
The question is: How much more effective can medical schemes be in managing their health risk, and becoming more affordable? We look at the CvB ratio to assess schemes financial soundness and viability.
Contribution vs benefit ratio (CvB) and scheme solvency
The CvB ratio represents the percentage of contributions spent on healthcare expenses. The ideal amount is 85%. The graph shows, except in 2020, medical schemes are spending more than the ideal 85% mark. Non-healthcare expenses must still be paid.
From these figures, schemes will need to use reserves for a portion of the non-healthcare expenses.
Scheme solvency
A medical scheme is required to maintain a minimum of 25% of gross annual contributions as accumulated funds. This is to protect members in the event of an increase in healthcare expenses not budgeted for. From the graph below you can see that schemes have achieved on average the legislative requirement. However, this on its own does not mean that schemes are financially sound.
Member activism is important! Members should be ‘active’ in managing their medical scheme by getting involved in trustee elections and attending the annual general meeting.