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Th e Regulatory Framework in the Healthcare Insurance Industry: In the Interest of Beneficiaries and Public

Authors:
  • Independent Researcher

Abstract

Effective regulatory framework is the key to delivery systems that create a well functioning healthcare environment, this article provides an analysis of the regulatory framework of private health insurance as it relates to the protection of beneficiaries and the public within South Africa context. The Council for Medical schemes (CMS) which is the statutory body established in terms of the Medical Schemes Act 131 of 1998 to provide regulatory oversight to the medical schemes industry in a manner that is complementary with national health policy. Medical schemes that are regulated by the CMS are insurance institutions that cover medical expenses and provide health care insurance in the private sector in South Africa. Medical schemes reimburse their members for actual expenditure on health. A regulatory framework must protect the interests of Beneficiaries, thus CMS continues to effectively engage on regulatory and policy developments in the health and insurance industries to ensure that the rights of South African Beneficiaries are protected at all times.
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Effective regulatory framework is the key
to delivery systems that create a well func-
tioning healthcare environment, this arti-
cle provides an analysis of the regulatory
framework of private health insurance as it
relates to the protection of beneficiaries and
the public within South Africa context. The
Council for Medical schemes (CMS) which
is the statutory body established in terms
of the Medical Schemes Act 131 of 1998 to
provide regulatory oversight to the medi-
cal schemes industry in a manner that is
complementary with national health policy.
Medical schemes that are regulated by the
CMS are insurance institutions that cover
medical expenses and provide health care
insurance in the private sector in South Af-
rica. Medical schemes reimburse theirmem-
bers for actual expenditure on health. A
regulatory framework must protect the in-
terests of Beneficiaries, thus CMS contin-
ues to effectively engage on regulatory and
policy developments in the health and in-
surance industries to ensure that the rights
of South African Beneficiaries are protected
at all times.
Introduction
An e ective regulatory framework is critical
to delivering system reform and to creating
a well-functioning healthcare market[13].
is paper presents such a framework with-
in the South African context; we give an
outline of goals that a regulation should ad-
dress. It is important to note that the South
Africa’s health system consists of a large
public sector and a smaller private sector.
e public sector is under-resourced and
over-used, while the private sector caters to
middle- and high-income earners who tend
to be members of medical schemes (16% of
the population in 2009, not signi cantly dif-
ferent to the 15% cover by medical schemes
in 2000).  e demographic structure of
medical schemes implies a di erently struc-
tured health system to that of the general
population.  is is a worrying factor on the
resulting e ciency of the health system as a
whole, given the substantial resource alloca-
tion bias in favour of the medical scheme
market. In 1994, the National Depart-
ment of Health (DoH) allowed medical
schemes, which are primary to paying for
private health care, to be regulated[16]. e
Medical Schemes Act 131 of 1998 gives
the Council for Medical Schemes (CMS)
power over medical schemes; the CMS
regulates not only medical schemes, but also
health insurance brokers, medical scheme
administrators and managed care organi-
sations[12]. It also imposes much stricter
controls upon medical schemes themselves
in terms of corporate governance, nancial
and membership requirements, and provi-
sion of bene ts. e Act states the functions
of the Council in a far more purposeful and
consumer-oriented terms, with a de ned
focus on the protection of the interests of
medical scheme members.
To achieve its regulatory goals, the o ce
of the Registrar participates in the con-
sultative process which aims to demarcate
medical schemes from health insurance be-
cause it is the case that the encroachment
of risk-rated health insurance products into
the business of medical schemes results in
cream-skimming the young and healthy,
unfair discrimination against the old and
sickly, and a risk to the sustainability of
the medical schemes industry[7]. Another
critical element of regulating the private
health care sector is to, on an ongoing basis,
revise bene t and contribution structures
to protect community rating, which is the
principle that all bene ciaries on the same
bene t option pay the same contribution,
and that contributions may vary based only
on an individual’s income, number of de-
pendants, or both [12]. e regulator of
medical schemes is in support of the initia-
tion of a proper consultative and research
process towards the development of a regu-
latory framework for collective bargaining
between healthcare providers and funders
(including the review of the National
Health Amendment Bill).
e Bill was published for comments in
2006 with the  nal comments at the end of
February in 2007. e new draft of the Bill
was submitted to the Minister of Health in
Monwabisi Gantsho Michael Mncedisi Willie
SOUTH AFRICA Healthcare insurance industry
e Regulatory Framework in the Healthcare
Insurance Industry:
In the Interest of Bene ciaries and Public
wmj 1 2011 5CS.indd 9 21.02.2011 16:28:00
10
Healthcare insurance industry SOUTH AFRICA
July 2007, and is awaiting discussion and
signature of the State President in Parlia-
ment.  e Bill seeks to address among other
key topics the governance issues for medical
schemes, including the  t and proper status
of trustees.  e Bill also seeks to change the
manner in which bene ts are designed, so as
to improve transparency and further reduce
incentives for unfair discrimination.
Goals of regulation
e role of market regulation is to facilitate
the delivery of overarching policy objectives
through economic regulation and consumer
protection[13].  e objective of this arti-
cle is to assess the regulatory framework as
it relates to the protection of bene ciaries,
thus we focus on the following goals of reg-
ulations, the regulatory framework[3].
• Ensuring services (and goods) are safe
and of high quality.
Ensuring fair access to services and
(where relevant) also ensure choice of
provision.
• Ensuring  nancial solvency of medical
schemes.
• Ensuring transparency and fairness in
the contractual relationship between the
medical scheme and bene ciary.
Ensuring that health insurance packages
provide adequate  nancial protection.
• Managing key externalities and by-prod-
ucts of service provision.
• Governance of medical schemes.
Regulation in advanced
market economies
e regulatory framework of private health
care insurance industries is administered
by a government agency or agencies that
implement statutory requirements, usually
with the authority to establish administra-
tive rules and procedures[9].  is section
discuses the some of the regulated activities
within the health sector and core functions
of such regulating entities.
Licensing of medical schemes,
administrators, managed
care entities and brokers
A major reason for having regulation is to
protect regulated industries from instability
and lack of consumer con dence caused by
poor administration and trading systems.
Setting up minimum registration and ac-
creditation rules and regulations ensures the
e cient functioning of market mechanisms.
Establishing minimum standards and ac-
creditation rules reduces additional costs of
overhead spreads created by arti cial mar-
ket signals that are driven by health insur-
ance administration functions. e Medi-
cal Scheme Act gives the CMS regulatory
powers over medical schemes, managed care
entities, brokers, and administrators. e
functions of the CMS are included in Sec-
tion 7 of the Act. For the purpose of this re-
port, the regulatory functions are expanded
using literature on regulatory theory [7];
they are listed are as follows:
Supervising the conduct of registered in-
termediaries by the Council’s line and sta
functions, through the implementation of
rules-based bureaucratic style of carrying
out Council’s governance function:
• A managerial approach to the regulator’s
function of stewardship, controlling con-
duct by means of quantitative benchmarks
and/or qualitative scorecards, monitoring
observance to preset speci cation and
performance standards by registered in-
termediaries
A collaborative governance approach
which allows for a joint learning process
in developing health insurance regulatory
policy by:
- con guring formal cooperative
interfaces between the regulator’s
internal operational line functions
and sta function (specialist ad-
visors) channels, for the bene t
of strengthening the responsive-
ness of benchmark or peer review
policy tools, economic incentives
and reducing market uncertainties
(market stability and institutional
sustainability);
- Increasing the scope of regulatory
transparency and democratizing
administrative justice processes by
making the Registrar’s O ce and
market information more accessible
to medical scheme members
Policing registered institutions in terms
of their observance of rules for minimum
compliance and mandatory standards inter-
mediaries, such as the observance of:
Rules of minimum compliance and ap-
proval requirements for the registration
of medical schemes and other institutions
within the regulator’s jurisdictional regu-
latory environment.
• Mandatory compliance standards.
•  e regulatory function of: Legal en-
forcement of provisions emanating from
the Act and other forms of precedence,
such as behavioural incentives legitimat-
ed by enabling rules and guidance no tices.
•  e regulatory function of: Adjudicat-
ing over grievance applications made by
medical scheme enrolees.
•  e regulatory function of: Educating
& Communication of the regulator’s  -
duciary duty to medical scheme enrolees
and, the strengthening of the governance
function’s role of demonstrating account-
ability over regulated stakeholder and
medical scheme members.
•  e regulatory function of: Sanctioning
the business of medical schemes and the
administration of health insurance busi-
ness functions.
•  e regulatory function of: Observing
Fiduciary Obligations arising from Prin-
cipal-Agent market relationships by, gov-
erned schemes and other registered inter-
mediaries and, the Regulatory Body itself.
Solvency Regulation
Solvency regulation includes solvency mon-
itoring, capital requirements, other controls
on medical scheme behavior (for example,
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Healthcare insurance industry
SOUTH AFRICA
investment regulations) and, in many cas-
es, establishment of bene ciary protection
schemes to pay speci ed claims against in-
solvent medical schemes [9]. Bene ciaries
pay contributions towards medical schemes
for future health care spending and the  -
nancial capacity for the scheme to respond
to claims/ pay for healthcare spending is de-
pendent on the schemes viability and  nan-
cial soundness. It is of note that the claims
can potentially exceed the sum of the total
premiums/ contributions received and this
is critical to the viability of the scheme.
With solvency regulation, bene ciaries del-
egate responsibility for monitoring solvency
to regulators, as this is also the case in South
Africa. Regulatory monitoring might detect
medical scheme  nancial problems early
enough to prevent insolvency. In other cases,
monitoring can help regulators intervene
before the de cit between an insolvent med-
ical scheme’s assets and liabilities becomes
large. Some degree of regulatory restrictions
on medical scheme risk taking (for example,
investment limitations and capital require-
ments) could be e cient for this reason.
Solvency is measured in terms of Regulation
29 of the Act. e net assets, after deduct-
ing assets set aside for the speci c purpose
of and unrealized non distributable reserves,
are also referred to as “Accumulated Funds”.
Regulation 29 prescribes the “Minimum ac-
cumulated funds” expressed as a percentage
of “Gross annual contributions” is referred to
as a solvency level.
e Medical Schemes Act requires schemes
to maintain a solvency of at least 25%[12].
In the same breath, a solvency level below
25% does not necessarily mean that the
scheme is experiencing  nancial di culties.
Similarly, extremely high solvency levels are
not an indication that a scheme is in “per-
fect”  nancial position. Figure 1 shows the
number of schemes strati ed by the (>25%)
and (≥25%) stratum. e phasing in of the
statutory solvency reserve requirements was
from 2000 to 2004, and upward trend in the
number of schemes in the ≥25% stratum
is seen until 2004, from 2005 a downward
trend is observed and the number of schemes
in ≥25% stratum declined signi cantly by
21% from 111 to 88 medical schemes. e
declining trend also correlates to the con-
solidation in the medical schemes environ-
ment.  ere were no signi cant declines in
<25% stratum from 2004 to 2009. Solvency
ratio is one indicator used as a benchmark to
measure the “ nancial health” of the scheme
and a noteworthy feature of the ratio is that
it triggers interventions on the  nancials
of the medical scheme. us the regulator
of medical schemes consistently monitors
solvency levels of medical schemes together
with other ratios, such as investment income,
non-health expenditure, and membership
pro le. In ensuring the consumers’ willing-
ness to pay contributions for private health
insurance, e ective regulation requires that
schemes are  nancially sound such that they
are able to reimburse their members for the
actual expenditure on health.
Bene t option packages, Scheme
Rules, Pricing and Risk Selection
Many governments signi cantly restrict
private health insurance pricing and risk se-
lection (underwriting), including imposing
limits on rate di erentials among di erent
buyers, guaranteed-issue requirements, and
guaranteed-renewability rules. Some gov-
ernments require medical schemes to ob-
tain prior regulatory approval of certain rate
changes [9]. In South Africa, the Council
is mandated through the Medical Schemes
Act 131 of 1998 [12] to approve all the rules
before they are implemented by the schemes
(s31).  e Council also has to ensure that all
proposed new bene t options, restructured
options, and new schemes, are assessed fully
for viability before they are registered in
terms of section 33(2). e most important
components of section 33 of the Act include
the following. A medical scheme:
May apply for the registration of more
than one bene t option.
Shall be self-supporting in terms of
membership and  nancial performance.
• Is  nancially sound.
Will not jeopardize the  nancial sound-
ness of any existing bene t option within
the medical scheme.
Regulation 4 of the Act states that medi-
cal scheme rules may provide members of
dependants a right to participate in only
one bene t option at a time. e referred
regulation that scheme rules may provide
that members may change options at the
beginning of the month of January each
year, and by giving written notice of at least
three months before such a change is made.
It is also stated that a medical scheme must
not in its rules, or in any other manner,
structure any bene t option in such a man-
ner that creates a preferred dispensation for
one or more speci c groups of members
or provides for the creation of ring-fenced
net assets by means of such bene t option.
e CMS also approves the amendments
of rules to scheme rules and evaluate these
in accordance to the required standards;
these include mid-year contribution and
bene t changes, new options, and the ef-
ciency discounted options for a number of
schemes.
Figure 2 illustrates structural di erences that
exist between open and restricted schemes
in terms of bene t options.  e 2009 data
showed that 40% of restricted schemes,
compared to the 3% of open schemes, con-
sisted only of one bene t option. A similar
distribution exists in schemes with two ben-
e t options. However this trend is reversed
on schemes with four or more bene t op-
tions.  ere are many options in the open
schemes environment and this is worrying
as each represents a distinct package of ben-
e ts, thus members  nd it di cult to com-
pare products to see which o ers the best
value for money. Also, as a general rule, the
greater the number of bene t options, the
greater the costs of providing these bene ts.
e CMS continues monitor the registra-
tion of bene t options, ensuring that they
wmj 1 2011 5CS.indd 11 21.02.2011 16:28:03
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Healthcare insurance industry SOUTH AFRICA
are self sustainable, a ordable to enrollees,
and, indeed, do o er value for money.
Access to minimal level of care
Many governments regulate most language
by requiring certain contract provisions
and prohibiting others. Some governments
mandate minimum coverage provisions[9].
e concept of a minimum level of care is
central to the facilitation and achievement
of a more equitable and e cient qual-
ity health care system in South Africa.  e
Prescribed Minimum Bene ts (PMBs), as
provided for by the Medical Schemes Act,
have had the greatest importance. PMBs
are minimum bene ts which, by law, must
be provided to all medical scheme mem-
bers and include the provision of diagnosis,
treatment and care costs for:
• any emergency medical condition;
• a range of conditions as speci ed in An-
nexure A of the Regulations to the Medi-
cal Schemes Act[12], subject to limita-
tions speci ed in Annexure A; included
in this list of conditions are chronic con-
ditions.
PMBs were introduced to avoid inci-
dents where individuals lose their medical
scheme cover in the event of serious illness
and are put at serious  nancial risk due to
unfunded utilization of medical services.
ey also aim to encourage improved ef-
ciency in the allocation of private and
public health care resources. PMBs are not
only legislated, but they are the envisaged
platform for the national health insurance
package, which de nes the entitlement for
any person contributing towards such in-
surance. As a consequence, a package of
PMBs with a focus on catastrophic care
was developed as Annexure A in the Regu-
lations to the new Act in 2000. In terms of
the Regulations, the PMB package was to
be reviewed every two years by the DoH.
is review must involve the Council for
Medical Schemes (CMS), stakeholders,
provincial departments of health and con-
sumer representatives.
A review process of PMBs was begun by
the Council for Medical Schemes in 2008
[4]. Comments from the stakeholders on
the document were taken into account and
publication of the third draft of the re-
port in that process was published on the
CMS webpage.  is process was  nalized
in 2009/10 and the  nal draft regulation
was submitted to the Minister of Health for
consideration for possible publication in the
government gazette for public comments.
ere are, however, challenges with the im-
plementation of the Act and Regulations
relating to PMBs. In this regard the CMS
continues to engage with the provisions of
PMB regulations, including the “payment
in full” provisions contained in regulation 8
of the Medical Schemes Act.
Market conduct and unfair
trade practices
Insurance regulators often enforce legisla-
tion dealing with market conduct and unfair
trade practices, such as provisions related to
unfair claim settlement practices and po-
tentially deceptive sales practices by medi-
cal schemes and administrators [9]. e
regulator of the medical schemes in South
Africa actively participates in the consulta-
tive process which aims to demarcate medi-
cal schemes from health insurance. e of-
ce of the Registrar is acutely aware that the
encroachment of risk-rated health insur-
ance products into the business of medical
schemes results in cream-skimming, unfair
discrimination, and a risk to the sustainabil-
ity of the medical schemes industry.
E ective regulation of medical schemes
and the protection of bene ciaries– is criti-
cally dependent on all entities and products
being subjected to the rigorous oversight
and strict protections are contained in the
Medical Schemes Act. A serious threat
is posed to the sustainability of medical
scheme risk pools by the recent prolifera-
tion of insurance products which seek to en-
croach on the preserve of medical schemes.
us, the CMS continues to participate in
the demarcation work group established by
National Treasury to draft regulations in
support of certain amendments e ected to
the Long- and Short-Term Insurance Acts
Figure 1. Industry solvency trends for all schemes (2000–2009)
Source: [5]
119 112 111 109 111 108 102 97 92 88
30 30 31 26 22 21 22 25 22 22
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
year
< 25% ≥25%
Number of schemes
Figure 2. Distribution of bene t options across medical schemes (2009)
Source: [21]
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Healthcare insurance industry
SOUTH AFRICA
of 1998 by the Insurance Laws Amendment
Act (Act 27 of 2008). e work group com-
prises stakeholders from industry, govern-
ment, and regulatory authorities, and has as
its purpose consideration of the underlying
principles required to inform the drafting of
regulations to ensure that a clear delineation
of products is achieved so that the purpose
of the Medical Schemes Act is not under-
mined.  e di erences between the Medi-
cal Schemes and Insurance Products is out-
lined in table 1.
e Medical Schemes Act also states that
it is not a good practice to market, adver-
tise or in any other way promote a medi-
cal scheme in a manner likely to create the
impression that membership of such medi-
cal scheme is conditional upon an applicant
purchasing or participating in any product,
bene t or service provided by a person other
than the medical scheme. us, it is an of-
fense to conduct practices that are not in
line with the scheme rules, and the CMS
secures adequate protection for bene ciaries
by approving the manner in which medical
schemes carry out business, including the
products o ered by medical schemes and
schemes’ compliance with Section 21A.
Information disclosure and
consumer complaints
Many governments make available con-
sumer buying guides and other information
about medical schemes contracts. In the
United States, many jurisdictions provide
contribution rate comparisons, and some
publish counts of consumer complaints
against medical schemes. Section 48 and 49
of the Medical Schemes Act provide that
the Council has authority to resolve com-
plaints between medical schemes and their
members.  is process requires that com-
plaints to be made in writing to the Reg-
istrar, who must then pass on the details of
the complainant to the party that is subject
to the complaint. e party against whom
the complaint is made has 30 days in which
to respond to the Registrar. e Registrar is
required to resolve the dispute or submit it
to Council, which is expected to take neces-
sary steps to resolve the complaint. e fol-
lowing are key problem areas in the medical
schemes industry, according to an analysis
of complaints data in 2010[6].
• Intermediary behaviour and the func-
tional dimensions of the registered en-
tities were identi ed as one of the key
problem areas that need to be addressed
and monitored closely.
• Lack of product quality and standardiza-
tion is a policy problem is caused by exter-
nal factors, related to capitalizing on op-
portunities to take advantage of un-priced
risk positions by market participants.
Fiduciary duties of intermediaries, duty
to disclose and/or unilateral mistake vs.
moral hazard and risk-selection are com-
plaints are largely related to non-clinically
related entitlements. Undesirable conduct
is due to incomplete markets and char-
acteristics of such markets creating bar-
riers to accessing healthcare. ese were
identi ed as one of the biggest changes
that threaten the systematic sustainability
in the industry.
Conduct inducing market uncertainty is
one of the contributing factors that relate
to systematic sustainability in the indus-
tr y.  ese complaints relate to the restruc-
turing of  nancial & operating capital
and contingencies impacting risk hazards
in market environment.
Clinical treatment, formularies and pro-
tocols were also identi ed as one of the
key problem areas dealing with the sys-
tematic sustainability in the medical
schemes industry. Section 29(1) & An-
nexure A of the regulation of the Medical
Schemes Act 131 of 2008 is to be used
as a base or control measure for clinical
treatment, formularies and protocols re-
lated types of complaints.
e data analyzed by the CMS showed
that social regulation, which also relates to
Table 1. Di erences between Medical Schemes and Insurance Products
Source [16]
Medical Schemes Insurance Products
Medical Schemes Act 1998 Long Term Insurance Act 1998 and Short Term
Insurance Act 1998
Governed by the Council for Medical
Schemes
Governed by the Financial Services Board
May not refuse to admit prospective
members
Have the right to refuse to insure an individual on
the grounds of carrying too high risk
May not make pro t Insures are listed companies which aim to make a
pro t for their shareholders
Seek to match premiums and bene ts
paid over the period of a year
Rely on underwriting and actuarial skills to predict
future claims experience for given categories of
insured persons over long-term
Medical scheme reimburse members
for the actual medical expenses
Insurance companies pay policy holders a pre-
agreed  xed rate in the event of a claim
Can be paid directly to the provider of
the service, a doctor or hospital
Must be paid to the policy holder, not the provider
of the service
Registered medical schemes have to
provide certain bene ts and may not
charge a member contributions based
on your
Insurance policies may refuse to sell a policy to
an individual or may weight premiums according
to perceived extra risk. Insurance companies are
allowed to evaluate an individual’s life style and
general state of health before selling a policy for
‘dread diseases cover/for example
wmj 1 2011 5CS.indd 13 21.02.2011 16:28:06
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Laws, Rules, and Norms & Conventions of
Regulatory Institutions (456/469, 97.2%), is
most dominant in the medical schemes en-
vironment. Social Regulation [14] typically
focuses on policy levers that enhance con-
sumer welfare interventions within speci c
policy environments, thus the paternalistic
and normative values of regulatory philoso-
phy inform how regulators protect the inter-
ests of consumers. ere was a signi cantly
a small number of complaints that relate to
Economic Regulation– Institutional School
(1/469, 0.2%) and Economic regulation
neoclassical school (12/469, 2.6%).
In keeping with the Act’s emphasis on
complaints, in 2009, the Council embarked
on a process of revamping the complaints
system that captures complaints. is was
to ensure an e cient and accessible, com-
plaints processing system that will be an
instrumental tool of health system policy
analysis through strengthening the respon-
siveness of policy levers to consumer needs
and the advocacy of consumer interests.
e Governance of
Health Insurance
e Medical Schemes Act imposes strict
controls upon medical schemes themselves
in terms of corporate governance in en-
suring the protection of bene ciaries. e
framework for medi-
cal scheme corporate
governance is derived
from the common
law, King II and the
Medical Schemes
Act of 1998. A ma-
jor challenge facing
all trustees, including
medical aid trustees, is
to act “with due care,
diligence and the ut-
most good faith”. Sec-
tion 29 of the Act sets
out certain minimum
requirements to be
contained in the rules of a medical scheme,
with a view to protecting the interests of
members and also providing a framework
for good governance. In terms of section
24(2) of the Medical Schemes Act[12], no
medical scheme shall be registered unless
the Council is satis ed that members of the
board of trustees and the principal o cer
of the proposed medical scheme are  t and
proper persons to hold the o ce concerned.
e statutory duties of the board of trustees
of a medical scheme, however, derive pri-
marily from the provisions of section 57 of
the Act.  ese include: appointment of the
principal o cer; accountability for opera-
tions of the scheme and resolutions passed
by the board; ensuring that proper control
systems are in place; communication to
members on rights, bene ts, contributions,
and duties in terms of rules of the scheme;
ensuring timely payment of contributions
to the scheme; procuring professional in-
demnity insurance and  delity guarantee
insurance; obtaining expert advice on legal,
accounting, and business matters as re-
quired; ensuring compliance with the Act;
and protecting the con dentiality of mem-
ber information. Ongoing governance fail-
ures among medical schemes prompted the
Council for Medical Schemes to undertake
a project to review their governance prac-
tices and to identify the key determinants
of governance failures. e  ndings and rec-
ommendations of the Council’s “Govern-
ance  eme Project” were released in mid
2006, to recommend additional strategies
to improve medical scheme governance and
to mitigate the risk of governance failure.
Out-of-pocket payments
Out-of-pocket health expenditures rep-
resent a signi cant burden on households
globally. Most private health expenditure
comprises out-of-pocket payments for
health care, and this includes user fees or
co-payments for insurance covered services,
payments for health service not covered by
the insurance and informal payments to
providers. Private health expenditure ac-
counted for 40% of total health spending
in the EAC countries compared to the 27%
in countries that are members of the Or-
ganization for Economic Cooperation and
Development (OECD). In Latvia, out-of-
pocket expenditure for health care repre-
sented 4.7% of household expenditure[20].
Health services funded by medical schemes
only bene t the 15% of the population who
were members of these schemes in 2000;
this  gured moved slightly to 16% in 2009.
Medical schemes cover 16% of the popula-
tion; this population uses the private sec-
tor on an out-of-pocket basis for primary
care but is almost entirely dependent on the
public sector for hospital care[11]. e to-
tal household expenditure in South Africa
in 2007 was R148.5 billion. 19% of this was
the out-of-pocket payments, which means
that the spending over and above the medi-
cal schemes contributions was R28 bil-
lion[16]. e  gures presented in the  gure
4 below show South Africa as the second
lowest out-of-pocket expenditure with ref-
erence to other countries.
e Medical Schemes Act lays down the
minimum bene ts bene ciaries should re-
ceive from their medical scheme; these are
bene ts that schemes must by law pay for
in “full”. Earlier in 2009, a task team on the
Healthcare insurance industry SOUTH AFRICA
Figure 3. Nature of regulation classi cation
Source: [6]
As a percentage of the selcted sample (%)
97.2 0.2 2.6
0
20
40
60
80
100
120
Socila Regulaon-Lawas,
Rules, Norms, &
Convenons of regulaon
Economic regulaon-
neoclassical School
Economic Regulaon-
Instuonal School
Nature of regulaon
wmj 1 2011 5CS.indd 14 21.02.2011 16:28:07
15
PMBs was set up by the Registrar com-
posed of the Council for Medical Schemes,
medical schemes, healthcare providers and
patient rights groups, who are working on
clarifying how the PMBs are de ned and (at
the time of writing this article) this process
was still in progress. e outcome of this
process could result in schemes becoming
liable for more healthcare costs; the success-
ful implementation of PMB could possibly
o er members the potential to save on out-
of-pocket expenses and contribution costs.
Contribution increases
Increases in excess of the CPI create an af-
fordability challenge for bene ciaries because
medical scheme contributions comprise a
larger proportion of household expenditure.
When the pricing of bene t options in-
creases it is often followed by a downward
migration of bene ciaries to cheaper bene ts
options. Contribution increases are moni-
tored by the CMS on annual basis to ensure
the a ordability of premiums by bene ciar-
ies.  e average increase in contributions per
option is compared to a benchmark of CPIX
+ 3%. Options that re ect increases greater
than this benchmark are requested to provide
further justi cation for their increase. is is
used as a guideline by the o ce to ensure
that contribution increases are justi ed and
fall within a reasonable range.
e nominal increase in average risk con-
tributions per average bene ciary (as per
scheme  nancials) from 2006/2007 was
9.9% and the comparing  gure for period
2009/2010 was 11.6% for the open schemes
market, which was slightly higher than the
restricted schemes.  e average increase for
restricted scheme in gross contribution per
average bene ciary per month was 3.9%
for 2006/7 and the comparing  gure for
2009/10 was 11.6%. e contribution in-
creases proposed by the schemes in 2009/10
were 15.7% (a deviation of 4.1% from the
actual) for the open schemes and 12.7%
for the restricted schemes (a deviation of 1,
1% from the actual). e considerable dif-
ference between these estimated contribu-
tion increases and the actual increase in the
average contribution income of schemes
indicates that some bene ciaries bought
down from more comprehensive options
to cheaper options, with the consequent
dampening e ect on contributions. is
phenomenon is more pronounced in open
schemes than the restricted schemes. e
CMS vigorously investigates the contribu-
tion increases and also monitors the a ord-
ability and access to healthcare within the
medical schemes industry, which is done
through the cost containing strategies.
Non-healthcare costs and
contribution increases
Accredited entities, including medical
schemes, administrators, brokers and man-
aged care entities do not always act in the
best interests of scheme members and the
public at large. “Many schemes and admin-
istrators attempt to in uence brokers to
Healthcare insurance industry
SOUTH AFRICA
Percentage of Total
0
10
20
30
40
50
60
70
80
Out-of-pocket
Private insurance
Social sicurity
General government
South
Africa
VietnamColumbiaTaiwanMexicoSouth
Korea
ThailandJapan
Figure 4. Out-of-pocket payments (Country comparisons)
Sources: [22]
Figure 5. Contribution rate changes (2001–2008)
Source: [5]
wmj 1 2011 5CS.indd 15 21.02.2011 16:28:08
16
advise clients to choose a particular scheme
by bidding up broker commissions. is was
what largely necessitated the regulated cap-
ping of broker fees from 2004. However, the
regulatory regime still has loopholes allow-
ing con icts of interest to exist by permitting
schemes to pay the fees in respect of advice
to members.  e con icts substantially re-
duce the quality of advice in the market and
permit schemes to avoid being wholly re-
sponsive to members and bene ciaries”,[4].
Figure 6 illustrates the increase in broker
fees relative to membership of schemes that
pay brokers. Broker service fees have been
rising sharply over the past few years, result-
ing in rates of increase now far exceeding
the increases in number of members. For
those schemes that paid brokers, broker
service fees PAMPM (per average mem-
ber per month) increased by 169.6% since
2000 compared with an 81.6% net increase
in the average number of members. e
substantial increases in broker service fees
are not proportional to the increase in new
members in the medical schemes environ-
ment[5], and this poses questions whether
the brokers are indeed adding value to the
medical schemes.  e CMS has started ini-
tiate consultative processes to propose the
revision of the regulatory framework for the
remuneration of healthcare brokers.
Expanding coverage and
health work force
Regulated private insurance coupled with
various social health insurance options and
government subsidies represent the mid-
dle-income country route toward build-
ing a universal system. ere has been a
lot discussion about introducing National
Health Insurance (NHI) in South Africa.
“ e  rst phase of the project will be rolled
out in 2012, and will focus primarily on
bringing services to areas with little or no
access to quality healthcare and thereafter
be extended to other areas of the country.
Providing universal coverage for all South
Africans, irrespective of whether they are
employed or not should aim to ensure eq-
uity and solidarity among the population
through the pooling of risks and funds.
e NHI calls for mandatory membership
for all South Africans through mandatory
contributions and social solidarity, it is up
to the general public to continue with ad-
ditional voluntary cover with the medical
schemes after they have contributed to the
NHI Fund” [1]. Private health insurance
plays a large and increasing role around
the world and it is envisaged that even in
South Africa the medical schemes could
be an important component of achieving
universal coverage. One possibility is envis-
aged in which medical schemes continue to
operate in an NHI setting and function as
a supplementary cover; this is, of course,
with reference to the international experi-
ences and is also dependent on de nition
of the NHI package. A word of caution is
to learn from the international experiences,
so as to mitigate the shortcomings of es-
tablishing such a fund and also to be aware
of the di erent characteristics between
countries.
As South Africa prepares for the imple-
mentation of the NHI, one of the key chal-
lenges that needs to be addressed relates to
the health work force. “ ere is a massive
global shortage of health workers and these
are most intensely in developing countries,
the reasons for shortage in health workforce
are multitude including underproduction,
misdistribution of health workforce, health
workforce exit and increase in demand of
health care. Many countries in the world
with acute shortage of health workforce
face a lack of medical schools. For an in-
stance, two thirds of sub-Saharan African
countries have only one medical school
and some have none”[17].  e number of
nurses in South Africa, as estimated by the
WHO, is 18000 and these professionals are
serving a population of nearly 49 million.
is translates to 3.8 per 1000 patients
signi cantly smaller than the 9.4 and 7.7
per 100 patients in the US and Canada
respectively[16].  e national shortage of
health care workers is critical to the imple-
mentation of the NHI and key areas of at-
tention for the initial roll-out of the NHI
are being discussed. ese include investing
and rebuilding the country’s public health
infrastructure, developing human resources
programs to  ll the national shortage of
quali ed health workers, and establish-
ing a national health fund that would be
ensconced in the Ministry of Health but
operate autonomously. e CMS’ expertise
and 10 years of experience can also play a
vital role in making NHI Fund work e -
ciently.
Healthcare insurance industry SOUTH AFRICA
Figure 6. Broker fees and scheme membership
Source [5]
230 289
354
581
704
848 903
980
1107 1125
1.3
1.5
1.8 1.9 1.9 22.1 2.2 2.2 2.3
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
0.5
1
1.5
2
2.5
Million ( R )
members (millions)
Broker fees Average members
wmj 1 2011 5CS.indd 16 21.02.2011 16:28:09
17
Healthcare insurance industrySOUTH AFRICA
Conclusions
e ultimate responsibility for the overall
performance of a country’s health system
lies with government, which, in turn, should
involve all sectors of society, promoting
the spirit of cooperation and partnerships
among private and public health profes-
sionals. A government has the responsibility
for establishing the best and fairest health
system possible with available resources and
the oversight and regulation of private sec-
tors, which must form part of the overall
government response, must be high on the
policy agenda.
Regulation of private health insurance
should not only provide oversight to private
health insurance companies but it should
also focus on encouraging demand for cov-
erage and otherwise facilitating the entry
and expansion of access to health care. is
will then result in an environment where
a greater proportion of the citizens of the
country have access to good quality health-
care. In the South African context, the pri-
vate sector is critical to the implementation
of the NHI fund, and policy makers need to
confront the role that private health insur-
ance will play. Regulatory approaches and
policies can structure private health insur-
ance markets in ways that mobilize resourc-
es for health care, promote  nancial risk
protection, protect consumers, and reduce
inequities. Regulatory frameworks for pri-
vate health insurance need to be structured
in such a way that they regulate the sector
appropriately so that it serves public goals
of universal coverage and equity
E ective regulation ensures the protection
of bene ciaries and includes a critical re-
sponsibility to ensure  nancial solvency of
the schemes.  is is achieved by establish-
ing risk-based solvency and minimum capi-
tal standards to mitigate risk for the insured
population and employers. e rationale for
an e ective regulation framework should
mandate disclosure requirements for poli-
cies and costs requiring that their content
is understandable to consumers and that
the consumers are informed of their rights.
Promoting equity involves ensuring access
to health care by all income strata of the
population, and minimizing risk skimming
and adverse selection, which distort health
insurance markets, and this is also a key
policy goal for e ective regulation. Govern-
ment policy needs to provide a framework
that result in coverage for a minimum level
of essential services, irrespective of whether
it is provided in the public or the private
sectors. Given the existence of perverse in-
centives in unregulated markets for health
care, any regulation must pay careful atten-
tion to the incentives generated. e use of
mixed systems for covering and providing
health care, combined with the correct ele-
ments of choice, is the best approach to bal-
ancing health care objectives with the need
for operational e ciency.
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20. Xu, K et al. (2009), Access to Health Care and
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Payments in Latvia
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relation and multilevel modelling of contribu-
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22. World health organisation (2004), Discussion
paper number 3: Private health insurance: im-
plications for developing countries
Dr. Monwabisi Gantsho,
Mr. Michael Mncedisi Willie
Council for Medical Schemes, South Africa
Email: m.gantsho@medicalschemes.com
wmj 1 2011 5CS.indd 17 21.02.2011 16:28:11
... Th e services in the private sector accessed by close to 16% of the population that is covered by medical schemes as reported in 2009, the proportion of the population that benefi ts from rich resources off ered in the private sector in 2009 was not signifi cantly diff erent to the 15% cover in 2000. Th is means that a decade later there has not been a signifi cant growth in coverage by medical schemes and yet the private sector takes up the bigger chunk of health care expenditure [13]. Figure 3 depicts the trend of medical schemes coverage. ...
Article
Full-text available
Nearly two thirds of the South African population is affected by poor public health conditions. Hardly hit are the poor, in particular rural based communities. Due to infrastructure, underdeveloped roads in rural areas it is not easy to get to a health facility. These communities often have fewer workforce including doctors, dentists and certain specialists and in some instances primary health care services might not even be available. Th e objective of this article was review government health expenditure, health insurance coverage and distribution of health facilities and how these impact on the Eastern Cape rural communities. We focused on the Eastern Cape Province because the private health coverage is minimal and provision of primary health care services often fails to reach the targeted population. We then recommended interventions that could be employed to overcome some of the barriers to care.
Article
Full-text available
Medical schemes are insurance institutions that cover medical expenses in South Africa. These institutions reimburse their members for actual expenditure on health. The Medical Schemes Act (Act 131 of 1998) defines the business of a medical scheme as the business of undertaking liability in return for a contribution in order to make provision for obtaining any relevant health service. The Council for Medical Schemes (CMS) is an autonomous statutory body created by parliament to regulate the medical schemes industry in South Africa. The CMS handles complaints from members of medical schemes. The objective of the study was to assess factors that impact on the response time to complaints by members of medical schemes. Survival analysis techniques were employed to assess these factors. The regression models controlled for factors such as, medical scheme type, medical scheme size, severity of complaints and effects of the analysts. The model revealed the effect of analysts as a significant factor to response time to complaints. The findings of the study revealed useful results in terms of identifying analysts that take longer to resolve complaints. The study also revealed that the nature of complaints as an important factor to the response time. There is a need for the complaints department to be properly resourced and continuously train staff to ensure effective resolution of complaints in medical schemes.
Article
his chapter provides an overview of regulation of private health insurance in advanced market economies, particularly the United States. It considers the implications of such regulation for low-income countries that seek to expand the role of private health insurance in fi nancing medical care. Sugges- tions are offered for achieving an appropriate balance between "facilitating regu- lations," which create a positive environment for private health insurance in low-income countries, and "safeguarding regulations," which protect consumers and serve other public policy interests. Particular attention is devoted to regula- tion aimed at avoiding the destabilizing effects of potentially inadequate pre- miums in relation to insurers' promised payments. A second focus is regulation of private health insurance rates and risk selection. Two approaches for dealing with high-risk persons are contrasted: (1) signifi cant restrictions on rating and risk selection (community rating) that subsidize rates to the high-risk insured by increasing rates for the low-risk insured and (2) full risk rating apart from nar- rowly targeted limitations on risk selection, along with guaranteed-issue, high- risk pools with subsidized rates.
Book
The way in which regulation works is a key concern of industries, consumers, citizens, and governments alike. Understanding Regulation takes the reader through the central issues of regulation and discusses these from a number of disciplinary perspectives. This book is written by a lawyer and an economist, but looks also towards business, political science, sociology, social administration, anthropology, and other disciplines. The fundamental strategies, institutions, and explanations of regulation are reviewed and the means of identifying 'good' regulation are outlined. Individual chapters look at such topics as self-regulation, the regulation of risks, the cost-benefit testing of regulation, the importance of enforcement, and the challenge of regulating within Europe. The book's second part considers a series of issues of particular concern in modern utilities regulation, including the use of RPI-X price caps, the control of service quality, franchising techniques and ways of measuring regulatory performance. Questions of accountability and procedure are then examined and recent public debates on regulatory reform are reviewed. A central argument of Understanding Regulation is that regulation inevitably gives rise to political contention but that persons of different political persuasion can nevertheless converse sensibly on the search for better regulation.
A Critical Analysis of the Current South African Health System. Cape Town: Health Economics Unit
  • D Mcintyre
  • M Th Iede
  • M Nkosi
  • V Mutyambizi
  • M Castillo-Riquelme
  • L Gilson
McIntyre D, Th iede M, Nkosi M, Mutyambizi V, Castillo-Riquelme M, Gilson L, et al. A Critical Analysis of the Current South African Health System. Cape Town: Health Economics Unit, University of Cape Town and Centre for Health Policy, University of the Witwatersrand; 2007.
Developing an eff ective market Regulatory Framework in Healthcare
  • Monitor
Monitor, Independent Regulator of NHS Foundation Trust, "Developing an eff ective market Regulatory Framework in Healthcare", 2010. Available on www.monitor-nhsft.gov.uk 14. Ogus; A. (2002). Regulatory Institutions and Structures. Annals of Public and Cooperative Economics, Vol. 73, Issue 4, pp. 627-648.
Impact of Changes to the Medical Schemes Act. South African Health Review
  • D Pearmain
Pearmain, D. 2000. Impact of Changes to the Medical Schemes Act. South African Health Review
Health Care in South Africa. Available on www
  • L Still
Still, L. 2008. Health Care in South Africa. Available on www.profi le.co.za
  • A Van Den Heever
  • V Brijlal
Van den Heever, A. & Brijlal, V. 1997. Health care fi nancing. South African Health Review, (8), 81-89.
Health and Healthcare in South Africa
  • H C J Van Rensberg
Van Rensberg, H.C.J. 2004. Health and Healthcare in South Africa. First edition. Pretoria: Van Schaik Publishers.
Access to Health Care and the Fiancial Burden of Out-of-Pocket Health Payments in Latvia
  • K Xu
Xu, K et al. (2009), Access to Health Care and the Fiancial Burden of Out-of-Pocket Health Payments in Latvia
Discussion paper number 3: Private health insurance: implications for developing countries Dr. Monwabisi Gantsho, Mr. Michael Mncedisi Willie Council for Medical Schemes
  • Willie
  • P Nkomo
Willie, MM & Nkomo, P. 2010. Intraclass correlation and multilevel modelling of contributions data. First Global Symposium on Health Systems Research, 16-19 November 2010, Montreux, Switzerland 22. World health organisation (2004), Discussion paper number 3: Private health insurance: implications for developing countries Dr. Monwabisi Gantsho, Mr. Michael Mncedisi Willie Council for Medical Schemes, South Africa Email: m.gantsho@medicalschemes.com