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Low Cost Medical Schemes Proposed

The Council for Medical Schemes (CMS) issued Circular 9 of 2015 on 13 February. The document invites comments on the proposed introduction of a Low Cost benefit Option (LCBO) Framework.

The purpose of the framework is to provide schemes with the requirements which could lead to the establishment of low cost benefits for approximately 6 million people who are in formal employment, but who do not have medical scheme coverage. Accounting for spouses and dependent children this can be extrapolated to about 15 million people, according the media release. The LCBOs will aim to attract these people to the risk pool by addressing affordability issues and catering for the specific needs of the market.

The circular invites early comments from industry stakeholders on what detailed aspects to consider in developing such a guideline based on the proposed framework.

The Council also intends inviting at least four industry stakeholders to make presentations as well as a panel discussion on the framework at the 5th CMS Indaba taking place in Cape Town on 12 March 2015.

The Council provided some of the broader principles for consideration by the industry when formulating its response:

  • The principle of risk-pooling and its maintenance is a cornerstone of the Act. The framework aims to ensure that the existing medical scheme risk pool is not undermined or fragmented and views from the industry are sought as to how this can be maintained in the LCBO framework.
  • The MSA currently requires that all registered options include prescribed minimum benefits (PMBs). The proposed framework envisages a partial departure from the current requirement, but intends maintaining the content and objective behind PMBs to the extent to which affordability is not compromised.
  • The intention of the framework is to ensure continuation of care in a setting that may be “out-of-network”, based on the proposed coverage of the LCBOs. These products are typically developed on the basis of contracted networks of primary healthcare providers.
  • The Statutory solvency requirement in terms of the MSA is a principle that the framework intends maintaining as the requirement is intended to protect the financial integrity of a scheme.
  • In evaluating the value proposition of any suggested product, the affordability of the proposed contribution must also ensure that the benefits provided are optimised.
  • The purpose of the framework is to expand coverage to the persons not previously belonging to medical schemes (referred to as previously uncovered market). It is important to ensure that marketing of the LCBOs should be targeted at the previously uncovered market and that they are not misled into believing that they are purchasing a more comprehensive product than is actually the case.
  • Late joiner penalties should not be applied: The very rationale for exemptions is that these people were excluded from risk-pooling opportunities, not by virtue of voluntary risk selection, but instead by virtue of economic disadvantage.
  • The framework provides for the opportunity to be responsive to the needs of the environment, while at the same time ensuring that the policy objectives of open enrolment, community rating, consumer protection, non-discrimination and expanding risk-pooling objectives are demonstrably furthered with each exemption.

It will be interesting to see whether the Council will maintain its current stance on gap cover and other similar short-term products. The eventual introduction of low cost medical schemes will in fact make gap cover an even more attractive option, as low cost schemes will inevitably have lower benefits. Even if fees for medical services under the new scheme are substantially lower, certain specialist functions are simply too expensive for lower earners, even if provided at cost price.

Retaining supplementary cover for medical aid shortfalls can have a huge positive impact on the projected astronomical costs of a National Health Insurance policy. This should be borne in mind by the Council, both in terms of the new proposals, as well as the NHI policy.

Approaching different new initiatives in isolation will see the same kind of overlapping and confusion which reigned in the financial services industry, and led to the publication of the Financial Services Laws General Amendment Act of 2013.

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