Rob Rose: The Financial Mail,
THERE is only one way to reduce the cost of your medical care, and that is "basically, not getting any", quips comedian Dave Barry. South Africans are well aware of this trajectory: their medical aid contributions have climbed 48% between 1997 and 2005 to R8 077/year - and that's with inflation stripped out.
Council for Medical Schemes (CMS) chairman William Pick says these higher costs are a key reason why only 14% of people are part of a medical aid, down from 20% a few years ago.
Hospitals have been largely blamed for cost increases, but this isn't the full story. Medical aid schemes themselves have also padded unnecessary costs into the contributions they collect from the 7,4m medical aid members in SA.
What is most alarming is that for every rand spent on medical aid, a greater chunk goes to "non healthcare costs" - money used to pay administrators and others who don't actively provide any direct medical benefit to consumers.
In 1997, 8,4c of every R1 went to these non health costs. By 2005 it had doubled to 16c. Overall an average beneficiary paid 170% more for non-health costs in 2005 than they did eight years before. This is partly because "open schemes" have gained in popularity (closed schemes don't require marketing spend, for example). But the increase in costs is also due to poor governance of schemes.
Patrick Masobe, CEO of the CMS, told the FM that non healthcare costs are "a concern", but "governance is key to [controlling them]. We're hoping that the Medical Schemes Amendment Bill will make a big difference."
The bill is expected to be law before year-end. It will tackle the close link between administrators, such as Discovery Holdings, and supposedly independent schemes, such as the Discovery Health Medical Scheme.
Masobe says schemes need to have sufficient capacity to monitor the administrator’s performance. "In many cases, there is just one principal officer who spends half his time playing golf. We need more executive capacity around schemes, so they can interrogate what the administrators are telling you."
Discovery provides fascinating insight into why an independent board of trustees is necessary to control costs. Discovery Medical Scheme is the largest in SA, with 1,9m beneficiaries.
It is controlled by an independent board of trustees. The board should evaluate the service and administration fees charged by Adrian Gore's Discovery Holdings to get the best deal for medical aid members.
If it is too expensive or below par, the scheme should fire Discovery Holdings as its administrator. But there are concerns that the scheme is not fully independent of Discovery Holdings.
As CMS says, it is reasonable to expect that the larger the scheme, the lower the administration costs should be. "Discovery Medical Scheme has the largest market share, but its administration and managed-care costs significantly exceed all comparative averages".
The scheme released its financials last week, showing it paid R1,9bn to Discovery Holdings for "administration" last year - an 11,3% increase. It also paid R457m (up 9%) to Discovery Holdings for "managed-care services" - a nebulous category of management services provided by administrators.
In Discovery's case, it included R90m for items such as "hospital pre-authorisations".
Last year, each Discovery member paid on average R652/month. Of this, R107/month went to "administration costs" and "managed care" services. This is up from the R100/beneficiary.
Altogether, about 13,1% of the contributions paid by Discovery members goes to non health expenses of administration and managed care. This remains higher than the 12,6% average of all schemes for 2006, according to CMS. Masobe says a "reasonable figure" would be closer to 10%, though others say anything less than 15% is acceptable.
Jacky Mathekga, who runs Discovery’s medical scheme, says administration fees fell sharply "in real terms since 2002".
But Joe Seoloane, the curator for the Pro Sano scheme, says while governance in medical schemes has improved, "there is still room for improvement".
Seoloane knows about poor governance, as he has been running the struggling Pro Sano for a year as its curator.
Before he took charge, Pro Sano's trustees seemed more intent on looking after themselves than their members. For example, they spent R9,3m on "marketing" in 2006 "with no tangible result", and blew cash on flights and hotels.
"Many trustees don't realise their fiduciary responsibility to members is more onerous than that of a company director's. They can actually be prosecuted in their personal capacity," he says.
Consumers usually bear the costs if there is poor governance, or schemes are not independent of their administrator. Pro Sano, however, appears to be on the mend. With a stable base of 32 000 members, Seoloane expects the scheme to be back to full health within a year.
But better governance and a sharper eye on spending by trustees aren't the only ways to cut medical aid costs. Brokers who sell medical aid membership are likely to feel the heat soon.
The council plans to release a discussion document within weeks detailing wide-ranging reforms affecting how brokers deal with medical aids. Until now, medical aids paid brokers for new business, which meant brokers have more allegiance to the medical scheme, rather than to the consumer. Now, consumers will probably pay brokers' costs directly, rather than the schemes'.
Says Masobe: “We want to be clear about who is the agent [the broker] and who is the principal, which is really the member." This change may be negligible - only 2,2% of medical aid contributions goes to brokers - but every bit helps.
In its recent review of private healthcare, the Hospital Association SA (Hasa) also raised questions about the transparency of medical aids' costs.
Hasa believes there is room for improvement "in the manner in which non-healthcare-related costs are determined". The hospitals also highlighted how some medical aids include "administrator costs", such as salaries, in "medical scheme expenditure".
Mathekga says this criticism isn't valid. "Medical schemes are subject to high levels of governance scrutiny - all costs are transparent and are monitored and published on an ongoing basis," he says.
Health Minister Manto Tshabalala-Msimang is convinced her controversial new "bargaining forum" between medical aids and hospitals will improve transparency throughout the chain.
But whether her planned regulations actually help lower the cost of healthcare - and the amount you pay for medical aid - is an open question.
Mathekga says any intervention should leave no space for distortions. "Costs can be reduced by increasing competition... and by providing consumers with more information to allow them to choose the best quality and most cost-effective treatment options."
If broker fees are revamped, and trustees ensure governance of medical aid schemes improves, this would be a far sharper tool to lower costs than a new set of government rules.
