The healthcare needs of some three million low-income earners may be addressed in proposals that flow from the low-income medical schemes (Lims) investigation. Penny Tlhabi, the general manager of KeyCare and low-income products at Discovery Health, outlined the findings of the investigation for delegates at the recent Personal Finance/Discovery Health Health Focus seminars.

AN ESTIMATED 3.2 million people more could enjoy healthcare cover if proposals put forward by the consultative investigation into low-income medical schemes (Lims) are adopted, Penny Tlhabi says.

Earlier this year, the Lims committee filed a report on its investigation into the obstacles that prevent low-income earners joining schemes.

Based on the Lims committee report, the Department of Health, the Council for Medical Schemes and the National Treasury are expected to formulate a policy and the necessary legislation that will lead to the establishment of low-income medical schemes.

Tlhabi says the proposals are unlikely to be announced in the next few months. But the Lims committee hopes they will be launched late next year, so that new low-cost medical schemes or options can be developed in time for 2008.

Tlhabi says the Lims committee's estimate that 3.2 million people could join low-cost schemes is based on the assumptions that:

• Options that cost R200 a month for the principal member can be established;
• Employers are prepared to pay half this amount as a subsidy; and,
• The National Treasury is prepared to pay a subsidy of R50 a month for the 3.2 million members of low-cost schemes.

If contributions can be reduced to R150 a month, and the employer and National Treasury subsidies remain the same, an estimated 3.5 million people could join one of these low-income medical scheme options.

Encouraging more people to provide for their own healthcare through medical schemes and to relieve the burden on public healthcare facilities is the aim of the government's social health insurance (SHI) policy.

But in order to encourage people to join medical schemes, membership needs to be affordable, Tlhabi says. To ensure that membership is affordable, the government plans to:

• Equalise the cost of providing certain minimum benefits to members across all medical schemes through the Risk Equalisation Fund (REF); and,
• Introduce income cross-subsidisation, so that high-income earners subsidise the contributions of low-income earners.

However, the Department of Health's Ministerial Task Team for SHI has acknowledged that it will take some time to implement SHI. As an interim measure, it appointed the Lims committee to investigate ways of getting low-income earners on to medical schemes.

Tlhabi says the Lims committee's investigation focused on households earning below R6 000 a month, as statistics indicate that there is a very low level of membership among people in this income category.

Its task was to consult widely and to reflect the views of all stakeholders.

Tlhabi says the Lims committee was also required to:

• Test the willingness of households to pay for medical cover, how much they could afford to pay and what their preferences for cover were;
• Test employer attitudes towards subsidising medical scheme contributions for low-income earners;
• Consider whether there should be a separate class of Lims schemes with different prescribed minimum benefits (PMBs) - the benefits that all schemes must provide;
• Investigate whether there would be any obstacles to providing the healthcare services to low-income members should they join medical schemes and whether there are enough healthcare providers to cope with the increased demand;
• Consider the nature of schemes that could be established for low-income earners, how current medical scheme members could be prevented from moving to these cheaper options, and how these schemes could be governed effectively;
• Explore how costs could be reduced throughout the healthcare supply chain and whether there are any regulatory or other obstacles to reducing the cost of healthcare; and,
• Consider whether there are any other ways of delivering healthcare services, for example, through health maintenance organisations (HMOs) - organisations that provide healthcare cover through hospitals, doctors and other providers with which the HMO has a contract.

The Lims committee commissioned a survey of households earning between R2 500 and R6 000 a month. It found there were 2.6 million households with 11.5 million people in this income category.

Tlhabi says, of these 2.6 million households, only 505 000, or 21 percent, had some form of healthcare cover, and this cover extended to 1.37 million people or 12 percent of people in these households.

She says more than 10 million people are without cover, and there is a significant opportunity for medical schemes to develop suitable options and sign up these members.

The survey found that only 20 percent of households earning between R4 501 and R6 000 were covered and that coverage dropped steeply for people aged between 20 and 29 years and after the age of 50.

Tlhabi says the Lims committee found that unemployment is a major obstacle to growth in membership, as all the members of 50 percent of the households in this income category are unemployed. Affordability, she says, is a major obstacle, with low coverage even when one or more members of the household are employed.

In only 13 percent of households where one or more members is employed, were all family members covered. There was partial cover in 11 percent of these households.

Another key finding of the survey was that households with no healthcare cover had high out-of-pocket expenditure on private healthcare, Tlhabi says.

These households make significant use of general practitioners (GPs) and have high out-of-pocket expenditure on GPs.

Twelve percent of the households that have no healthcare cover at all had visited a GP in the past three months and the average amount spent on visits to the GP was R105 a month.

An amount of R105 a month represents three percent of these households' income on average, and in households with the lowest income (R2 500 or less a month), R105 a month amounts to 10 percent of their income.

People with incomes of less than R6 000 a month had to spend additional amounts on transport to healthcare providers - for a visit to a GP, these people spend about R60 on transport. They also buy a high level of chronic medication from the private sector.

The survey found there was strong willingness among those interviewed to risk pool for healthcare; 72 to 80 percent were interested in doing so.

A minority had a problem with pre-paying for healthcare - Tlhabi says there are some issues around trust and bad service in the past.

Those surveyed expressed a preference for out-of-hospital benefits rather than private healthcare cover - they placed a high value on primary healthcare, such as GP visits and medicines, dentistry and optometry.

Tlhabi says the pattern in South Africa is very similar to that in other developing countries where the public healthcare system is unable to meet the demand for healthcare in low-income populations.

Reducing costs

Tlhabi says the mechanisms that can be used to reduce premiums or contribution costs include:

• Reducing the cost of healthcare services; or,
• Reducing the scope of benefits offered by medical schemes by making a trade-off between primary and comprehensive healthcare; or,
• Subsidising contributions - either through indirect tax subsidies or direct employer subsidies.

The Lims committee found that there was scope to reduce the costs of healthcare services by:

• Reducing the costs of most healthcare providers, including professionals, hospitals and medicines; and,
• Developing integrated delivery systems, such as HMOs.

Tlhabi says that the Lims committee held out the most hope for sustained cost reductions by developing such systems. However, she says, there are serious legislative and regulatory obstacles to setting up such organisations.

Reducing the cost of administration and distribution. Tlhabi says the healthcare market is highly competitive and fees are closely linked to contributions or premiums. The low contribution rates on low-income medical schemes will drive these costs down substantially.

On the issue of reducing the scope of benefits, the Lims committee was tasked with investigating whether the current PMBs were an obstacle to developing low-cost medical schemes.

The Lims committee found that the structure and scope of the PMBs was one of the key reasons why medical schemes are unaffordable for low-income households.

Tlhabi says the Lims schemes need a revised PMB package. The committee has drawn up a proposal for a Lims minimum package reflecting low-income earners' preferences.

The Lims committee has suggested that the Lims minimum package include a defined minimum number of GP and dentist visits, she says. The committee has recommended that members be allowed three GP visits a year, and up to 12 visits for a family; and two visits to the dentist per life. Tlhabi says the committee has suggested that the minimum package include a formulary for acute and chronic medication, but not for as many chronic conditions as are addressed in the current PMBs. The package should also include radiology and pathology benefits, as well as a defined optometry benefit.

Other recommendations

Tlhabi says the Lims committee has also recommended that:

• The Medical Schemes Act be modified to establish a new class of Lims and options within existing medical schemes;
• Membership of Lims should be limited to principal members earning below a defined amount per month and their beneficiaries. The Lims committee has recommended that this amount be R6 500 a month at 2005 rates and that this amount should be adjusted by inflation when the Lims schemes are launched and each year thereafter. The committee has also recommended that the Council for Medical Schemes review the amount every three years;
• Membership of Lims be open to formal sector employees or self-employed individuals who can prove their income with a payslip or with a return submitted to the South African Revenue Service; and,
• Low-income schemes or options should be able to offer additional benefits over and above the minimum package, but will not be able to offer any hospital cover in order to prevent current members buying down - choosing a cheaper option - on a large scale;

Laura du Preez: Personal Finance, 9 September 2006