KATLEGO MOTHUDI | The remedy we need for health cost inflation - TimesLIVE
For millions of South Africans, the problem is not whether they want private health-care cover. It is whether they can afford it. As the Sunday Times recently reported, the cost of health insurance is growing an estimated 14%-16% a year, while the medical schemes market remains largely stagnant.
Consumers under financial pressure are downgrading their medical scheme options, delaying joining schemes or turning to cheaper health insurance products.
We should all be paying attention to what consumers are telling us.
People have not suddenly stopped valuing health care. They have not decided they no longer want the security that comes from being able to see a doctor or obtain medicine when they need it. They are looking for something they can afford.
Yet, perversely, South Africaβs regulatory framework prevents medical schemes from meeting this demand through low-cost benefit options (LCBOs). That needs to change urgently.
Demarcation regulations sit at the centre of this debate. Introduced by the National Treasury and the department of health, these regulations draw a clear line between medical schemes and health insurance.
Medical schemes are governed by the Medical Schemes Act and must provide comprehensive clinical cover, including prescribed minimum benefits (PMBs), while health insurance products, regulated under the Insurance Act, may only pay out claims on specified accident and health events (the amounts paid out are not related to the cost of health care) or offer gap cover. They are capped, adjusted annually for inflation, and must not be sold as a substitute for full medical scheme membership.
LCBOs are affordable, primary-care-focused medical scheme options intended particularly for lower-income households that cannot afford conventional medical scheme membership. Instead of providing the full suite of PMBs, which contributes substantially to the minimum cost of conventional medical scheme cover, they would provide a defined basket of essential health services.
These could include GP consultations, essential medicines, pathology and radiology and preventative care.
LCBOs, once implemented, will offer much more cover and protection than the current health insurance products enjoying exemptions from the Council for Medical Schemes (CMS).
The Sunday Times article shows the need for these types of low-cost products is happening in real time. Health insurance now covers close to 2-million beneficiaries, according to Momentumβs estimates, with employer groups playing a particularly important role in its growth.
The question government and regulators should be asking, therefore, is not whether South Africans want affordable health cover. Clearly, they do. The question is why medical schemes are still prevented from providing it.
This is especially difficult to justify because insurers have for years been permitted, through exemptions, to provide health insurance products serving precisely this market. Medical schemes, meanwhile, remain constrained by a regulatory framework that makes it impossible for them to offer comparable low-cost options.
There is also an important distinction between an LCBO offered through a medical scheme and a health insurance policy.
Medical schemes operate according to social-solidarity principles. They cannot simply charge somebody more because they are older or less healthy. Open enrolment and community rating provide important protections to members. Medical schemes are non-profit entities, with surpluses remaining within schemes for membersβ benefit.
Eligible medical scheme members can also benefit from medical scheme tax credits. This is precisely why the growth of health insurance should strengthen the case for LCBOs, rather than weaken it.
Another consequence of the current arrangement should concern every existing medical scheme member.
Medical schemes depend on risk pooling. Younger and healthier members help cross-subsidise older and sicker members. When younger people who cannot afford conventional medical scheme contributions instead migrate towards health insurance products, the medical scheme risk pool shrinks. That places further pressure on contributions, making membership less affordable and potentially driving still more people out.
It is a cycle we should be trying to break. The Board of Healthcare Funders (BHF) has warned that exempted insurance products attracting younger, healthier lives undermine the cross-subsidisation on which medical schemes depend. The impact of reducing cross-subsidisation is that contributions for medical schemes increase way above inflation. In a few months, medical schemes will be announcing increases for 2027, which will hit consumers very hard. Regulatory failure will be a significant reason for such high increases.
Allowing schemes to offer LCBOs could begin reversing that dynamic by creating an affordable entry point into the medical scheme environment.
It would also help address a much bigger national challenge. Currently, millions of South Africans who cannot afford conventional medical scheme membership already use private doctors, pharmacies and clinics and pay for those services from their own pockets. The BHF estimates that LCBOs could extend affordable health care cover to as many as 10-million people.
Giving even a portion of these households access to structured, pooled health funding would provide greater financial protection while relieving pressure on overstretched public facilities without requiring additional expenditure from the state.
Importantly, the call for LCBOs is not an argument against National Health Insurance or the goal of universal health coverage. It is an argument for using every available mechanism to expand access to health care now. South Africans cannot put illness on hold while the country waits for long-term health reform.
The LCBO debate has already raged more than a decade. A framework was contemplated as far back as 2015, and the 2017 demarcation regulations proceeded on the understanding that exempted insurance products would ultimately transition towards medical scheme LCBOs. Instead, insurers have continued receiving exemptions while medical schemes remain locked out of the market.
Since then, medical schemes have applied for exemption to implement LCBO but have been denied by the CMS. Medical schemes have also worked with the regulator and other stakeholders to develop a framework that would see a sustainable LCBO in medical schemes. This culminated in the LCBO report authored by the CMS that was submitted to the minister of health in November 2023. The minister has yet to formally respond and accept the proposals in this report.
The BHF has challenged this position in court because we believe regulatory paralysis is denying South Africans an affordable health-care option that could be available today. But our legal action is a last resort, and we believe that this should ultimately be resolved through policy, not litigation.
The evidence of consumer demand is now difficult to ignore. People are already choosing lower-cost health-care products because their household budgets allow it. Preventing medical schemes from competing for those consumers does not protect them. It simply restricts their choices.
South Africa does not need to choose between comprehensive medical schemes, affordable primary health-care cover, the public health system and the longer-term pursuit of universal health coverage. We need all of them. The market has spoken. It is time for regulation to catch up.
