High risk, high contributions: Why medical scheme legislation needs a revamp

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This is according to Graham Anderson, CEO and Principal Officer of Profmed, who says LJPs are designed to incentivise people to join medical schemes when they are young and in good health, boosting scheme reserves. LJPs were implemented in the Medical Schemes Act of 1998.

“Before that, schemes were able to ‘risk rate’ members,” says Anderson, “meaning contributions could be based on factors such as age and pre-existing conditions.” “Now, medical schemes have very little protection from people who effectively join a medical aid, claim for a large procedure or treatment and then exit the scheme once they are better. This places great strain on risk management within medical schemes,” he says.

Apart from LJPs, medical schemes can implement a three-month general waiting period and the 12-month condition specific waiting period for new members. Anderson says this is insufficient because it does not adequately protect schemes from people joining and leaving in a relatively short period of time.

Anderson says the lack of underwriting options available to medical schemes is one factor that is resulting in rising contributions.

“Utilisation is climbing every year,” says Anderson, “which will inevitably result in higher member contributions to cover these increases.”

In order to manage risk, and thereby utilisation levels and contributions, Anderson says South Africa urgently needs to revisit relevant legislation with two underwriting options; a risk equalisation fund and/or universal coverage.

Both of these options were discussed when amendments were being made to the Medical Schemes Act in the late 1990s, but were never implemented.

The risk utilisation fund works by requiring schemes with low-risk profiles to pay into a central fund, which would be used to subsidise those with high-risk profiles.

Universal coverage, meanwhile, would make it compulsory for people who earn above a predetermined salary to be part of a medical scheme. Anderson believes universal coverage would act as an effective tool for reducing the ever-increasing average age of medical schemes, which currently is placing a strain on the reserves of medical schemes.

Both the risk utilisation fund and universal coverage, however, are unlikely to be considered as the Department of Health forges ahead with its plans for National Health Insurance (NHI).

“It is essential that South Africans are provided with universal healthcare, but NHI in its current form is just not affordable,” says Anderson.

Anderson says that public healthcare is failing the people of South Africa, with the exception of some centres of excellence.

“Government’s first priority should be brining public healthcare up to standard before looking at the possibility of universal healthcare through NHI,” he says.

Anderson concludes, “Amid ageing member profiles and rising utilisation, we urgently need to revisit current legislation. The industry needs more underwriting options to protect itself from risk factors and help keep member contributions down.”

How Late Joiner Penalties are calculated:

Total years uncovered are separated into four bands, each of which equals the additional payment a member must make on top of contributions.

Total years uncovered = Application age – (35 years + years of previous cover)

 

Total years uncovered LJP
4 years or less  5% of contribution  
5 to 14 years 25% of contribution
15 to 24 years 50% of contribution
25 years or more 75% of contribution

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