News Article : Nonsense, says Discovery Health, we’ve never been better - response to newsletter
|Category:|| Healthcare Insurance : Medical Schemes|
|Posted:||21 Jun 2007|
DHMS continues to enjoy the highest rating of any medical scheme in South Africa
Concerns about Discovery Health Medical Scheme must be seen in the context of the state of private healthcare in South Africa and against a background of excessive and rising medical funding costs and a stringent regulatory environment.
Discovery Health Medical Scheme maintains highest rating
DHMS takes its compliancy requirements extremely seriously and provides updates to the regulator on a monthly basis.
The reserve requirements for SA medical schemes
Prior to 2000 schemes had to hold 25% of net contributions, there was an allowance for risk transfer through insurance and reserves were not required from members only and these remained in the scheme.
Post 2000 schemes have to hold 25% of gross contributions, reserves can only be built up from surplus generated from high premiums that exceed claims and expenses (and investment income), and if members leave a scheme, the reserves accumulated from that member remain in the scheme.
Growth is the biggest challenge to a scheme’s solvency and growing schemes experience a short term solvency strain. It is a little known fact that each new member joining the DHMS immediately increases the reserve requirement by R5000 per family per year.
For a scheme that has grown at 11% such as DHMS, this has increased the required solvency reserve amount to R4.4 billion.
Compare the impact of growth on the solvency of DHMS and other schemes
Conversely and perversely, membership loss boosts solvency levels partly because accumulated reserves stay behind after the member has left.
In the following graph one can see how Discovery Health (Top right hand corner) stands head and shoulders above the rest in terms of growth and membership.
However despite the impact of extraordinary growth, DHMS is on track to reach the required solvency levels by the end of 2008. Of the average 7.9% increase in scheme fees for 2007, 2% is allocated to building up scheme reserves. Already, there has been a R700 million reserve build-up this year.
Steps to meet solvency requirements
DHMS is focusing on the following areas to attain the required solvency levels:
- Premium increases – Although the average increase of membership contributions has been 7.9%, uneconomical benefit options increases have been higher, e.g. the Classic Comprehensive option contributions increased by about 10%
- Reduce the costs of care – DHMS has succeeded in reducing dramatically the costs of medicines such as Lipitor, Revellex and Tareg, a benefit that will be felt by the entire industry.
- Retain balance of healthy and sick members - Despite solvency pressure, new members sustain the demographic profile of DHMS and are therefore key to long-term sustainability. The following graph demonstrates changes to this profile:
- Refine investment strategy – DHMS acknowledges that the investment strategy employed thus far has been very conservative. Changes made to this approach are starting to show dividends.
- Reduce administration fees – DHMS Administration and managed care fees as proportion of gross contribution income in 2005 was 15.1%. This will be reduced to 13.1% in 2007 with further cost saving reductions in 2008.
History of NHRPL and medical scheme rates
- To create an average reference price for doctors and specialists
- To encourage price competition between doctors and specialists
The history of doctor and specialist rates in South Africa
Up until 2003 there were 2 rates: Private rates (set by doctors) and Medical Aid rates (set by Medical Schemes). After the intervention of the Competition Commission, the Council for Medical Schemes created the National Health Reference Price List (NHRPL) based on medical scheme affordability and at the end of 2005 asked providers to submit rates.
5 groups submitted new rates, asking for 20% - 70% increases in 2006. Schemes that follow NHRPL will be paying these increases in premiums. Most other provider groups will submit new rates in 2007.
The upshot of this is that medical scheme members are increasingly faced with billing uncertainty when seeking treatment from doctors. Inevitably, scheme members will be inclined to shop around and compare rates.
Faced with extraordinary increases in provider costs due to an almost insatiable demand for healthcare – people want to consume more and advances in technology increasing costs, unlike any other industry where costs come down, schemes have been forced to look at cost saving strategies that seek to address and reduce the unnecessary administration burden that funders place on the profession.
The Premier Rate
This is the reason for the introduction of the Premier Rate which seeks a holistic view of medical costs. According to Dr. Jonathan Broomberg, doctors and specialists control 9 times their own cost to fees paid to downstream providers e.g. pathology labs.
By taking appropriate care and controlling these costs responsibly, schemes are able to pay doctors and specialists more. Furthermore, DHMS is able to reduce administrative costs by paying the practitioner directly.
The following illustration demonstrates the concept:
For added perspective, please read "Discovery acts to remove uncertainty in healthcare funding"
In conclusion there are many moving parts to private healthcare in South Africa, and nowhere more so than with Discovery Health Medical Scheme.
Please read "State of private healthcare in South Africa"
Creating the right balance between the needs of members and service providers, managing regulator compliance and continued sustainability in the face of mounting costs will remain a challenge but one DHMS feels confident they are winning.