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A 484 page report has just been released by the Competition Commission of South Africa on the state of the private healthcare market in South Africa. The primary reason for the enquiry is the high and ever increasing cost of private healthcare.

Their findings?

  • High costs which are rising every year even though the market is stagnant.
  • One or two schemes which have the lion’s share of that market.
  • Uninformed consumers who have little power over their options.
  • Practitioners that are subject to little regulation, and
  • A complete lack of accountability at various levels

Guess what?

They’re absolutely right.

  • Costs are rising incrementally at above inflation figures

This hasn’t yet become a problem for those in full time employment, but spare a thought for the pensioner. Pensioners contribute towards these schemes their entire working life, and then, when they need it most, find out that it has become completely unaffordable. Take for instance, a comprehensive medical aid for two pensioners at any one of the schemes. They can expect to pay anywhere between R7,000 and R10,000 a month just for medical aid.

And which scheme really wants sick people as clients? They’re a drain on resources, right?

  • Then we get to the one or two schemes which dominate the market

According to the report, there are 22 open schemes in South Africa, with just 2 medical schemes sharing 70% of the market. Discovery Health alone has 55% of the market. ‘Open’ means anyone can join as opposed to ‘restricted’ where only certain groups of people may join. The Government Employees Medical Scheme (GEMS) is the largest of these restricted schemes and is second in size only to Discovery Health.

This raises the question: “What is it about Discovery Health that causes people to voluntarily join the scheme? What is their “secret sauce”, you could almost say.”

We think it’s their focus on making medical aid membership exciting to the younger generation. Specifically, their Vitality offering, a program offering you incentives for best managing your health, has created this market dominance.

Being dominant isn’t necessarily a bad thing. We all hate paying for Microsoft but 99% of us use the software giant.

Of course having one or two major players is a breeding ground for monopolies especially where there isn’t regulation. After all, if you’re a hospital, aren’t you going to offer your biggest discounts to your biggest customer? Smaller schemes are forced to either take it or leave it, and as their members decline, their contributions increase until eventually, they fold.

If you think monopolies are a good thing, just spend a minute or two thinking of Telkom and Eskom.

One thing the report acknowledges is that Discovery Health negotiates better tariffs with the big 3 hospitals than its nearest two competitors.

Imagine also if they were the only private medical scheme out there? Imagine how good they’d be at negotiating tariffs with you?

But the truth is, a market can only absorb so many increases before it collapses. Discovery Health understands that increasing costs are unsustainable in a shrinking job market. They need to hang on to their clients by continuously adding more value. Therefore, they have ventured into life insurance, car insurance, investments, and now banks.

  • Uninformed consumers with few options

This is the one area where we wholeheartedly agree. Even we couldn’t tell you which scheme is best based on benefits.

Most of us make our decisions based on cost alone.

Medical scheme A is R500 a month cheaper than Medical scheme B, so we opt for Scheme A. But what Medical scheme A isn’t telling you is that 100% of their scheme rate only covers 50% of what the scheme rate at Medical scheme B covers.

Here…let’s make it simple to understand:

Medical scheme A

  • R2,000 a month contribution
  • Covers you while in hospital at 100% of the scheme rate
  • They pay R10,000 towards your appendix operation

Medical scheme B

  • R2,500 a month contribution
  • Covers you while in hospital at 100% of the scheme rate
  • They pay R20, 000 towards your appendix operation

And the fault for that can be squarely laid at the feet of the regulators. It’s a long story but years ago they tried to set rates for every single procedure under the sun. The medical profession and the medical schemes couldn’t reach agreement and so it was left to each medical scheme to decide on how much they’d pay.

At least when we buy car insurance we know what we’re paying for before the accident happens. With medical aid, we only find out what we’re paying for after the accident happens.

  • Practitioners subject to little regulation

Here lies much of the problem we think. And let’s include hospitals in this category.

Think about it…

You go see your doctor for a pain in your side. Of course, he or she can prescribe a pain pill and send you home but why do that when they can send you for a scan just in case?

Every time you see a doctor (who knows you’re on medical aid), you’re handing him or her a blank cheque. Even worse, it’s not your cheque book you’re handing over – it’s ‘our’ cheque book! Remember I’m also contributing to your medical scheme. It’s also my money being used to pay for your, perhaps unnecessary scan.

Basically, it works like this:

  • You tell the doctor what you need
  • Your doctor tells you the solution he or she has decided upon
  • Your medical scheme picks up the bill

What would you do if it was you signing the cheque? Would you shop around?

So whose fault is that?

It’s difficult to lay blame at any one door. Capitalism, whether you think it’s good or bad, is based on making a profit. Can we blame the private healthcare system for this?

With 22 open schemes on the market and 3 major hospital groups, we suspect that you already have enough options.

Much of the blame must be placed at the door of government. After all, the purpose of government is to govern, to set laws, to protect and best serve their citizens.

If a decent public health system existed, wouldn’t we have a lot more options than private healthcare?

Government – yes, the very same government which allowed the public health system to collapse – believes they have the answer in NHI. We’re all in favour of NHI – ask any pensioner if they agree with our statement – but already doctors are up in arms saying they’ll rather emigrate than agree to the rates being offered under NHI.

If you think about it, the same tactics that government is accusing the private sector of using:

  • of us being forced to pay for something where the benefits on offer aren’t that clear, and
  • where the cost keeps rising
  • with little accountability

could be used when we start contributing to NHI.

Let’s hope the Competition Commission will still be around when NHI rolls around.

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Kind regards,

The InsuranceFundi team

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