For many, medical aid is a necessity - one that costs more but offers less each year. It's hard to imagine another product that consistently offers such poor value for money but manages to retain a market of 7m users .
In 2001, the average person paid R456/month in medical scheme contributions. This was three times higher in real terms than the amount required by schemes 25 years ago.
Worse, the gap between what medical aid costs and the benefits it confers is widening. Between 1976 and 1993 this gap averaged R20/month. By 1999 it was R40 and by 2001 it had reached R77.
So, every year, medical aid becomes more costly on average but offers less in return.
Employers are trying to shift this burden to employees by tying their medical aid subsidies to salary rather than to medical aid inflation or by offering staff cash packages in lieu of medical aid.
"This means that in 15-20 years, increasing numbers of newly retired pensioners will have to fund the full cost of cover from their own pockets ," write health-care consultants Jane Doherty and Heather McLeod in the 2002 SA Health Review.
The industry typically blames its failure to control costs on the inflationary effect of rapid advances in drugs and medical technology, the fact that ageing populations need relatively more expensive health care, and the emergence of new health problems, especially Aids.
Most commentators agree that the main cost-driver is the industry's reliance on the fee-for-service system. It creates incentives for doctors, hospitals and other providers to provide too many services to patients because the more health-care interventions they perform, the more money they make.
NMG-Levy CEO Andrew Sykes would like to see this model turned on its head. He says SA could learn from a Japanese firm that employed two doctors at its premises. They were paid the equivalent of R10/worker for each day that each worker came to work, but had R500 deducted every day a worker was sick. The absenteeism rate was consequently negligible.
Medical aids and administrators (funders) have been trying to move the system in this direction since the early 1990s. Various managed-care tools have been used, with limited success. But two of managed care's most potent strategies have barely been given a chance: provider networks and risk-sharing arrangements.
However, the competition commission's recent decision to break up the hospital cartel should enable these strategies to finally take off by forcing the hospital groups to negotiate risk-sharing agreements individually with each large medical aid administrator or scheme and not collectively as the Hospital Association of SA (Hasa) as in the past.
"The commission's decision has been the catalyst to force the hospital groups to negotiate directly with schemes," says Discovery Health principal officer Shaun Matisonn.
Risk-sharing arrangements generally fix the hospital fee upfront, putting the onus on the hospital to manage patients judiciously to ensure that the cost of caring for them does not exceed this fee.
Matisonn believes that risk-sharing agreements could shave 5%-10% off Discovery's hospital bill over the next three years.
In any debate about why medical aid is so expensive, the industry is bound to blame the cost of complying with the prescribed minimum benefits package (PMB).
Schemes targeting low-income earners are crying the loudest. Low-cost plans have succeeded in bringing down the cost of care considerably. Their main innovation is the use of primary care provider networks in combination with capitation (where the doctor is paid a fixed annual fee per patient irrespective of how many times she sees the patient).
But even the cheapest options still cost R600- R800/month for a family of four. McLeod says the industry probably needs to get this down to about R500/month to bring significant numbers of low-income earners into the net.
The recent expansion of the PMB runs counter to this, however. According to research by the Centre for Actuarial Research (Care) at the University of Cape Town, the average cost of offering the expanded PMB through the private sector will be R640/month for a family of four. Administrators say Care has undercosted the package and that complying with it will raise costs across the industry and put even low-cost schemes beyond the reach of many.
Another lever at government's disposal is national health insurance (NHI). The committee of inquiry into a social security system's vision is that everyone, except the poor, will contribute to an NHI fund through earmarked taxation to ensure that everyone has access to basic care. The wealthy will be able to pay a top-up fee to purchase private care.
The plan guarantees the long-term existence of medical schemes by recommending that by 2005 medical aid membership be compulsory for everyone earning more than about R4 000/month. This will increase the population of principal members from 2m to 6m - more than doubling the size of the privately insured market. It could mean that some funders become so large that the balance of power is tipped away from the hospital groups and other providers, leading to cheaper health care.
The other key proposed reforms include the creation by 2004 of a compulsory medical scheme for all 1m civil servants, followed by the creation of a voluntary state-sponsored scheme targeted at the emerging market. The rationale is that with the state assuming the position of market maker and going after the emerging market, existing medical schemes will be obliged to defend their turf by launching cost-competitive products.
It makes sense on paper, but few believe it will succeed in bringing down the cost of medical aid.
The political decisions taken over the NHI will determine the landscape of private and public health care over the next decade. What is clear is that without fundamental reorganisation the medical aid industry is living on borrowed time.
