Presentation on Bonitas Medical Fund to The Health Portfolio Committee June 2010 Prepared by: Gerhard van Emmenis: Acting Principal Officer

1.Overview of Bonitas Medical Fund -History -Financial Overview -Available options -Healthcare Expenditure breakdown -Caring for the sick 2.Legislative Considerations in the Medical Schemes Environment -Health related Legislation -Current Medical Scheme’s Environment -Problem with Optional Membership -Legal Environment -Problem with PMB’s ‘At Cost’ -Tariff Increases -Practical Issues 3.Summary Agenda

Overview

Established in 1982 primarily for Black civil servants; 2/3rds of current membership base are black Covers approximately 8% of al medical schemes lives (1.4% of total SA population) Current membership base consists of approximately: members; and beneficiaries 3 rd party Administrator and Managed Care provider: Medscheme History

2010 All scheme profits accrue to Fund Financial Overview

Available Options

Healthcare Expenditure breakdown

Has cared for over HIV patients Currently over members receiving Antiretroviral Therapy Paid for around hospital admissions in 2009 Around patients with chronic conditions are cared for  3 Main chronic conditions: - high blood pressure; - high cholesterol; and - clotting disorders Caring for the sick

Legislative Considerations in the Medical Schemes Environment

Medical Schemes Act 1998: Introduced open enrolment, community rating and PMB’s Draft Medical Schemes Amendment Bill (ON HOLD) - Risk Equalization Fund - Basic benefits package - Low Income Medical Scheme National Health Amendment Bill (ON HOLD) - Proposed bargaining framework for tariff setting - PMB’s: service providers cannot charge > agreed tariffs Health related Legislation

Around 8 million lives covered Annual contributions of R85 billion (2009) Total reserves of around R27 billion Claims increases consistently greater than CPI Need compulsory membership to widen coverage Current Medical Scheme’s Environment

Upward sloping curve: risk increases significantly with age (note female maternity hump) Community rating relies on young subsidising old Problem is not enough young people want to join medical schemes – dips from age 20 to 35 Note – dips less for females because of maternity: anti- selection Age Solution: Need compulsory membership for community rating to work: introduce financial penalties for young people earning above certain threshold Problem with Optional Membership

Court case around ‘grey’ health insurance products: CMS lost, now sales of GAP products on the increase (against principle of community rating) This will only make more younger people opt out of medical schemes environment Solution: Ban GAP insurance products clearly in legislation Legal Environment

Intention of Medical Scheme’s Act could not have been to allow claims with no limit Potential impact of having no ceiling on PMB costs is massive (20% - 30% extra claims) Issue is a drain on resources Solution: Need DOH to amend Act so that there is clarity - need clear ceiling on PMB claims Problem with PMB’s ‘At Cost’

Competition commission means no collective bargaining with providers (in particular hospitals) Result has been high claims inflation in last few years Solution: Amend legislation to allow collective bargaining in health environment Tariff Increases

Contribution increases need to be set by August each year This is so as to get Council for Medical Scheme approval before launch of new benefits and contributions in October/November Problem is DOH only releases NHRPL late in year (& after contributions have been set) Means schemes have to make assumptions around NHRPL increases: introduces unnecessary risk into contribution setting process Solution: DOH to give NHRPL increases for 1 Jan of next year in July of previous year (even if draft) Practical Issues

Summary

Bonitas funds healthcare for over people To address issues around membership of medical schemes:  Introduce compulsory membership (above certain income threshold)  Ban GAP insurance To address issues around the price of healthcare  Put clear ceiling on PMB’s “At Cost”  Allow schemes to bargain collectively with providers Practical issue  DOH to give NHRPL increase mid-year Summary

Questions & Comments

Thank you