The following Healthcare Newsletter was issued by ACA Employee Benefits - 2019
The proposed National Health Insurance (NHI) system to be introduced in South Africa has drawn much attention in the media over the past months, concluding in the recent announcement that the NHI Bill has been approved by cabinet and submitted to parliament where it will be subject to parliamentary scrutiny.
The Bill aims to provide a package of comprehensive health services, purchased by the NHI Fund, within the state’s available resources. All South-African citizens’ (users) will receive health care services free at the point of care from an accredited health care provider within a reasonable time frame.
The intention is that users must first access health care services at a primary health care level as the entry into the health system and must adhere to the referral pathways prescribed for health care service providers.
The National Health Insurance Fund will receive funds, appropriated annually by Parliament, from a combination of the following possible resources:
The first phase covers a period of five years from 2017 to 2022 that will be used as preparation for NHI.
Phase two is a period of four years from 2022 to 2026 and will include legislative changes with NHI to be implemented in 2026.
What the NHI Bill states:
It is therefore clear that medical schemes and other insurance products will continue to exist, given the somewhat conflicting statements above. We believe that allowing medical schemes to cover NHI benefits, will relieve pressure on the NHI system and support the principles of cross-subsidised funding.
ACA will continue to engage through various industry bodies to raise concerns regarding aspects of the Bill which we do not agree with.
The Bill will now go through the Parliamentary process with extensive opportunity to debate and provide comments. During the implementation periods mentioned above, a total of 11 different related Acts will need to be changed to align with the proposed NHI legislation. There might be legal challenges throughout this process.
Let us start by understanding the alphabet of generations - the different naming conventions used for different age groups. Please bear the following in mind:
According to Kasasa (April 2019), the first time a generation was categorised, based upon a specific period of birth, was when babies born between 1945 and 1964, in the period of post-World War ll American prosperity, were called the Baby Boomers due to the sheer number of new births and specific characteristics typically associated with them. Shaping events of this generation include the post- World War ll optimism, the Vietnam War and the launch of the environmental movement.
The generation that followed the Boomers didn’t have a historical event as an identifier. That is why the generation following the Baby Boomers was merely called Gen X - illustrating the undetermined characteristics they would come to be known by. Gen X babies were born between approximately 1965 and 1979/1980. Shaping events include the end of the cold war, the rise of personal computing, and feeling lost between the two huge generations.
The generations to follow were identified according to the alphabet. The generation following Gen X naturally became Gen Y, born 1980-1994 (give or take a few years on either end). The term “Millennial” also refers to persons born during those years, currently young working adults.
Generation Y’s are subdivided into Generation Y1 and Generation Y2. This generation’s shaping events include the Great Recession, the technological explosion of the internet and social media, and 9/11.
Generation Z refers to babies born from the mid-2000s through today, although the term isn’t yet widely used. This may signal the end of the alphabet naming convention. A number of potential labels have subsequently appeared, including Gen Tech, post-Millennials, iGeneration, and Gen Y-Fi.
Each Generation, representing groups of people within a category 15 to 20 years apart, has specific characteristics loosely associated with the influence of their different socio-economic environments and the effect of the rapidly changing world, according to Kasasa.
In an article by Monica Majors (Vice President of Marketing and Communications for Sutter Health Plus, published in Managed Healthcare Executive (internet magazine), she describes the differences between the 3 largest groupings – Baby Boomers, Generation X and Millennials.
Baby Boomers (currently between 55 and 70 years of age) have a more expendable income and are less technologically efficient. Yet, they do appreciate the convenience. In terms of healthcare, they would prefer a one-stop-shop, with all services in close proximity without the need for multiple trips to obtain X-rays, have blood drawn, etc. Although according to research in the US, 79 % of Boomers go online daily, they prefer mouth to mouth recommendations to select their healthcare providers. The Boomers are more brand faithful and place a high value on reputation and insurers/providers they can trust. They are the most likely age group to use online physician rating services.
Generation Xers (currently between 39 and 54 years of age) are more discerning and will actively research various sources prior to making healthcare decisions. Due to their busy lives, they also place a high premium on convenience and will typically prefer after hours, walk-in clinics to obtain routine health services, such as immunisations, minor injury treatments and wellness screenings. The older section of this generation requires procedures such as preventative mammograms and colonoscopies and require plans that cover these.
Millennials/Generation Yers (currently between 23 and 38 years of age) expect easy access to information. They value clear comparisons of health plans. They are often emotionally driven and use personal relationships to determine brand loyalty. They easily switch providers after negative experiences. They will prefer online tools, such as portals or mobile apps to engage wellness programs and doctors, also through video visits. They are loyal to brands who engage directly with consumers on social media. Because they require less healthcare, the Millennials prefer plans with savings accounts and prefer discounted contributions in return for co-payments/deductibles.
The article concludes with the statement that navigation of employee benefits in general can be overwhelming – highlighting the importance of clear and concise communication in multiple formats to reach the various needs of different generations.
The three factors mentioned equates to the “perfect storm” or time bomb in terms of the provision for retirement – specifically in terms of the cost to insure yourself against high-cost expenses through your medical aid.
Most persons approaching retirement, start doing some calculation regarding their retirement funding and typically would use their current medical aid option as a guideline to understand the cost implications of healthcare cover during retirement.
Here is where the problem starts. Given the impact on take-home salary, most employees on a Total Cost to Company salary structure chose the lowest possible medical option package while employed. Specifically, when children have left the home, employees typically downgrade to low cost, hospital plus limited savings medical scheme packages. They might add Gap Cover, supported by disability cover and severe illness type products. Together with access to reasonable cash flow during final employment years, the mentioned cover might be adequate during that life stage. Yet, it might be quite risky to retain this level of medical scheme cover after retirement, without the combination of resources mentioned above. Remember, disability and most trauma cover benefits do not provide cover after age 60 or 65. If you take out a Gap Cover product at age 60 or 65, the monthly premiums are also around 50% higher than if you had taken it out at a younger age.
Most employees do not realise this potential burden on their post-retirement finances and are completely underfunded in terms of provision. The table below, provided by Karen Wentzel, Head of Annuities at Sanlam Employee Benefits, gives some indication of the amount to be invested monthly at different ages for males and females to provide for a monthly amount of R3 000 and R5 000 respectively, increasing by CPI plus 3%. This is the minimum rate at which medical scheme contributions have increased over the last number of years. R5000 represents a contribution for an individual on a comprehensive type plan and R3000 would purchase an average cover plan.
A couple, aged 60 would require around R2m to fund for an average medical aid premium of R6 000 per month, increasing by 3%, using a typical life annuity investment as a funder. This is the amount most average earning South Africans have in total to retire.
One could argue that when healthcare funding becomes critically scarce, one could fall back on the state to provide for resources, yet in the South African context, the state facilities are underfunded, overburdened and therefore lacking quality and provide care which the average citizen would not want to use if you have any choice.
Another glimmer of hope could be National Health Insurance (NHI). The reality is that NHI is merely a public sector managed scheme with funding resources from all taxpayers. The concerns regarding sufficient resources and quality of care will always be challenged until proven to be sufficient. The tax benefits related to medical scheme membership and medical expenses are expected to also fall away when NHI is fully implemented.
Given the magnitude of the above funding requirements, we would strongly suggest that employees contact their financial advisors to start providing for the capital amounts mentioned above. The easy calculation is always to contribute similar amounts to that required after retirement, for as long as you are expected to have such funding available. If you are 60 years old, your expected medical scheme contribution is R3000 per month and your life expectancy is 20 years, then you need to save R3000 for 20 years to build up the funds required.
Most large employers (and many smaller ones too) invest in some or another employee wellness programmes. This is logical-enough given the reality that “well” people (besides feeling better themselves) are more productive employees. But, quantifying the return on investment in this area is at best challenging. Sanlam Health has been able to show that primary healthcare clinics, for employers with the necessary scale, do deliver clear & measurable returns.
Workplace primary healthcare clinics are staffed by professional nurses delivering care for medical complaints, health advice & counselling, emergency care, effective referral where necessary, and more. The service is confidential, professional, and convenient. The Sanlam Health service is comprehensive (staff, equipment, management, training, reporting) and the employer only needs to provide a suitable space.
These clinics deliver returns as follows:
Sanlam Health has been able to repeatedly show that the clinics pay for themselves based purely on the time-savings item (the other three items become the upside). Healthcare cost-savings may accrue to the staff rather than the employer but the sums involved are very significant (savings in the region of R300-R400 per visit are realistic).
Sick leave analysis has shown real reductions in sick leave taken by clinic users.
These clinics do appear to offer a rare win-win where employer and staff both benefit.
It is that time of the year again.
The Medical Schemes Act allows members of medical schemes to annually select an option to suit their needs. That is why ACA Employee Benefits puts in a huge effort during the review period (October and November) to inform members of the changes to their current option and other options of their scheme, in order to assist with such a decision, effective 1 January, if required.
According to Jacques van der Merwe, Regional Manager of ACA Employee Benefits, the following aspects are of importance:
Medical Schemes only allow for option changes with effect 1 January of each year and it is therefore very important to consider alternative solutions during year-end, under guidance from our consultants.
It stated in the circular that the current solvency requirement is out of line with other South African prudential requirements. Both long-term and short-term insurance environments have risk-based solvency frameworks in place.
This creates an incentive for providers of health care financing products to structure their products in such a way that they meet the definition of the product with a lower solvency requirement. One of the considerations, for levelling the playing field, is to have a regime similar to that of the Solvency Assessment and Management (SAM) Framework, which specifies capital requirements for long- and short-term insurers.