Tax threshold limit on low-cost options ‘a blow for workers’
14 September 2015
Posted by: Author: Laura du Preez
Author: Laura du Preez (IOL)
Providers of primary healthcare plans that may soon be disallowed say that low-cost benefit medical scheme options will not cater for people using these plans who earn more than the tax threshold but cannot afford scheme membership.
The Council for Medical Schemes has announced that from next year it will allow low-cost benefit options that offer primary healthcare cover and no hospital cover.
But stakeholders say thousands of people earning between R6 000 and R13 000 a month could be left without basic healthcare cover when regulations under the Insurance Acts, which are expected to be issued this month, are promulgated.
The regulations, together with the implementation of a new definition of the business of a medical scheme under the Medical Schemes Act, are expected to ban primary healthcare plans that are not registered as a medical scheme.
Many people who use unregistered primary healthcare plans will be prevented from joining the new medical schemes options, because they earn more than the tax threshold – the maximum income level set for these options – and existing low-cost options with hospital cover will be too expensive for them.
But medical scheme industry commentators are optimistic that the new low-cost benefit options will grow medical scheme membership and reduce the burden on state healthcare facilities.
Most schemes, particularly those open to anyone, are expected to launch low-cost benefit options next year, although it is expected that it could take two years before some employers put their employees on these options (see "Large medical schemes will launch low-cost benefit options”, below).
Last week, the Council for Medical Schemes announced the requirements that the new options must meet in order to be exempt from providing all of the prescribed minimum benefits.
One requirement that has drawn sharp criticism is that, in order to be eligible to join the low-cost primary healthcare benefit option, your income must not exceed the tax threshold, which is R73 650 a year if you are under the age of 65, or between R5 665 and R6 137 a month, depending on whether or not you receive an annual bonus.
The low-cost options are expected to cost between R180 and R380 a month, possibly a little more, because initial estimates excluded basic dentistry and optometry that the option must include.
Johan Pretorius, the chief executive officer of Universal Healthcare, says that, currently, the cheapest medical scheme options with hospital cover start at about R400 a month for a single member who earns less than R6 000 a month.
The contributions are close to R1 000 a month for people who earn R10 000 a month, although at this income level the medical tax credit for contributions is a significant subsidy, he says.
Three providers of unregistered primary healthcare plans say their plans are used by thousands of people who earn more than the tax threshold but do not earn enough to afford the cheapest medical scheme options that offer hospital cover.
Michael Settas, the managing director of Xelus Specialised Risk Solutions, says that most employees who do not have medical scheme cover earn between the tax threshold and about R13 000 a month.
Settas says the Council for Medical Schemes has restricted the low-cost benefit options to people who earn below the tax threshold, because it is concerned that younger members of medical schemes will downgrade to the new options, which will undermine the cross-subsidisation of contributions.
He says this concern will result in low-cost benefit options protecting existing higher-income members of medical schemes, rather than meeting the needs of low-income earners.
Settas says low-cost benefit options appear to have been a "hurried and knee-jerk reaction” to the public responses to last year’s release of the second draft of the so-called demarcation regulations under the Insurance Acts.
The regulations and the new definition of a medical scheme are intended to ensure that health insurance policies do not undermine the cross-subsidisation in medical schemes by attracting young, healthy members away from schemes.
In their responses to the draft demarcation regulations, many stakeholders highlighted how employees who cannot afford medical scheme cover are using the under-threat unregistered plans.
Settas asks how an employer can justify to its employees who do not have medical scheme cover that non-taxpayers can qualify to join the low-cost benefit options, whereas those who pay tax (the majority of full-time employees) must either join far more expensive medical scheme options or go without cover.
He says the low-cost benefit options are an example of poorly thought-through policy, and South Africa’s entire health policy framework "is a mess and is in desperate need of a complete overhaul”.
Richard Blackman, the chief executive of Day1Health, which covers some 22 000 lives, says people who earn below the tax threshold are too poor to afford the low-cost benefit options and will therefore continue to rely on public health care.
The large number of employees who earn above the tax threshold but less than about R17 000 or R20 000 a month will not receive any relief from the low-cost benefit options, because they will not be eligible to join them, he says.
Blackman is also of the view that the interests of a privileged few are being protected.
He says the country cannot afford to slam the door on about five million or so breadwinners who cannot afford to join a medical scheme but who have a constitutional right to health care.
Tiago de Carvalho, a director of Ambledown, an underwriter of health policies, says he welcomes the low-cost option, but he is also of the view that denying affordable healthcare cover to people who earn more than R6 000 but less than about R12 000 a month goes against the constitution.
Ambledown provides services to the National Bargaining Council for the Road Freight and Logistics Industry, which covers more than 100 000 lives, mainly truck drivers.
The council’s Wellness Fund is likely to be granted an exemption from the Medical Schemes Act – in the same way that the low-cost benefit options will obtain an exemption – except that many truck drivers earn more than the tax threshold, De Carvalho says.
However, Ambledown also provides services to Unity Health that covers 23 000 lives, many of whom earn more than the tax threshold, which will make it difficult for this plan to register as a medical scheme option, he says.
De Carvalho says about 800 000 South Africans, many of whom cannot afford to join a medical scheme, stand to lose their accident-related injury cover through insurance policies that are expected to be banned once the demarcation regulations are adopted.
Dr Jonathan Broomberg, the chief executive officer of medical scheme administrator Discovery Health, says although an income threshold is critical in ensuring that scheme members do not move from options with hospital cover to the new low-cost primary care options, the tax threshold may be too low.
He says Discovery Health is aware of large numbers of employees in its client base who earn above the tax threshold, yet cannot afford to join a medical scheme option.
Pretorius says that whatever income level the low-cost option is set at will be criticised, so the Council for Medical Schemes had to start somewhere, and in time the option may be opened to more people.
The low-cost benefit option introduces another tier of minimum benefits for medical schemes, and serves a market willing to pay for private primary healthcare, he says.
Hannes Boshoff, the actuary responsible for product development at Momentum Health, says the low-cost benefit option is the most exciting development in the medical scheme industry for a long time. However, it will not solve the structural problems that schemes face; solving the problems would require making it compulsory for all employees to belong to a scheme.
LARGE MEDICAL SCHEMES WILL LAUNCH LOW-COST BENEFIT OPTIONS
Most large open medical schemes and a number of restricted schemes will launch low-cost benefit options by January next year or soon thereafter.
The release, on September 3, of the Council for Medical Schemes’s requirements for these options leaves schemes with little time to finalise the design of their low-cost benefit options, because they have to submit their rule changes and options for next year by the end of the month.
Milton Streak, the principal officer of Discovery Health Medical Scheme, says the scheme will apply to the council to register a low-cost benefit option, but he could not say if the option would be ready by January 1 next year.
He also could not say what benefits the option would offer, because the scheme is still evaluating the Council for Medical Schemes’s requirements for low-cost options.
Dr Jonathan Broomberg, the chief executive officer of Discovery Health, the administrator of Discovery Health Medical Scheme and other, restricted schemes, says it is in discussion with the restricted schemes on the council’s framework for low-cost options and cannot confirm whether the schemes intend to launch these options.
Dr Johan Pretorius, the chief executive of Universal Healthcare, says that Compare, the open scheme Universal administers, will launch a low-cost benefit option next year, and the restricted schemes that Universal administers are likely to do so too.
However, Pretorius says he expects the growth in the membership of these options to be slow, because they will not be affordable until employers subsidise their employees’ contributions, and it will take 18 months or two years before trade unions and employers negotiate agreements that will result in employer subsidies.
There is good subsidisation of healthcare costs between the healthy and unhealthy members of restricted schemes, which oblige all employees to belong to a scheme. When membership of a scheme is voluntary, as it is with open schemes, the schemes typically face higher costs as a result of anti-selection (people waiting until they are sick before they join a scheme).
Bonitas Medical Fund says it will launch a low-cost benefit option in the first quarter of next year.
Bestmed says it is investigating the viability of a low-cost option.
Momentum Health will launch a low-cost benefit option, Hannes Boshoff, the actuary responsible for product development at Momentum’s health business, says.
However, Fedhealth has decided not to launch a low-cost benefit option. Principal officer Jeremy Yatt says that, because the options will be allowed by way of an exemption by the Council for Medical Schemes, there is a risk that the exemption may be removed.
Toska Kouskos, the national director of NMG Health Care, says the success of low-cost benefit options will depend on how willing employers are to subsidise the contributions, and she is not convinced that large numbers of people who currently do not have medical scheme cover will rush to join low-cost options.
Employers that are willing to spend about R230 a month per employee will choose workplace occupational health programmes, while those that can subsidise the cost of contributions of between R400 and R500 a month per employee and whose employees can afford to co-fund the contributions will use low-cost benefit options without hospital cover offered by medical schemes.
WHAT A LOW-COST BENEFIT OPTION MUST COVER
A Council for Medical Schemes circular states that a low-cost benefit option must cover the following:
- At least five consultations a year at a clinic or with a general practitioner (GP) or nurse who is part of a network.
- One visit a year to a clinic, GP or nurse who is not part of a network.
- A pre- and post-natal programme.
- Cholesterol, blood glucose and blood pressure tests for people in "high-risk groups”.
- HIV counselling and testing, but not antiretrovirals.
- Screening for tuberculosis.
- Pap smears.
- Prostate checks.
- Vaccinations for flu and pneumonia.
- Acute medicines.
- Chronic medication for high blood pressure, cholesterol, hyperthyroidism, diabetes types 1 and 2, and asthma. Less common chronic conditions, such as Crohn’s disease, ulcerative colitis and Parkinson’s disease, do not have to be covered.
- Basic pathology and radiology for acute conditions and the listed chronic conditions.
- Optometry (one eye test and a basic pair of spectacles every two years).
- Basic dentistry (two consultations a year).
- Road transport to a hospital in an emergency.
SCHEMES WITH LARGE RESERVES ‘WILL HAVE AN EDGE’
Large medical schemes with reserves above the required limit are likely to have a competitive advantage if they launch low-cost benefits options covering primary healthcare.
Hannes Boshoff, a product actuary at Momentum Health, says these schemes won’t have to add in funding to the contributions for the new options that is earmarked for increasing the scheme’s reserves.
Milton Streak, the principal officer of Discovery Health Medical Scheme, says although the scheme strongly supports the low-cost benefit option framework, it would have preferred it if the Council for Medical Schemes had exempted schemes that offer these options from complying with the reserve requirements. By law, schemes must hold reserves equal to 25 percent of their contributions (their solvency level).
Streak says an exemption from the solvency requirements would have improved the affordability of the low-cost options.
He says Discovery Health Medical Scheme hopes that the Council for Medical Schemes will allow schemes to build up the solvency for these options over time and that discussions on a new requirement for solvency based on risks to a scheme may in time mitigate the need for additional contributions.
This article first appeared on iol.co.za.