LOW COST BENEFIT OPTION FRAMEWORK

Paresh PremaGM: Benefits ManagementCouncil for Medical Schemes

Introduction• The Council has approved a framework as to how it may consider

introducing Low Cost Benefits Options into the industry• The Council has approved the principles provided in the framework in

January 2015• The broad outline of the Framework was provided in Circular 9 of 2015

with a request for proposals on the benefit design in Circular 37 of 2015• CMS has embarked on a consultative process based on the framework to

develop guidelines for the industry

Introduction• Framework is based on exemptions and allows flexibility and control of the process• Guidelines to the industry are being drafted as to the process around application

for exemption to Council and the minimum requirements• The guidelines will provide interested parties with the minimum requirements

from Council in order to introduce LCBOs into the market• The aim of LCBOs is to increase the participation of individuals into the risk pool

that would have not had the opportunity to previously• This can be achieved by addressing:

– Affordability challenges to this sector– Provide benefits that cater for need of the market– Ensuring that quality of cover is provided

Section 8(h) recap

Question for consideration

Whether a Low Cost Benefit Option (LCBO) can exist within the current Regulatory Framework of the Medical Schemes Act (MSA)?

Does the Council dispose of the powers to intervene?

• Section 8(h) confers a power on Council to exempt medical schemes from complying with any provision of the MSA.

“8. Powers of Council. – The functions of the Council shall be to- (h) exempt, in exceptional cases and subject to such terms and conditions and for such period as the Council may determine, a medical scheme or other person upon written application from complying with any provision of this Act”(own emphasis added)

What is meant with the power to exempt?Exceptional

• Jurisdiction for power to exempt is the fact that the case must be exceptional.

Unusual

/ out of

the ordinary

• Our courts have interpreted “exceptional” to mean unusual or out of the ordinary.

Fact

• The existence of exceptional circumstances or otherwise must be determined as a matter of fact and is not a discretion.

Strict

view

• A strict rather than a liberal view of such applications is to be taken.

Section 8(h) exemptions

• Onus is on the applicants to present facts which make their case markedly different form ordinary medical schemes to make them exceptional.

• Protection of member interest must be ensured.• Exemption must be rationally connected to the information presented.• Adequate and defensible reasons must support the decision.• Council is at liberty to impose conditions and to only partially exempt

where indicated.

Framework outline• The framework that was adopted by Council is guided by principles• These principles were presented to the industry in Circular 9 of 2014:

– Protecting risk pooling– Underwriting– Geographical coverage– Solvency protection– Non-healthcare expenditure– Marketing– Minimum benefit design– Exemption conditions

Framework outline• Protecting risk-pool:

– If the PMB requirement removed, we need to ensure that the existing medical scheme risk pool is not undermined or fragmented

– Reduce the risk of buy-down of existing members (previously uncovered population, mandatory cover)

– Clear definition of eligibility to entry e.g. Income verification, employer groups only, etc.

– Restriction of membership to one scheme only to be considered as an exemption

– On the upside, there are Natural barriers to buy-downs i.e. no cover for private hospitalization

Framework outline• Underwriting:

– Late joiner penalties should not be allowed esp. considering previously uncovered lives due to affordability

– Waiting periods may be allowed but will be determined as part of the exemption request in the application

– Membership of only one scheme at a time

Framework outline• Protecting risk-pool/Underwriting comments:

– Options provided within schemes– Initial enrolment period after which underwriting will apply– Exempt from community rating and introduce risk rating– Upgrade to higher plan to require underwriting – except in cases where salary

increases– Restrict membership based on (exemption from open enrolment):

• Income• Geographical areas• Uncovered lives• Employer groups• Mandatory membership

Framework outline• Geographical coverage (comments):

– Options are developed on basis of contracted networks of primary healthcare providers

– Restricted enrolment to network coverage areas due to benefit design and pricing

– Out-of-network coverage be condition of exemption to ensure continuity of care

• Solvency considerations comments:– Exclude from solvency calculation in the beginning or ring fencing– Review solvency to include an Risk Based Capital approach– Include in Solvency only once a RBC approach is implemented

Framework outline• Non-Healthcare expenditure (comments):

– Demonstration of value for money in business case– Cost of options assume a low NHE

• Marketing (comments):– Need to ensure that the right message gets out– Conditional exemptions if misleading marketing– Need to ensure members are educated about the product

Framework outline – Product Design• Benefit Design – type of benefits covered:

– GP consultations – Specialist consultations with referral– Acute medication – Chronic medication – Dentistry – Optometry – Pathology – Radiology – Emergency services (road/air transport) – Emergency casualty services – Hospitalisation (Public/Private)

Framework outline – Product Design• Benefit Design:

– A predetermined set of benefits that the product must comply with to ensure that appropriate healthcare is provided

– Work has been done to investigate design considerations and effectiveness of interventions – Circular 37 of 2015

– Analysis of cost effectiveness of predetermined set of benefits– Continuation of care – out-of-network benefits– Standardised benefit package to be included

• Primary care• Capitated arrangements to provide benefits• Out-of-network cover• Hospitalisation depending on cost and affordability

Framework outline – Product Design• Benefit Design comments:

– Exemption partially or fully from the PMB requirements– Standardised benefit package to be included

• Primary care• Capitated arrangements to provide benefits• Out-of-network cover• Hospitalisation depending on cost and affordability

– Affordability of benefit package as key consideration incl. subsidy considerations

– Simply and clear design – reduces NHE

Product design – Technical Work• Circular 37 of 2015 – Request for proposal of LCBO

Option A Option B

Consultations

General Practitioner Visits 3 pbpy and 12 pfpy Unlimited

Specialist visits with referral None 1 pbpy

Nurses

Oral care practitioners Basic Basic/Advanced

MedicationAcute Basic Basic/Advanced

Chronic None/Basic Basic/Advanced

Auxiliary Services

Dentistry None/Basic Basic/Advanced

Optometry Basic Basic/Advanced

Pathology Basic Basic/Advanced

Radiology None/BasicBasic/Advanced

Emergency services Transportation/Casualty None/BasicBasic/Advanced

Hospitalisation Private/Public None/Basic Basic/Advanced

Product design – Technical Work• Supporting report must include a Circular 37 of 2015 –

– Statistics on the intended target market including demographic and financial information; – Summary and source of data used;– Assumptions used in preparing the submission including the impact of anti-selection;– The benefits to be provided in the Options (A & B) proposed and the additional benefits that exceed the minimum in

the table above, including information on the mechanism of contracting and managing the preferred provider arrangement(s);

– The level of contributions charged for the Options; – The level of non-healthcare expenditure in the contributions and the manner in which these costs will be minimised

to maximise the benefit to the LCBO beneficiary; – Financial projections of the options over the next three years; and– Detailed annexures of the acute and chronic formularies, list of procedures/tests covered by the auxiliary services. – Annexures outlining quality of care monitoring– Detailed annexures outlining continuity of care– Evidence-based limitations and exclusions;– Consideration to prioritising essential health services vs. non-essential health services

Circular 37 review• 12 submissions received from request in Circular 37• Submissions were made by medical schemes, administrators, providers

and other associations• Review of the submissions to fine tune framework and guidelines for

Council process

Circular 37 review• Summary of Submissions:

Option A Option B

ConsultationsGeneral Practitioner Visits 3 visits and 2 chronic/ up to 9 visits Unlimited

Specialist visits with referral None 1 pf or R2000 pf/30% co-payment without referral

MedicationAcute Basic Basic

Chronic None None to limited formulary- some CDL based

Auxiliary Services

Dentistry None - 2 visits with basic protocols 2 visits with basic protocols

Optometry Basic – 1 test and 1 pair/24 months – Frames R100 – R250

Basic – 1 test and 1 pair/24 months – Frames R100 – R250

Pathology /Radiology Basic with referral Basic with referral

Emergency services Transportation/Casualty Majority have none with no

casualtyNone with majority offering transportation. No casualty

Hospitalisation Private/Public none None/emergency stabilisation/list of procedures

Circular 37 review• Summary of Submissions:

Option A Option B

ContributionsAdult R180 to R231 R255 to R500

Child R 70 to R101 R130 to R250

NHE Ranges between R10 and R50 pmpm

Brokerage Currently at 3% ranges between R5 to R12 pmProposal to increase to 7.5% for consideration

Eligibility/open enrolmentEmployer groups ranging from 15 to 35 membersIncome threshold between R6000 to R12000Limitation to geographic areas

Solvency

Exclude if at 25% or else measure solvency at scheme level to get to 25%Include only once RBC approach developedPhased in approach in terms of Regulation 29 – like for new schemes (10%, 13.5%, 17.5%, 22%, 25%)

Protection of members• Framework ensures that low cost options fall under MSA• Community rating : do not unfairly discriminate and all charged the same

contribution• Defined and limited underwriting restrictions – LJP• Guaranteed renewal of cover• Opportunity for buy-up for members participating in LCBO• Employer participation – expanding coverage-mandatory membership• Complaints can be handled ito MSA

Protection of members• Periodic review of exemptions:

– Granted subject to applicant reviewing products annually– Exemptions are given for a defined period subject to conditions stipulated by

Council• Solvency requirement (Regulation 29) maintains level of protection to

members• Further conditions of exemption:

– Membership restricted to uncovered only– Restrictions based on income level– Periodic report on the compliance with conditions

Protection of members• Exemptions may be revoked if Registrar/Council has reason to believe:

– If conditions of exemptions not complied with– Practice undermines principles of the MSA (marketing, managed care,

underwriting, …)– Principles outlined in guidelines for low cost options not complied with– Reporting requirements as to the conditions placed on the granting of

exemptions

Conclusion• Council currently seized with responsibility in expanding access to medical

schemes and responsibility for making decision on how they seek to resolve issue of affordability

• Suggested framework for Low Cost Benefit options address gaps in current environment

• CMS in best position regulate & monitor new products within current structures

• Request and support from National Treasury to close the gap left by demarcation

• Requests and support from NT, FSB and industry

Way forward• Broad outline provided to industry for comment• Further consultation with the industry has aided in the development of

guidelines– Circulars requesting information and proposals as to benefit composition and

terms of exemptions– If needed - workshops with industry and stakeholders– Review of comments and refining the approach by CMS ito benefit design, etc

• Preparation of guidelines for new Council meeting for adoption• Publication of guidelines and applications process begins

– Exemption applications to serve at Council– Once granted options can be registered by CMS

THANK YOU