LCBO Framework Report and Risk Assessment Drafts

The past two months have been eventful in the private healthcare industry, with the Constantia Insurance Company Limited (CILC) being placed under provisional curatorship; Health Squared Medical Scheme’s liquidation debacle and the Board of Healthcare Funders (BHF) taking the Council for Medical Schemes (CMS) to court over delays in reviewing Low-Cost Benefit Options(LCBO) guidelines.

This seems to be the push CMS needed, because on 15 September 2022, they issued Circular 55 of 2022, inviting the public to comment on the LCBO Framework Report and Risk Assessment Drafts.

We finally got some insight into the potential solution of providing affordable access to private healthcare cover to the majority of households in South Africa who currently face financial constraints as an entry barrier to the private healthcare sector.

Understanding the Role of Low-Cost Benefit Options

By improving access to affordable healthcare, it is envisioned that progress in the implementation of NHI will be accelerated, as LCBOs will alleviate pressure in the public healthcare system.

The current drafts have been formulated through three work streams – Benefit and Pricing; Market and Affordability and Compliance and Legal governance. These work streams have been put together to form a proposed benefit package.

The shared data from the General Household Survey(GHS), and FinScope Survey indicates that the estimated target market is 2.5 – 4 million people. The recommended contribution range is between R150 – R300 per beneficiary per month; these figures fall below the current medical scheme tax credit applicable to members who earn above the tax threshold. The current proposed minimum product benefit design for LCBOs will focus on primary and preventative healthcare, to include the following benefits:

• Nurse referral system as a minimum requirement
• GP Network consultations
• Acute and chronic medication, subject to an Essential Medical List
• Basic blood tests and x-rays based on formulary
• Ambulatory services
• Chronic Disease Management at a primary care level

Based on the current draft, Private Hospital Cover, Prescribed Minimum Benefits, Accidental and Emergency cover, Dental and Optical Benefits will be excluded as they would render LCBO products unaffordable for the target market. However, in the future, these benefits may be included in more comprehensive LCBO products.

Regulatory and Legislative Consideration

There are three possible transitory arrangements in the implementation of the LCBO framework:

• Setting up LCBOs as separate medical schemes
• Establishing LCBOs under the short term insurance
• LCBOs are set up within medical schemes but using strict underwriting criteria to restrict selective movement from traditional options to LCBOs and vice versa

Each of the above arrangements will have regulatory implications, which may require amendments to the Medical Scheme Act, Financial Service Providers Regulations, Demarcation of Insurance Products (short-term and long-term), Governance Framework, etc.

Risk Assessment

Through the consultative process, industry stakeholders and the advisory committee have identified risks and mitigating measures associated with each of the above-mentioned transitionary arrangements. The risk factors associated with implementing LCBOs have been classified based on the level of impact they will have on the current South African Healthcare Insurance structure. Some of the high-impact risk factors identified were:

• Solvency – a proposal has been tabled for LCBOs solvency requirements to be lowered to 10% compared to 25% for medical schemes
• Reserves – to avoid insolvency or liquidation, medical schemes need to build reserves during the transitional period to guarantee a strong financial position against the inherent risk of potential claims following the additional lives covered
• Regulatory – transitioning from Insurance to Medial scheme will affect the governance framework, and administration will need to be implemented effectively
• Minimum Product Benefit – a baseline plan will need to be established to ensure that regulations related to customers are adhered to and maintained

LCBOs could be the pathway between public and private healthcare sectors

It is interesting to note that proposed timelines and implementation dates have been outlined in this report, one of them being the set date for Phase 1 of the implementation of LCBOs as January 2024.

It remains to be seen whether the LCBOs will be implemented and, if so, for how long, taking into consideration that the National Health Insurance(NHI) Bill mentions that once NHI has been fully implemented, medical schemes may only offer complementary cover to services not reimbursable by the Fund. Interestingly, the current LCBO proposed benefit structure is similar to the primary care services that will be included in the NHI offering.

Some may consider this a band-aid solution until NHI is implemented. However, considering that only 16.1% of South Africans are currently insured through medical schemes, and approximately 500 000 individuals are covered through primary health insurance policies, the introduction of LCBOs is a critical need for the rest of the country’s population. It could be a building block for NHI and a pathway between the public and private healthcare sectors.