Call to stop healthcare funding’s 'race to the bottom'

The private healthcare sector needs to take matters into its own hands to stop a “race to the bottom” in healthcare funding because government has effectively left the regulatory playing field since adopting its National Health Insurance (NHI) policy, the 25th annual Board of Healthcare Funders conference heard this week.

Speakers warned that private healthcare is becoming increasingly unaffordable and unsustainable, leaving fewer people with medical scheme cover and forcing households to fund about R35 billion in out-of-pocket healthcare costs.

The government’s solution is NHI, but Neil Kirby, a director at Werksmans Attorneys, which is acting for the BHF in its NHI court challenges, said the NHI enabling legislation is likely to be tied up in litigation for more than a decade.

Stakeholders were urged to use existing funding and current legislation to maintain the private healthcare sector rather than wait for policy certainty.

The race to the bottom

Professor Alex van den Heever, chair of social security systems administration at the Wits School of Governance, said that in the absence of regulation ensuring social solidarity there was a “race to the bottom”.

Medical schemes compete for healthy members in the same way insurers do, with older and less healthy people facing higher costs or being priced out. Over time, he said, this could also leave private providers without enough work.

Healthcare services are also procured from private providers in ways that drive up costs, increasing unaffordability and pushing more people out of cover, Van den Heever said.

Paula Armstrong, managing director at the consulting firm FTI Consulting, told the conference medical scheme membership in South Africa had slipped from 16 percent of the population in 2014 to 14.5 percent in 2024, when 9.17 million South Africans belonged to schemes.

She said a growing “missing middle” of about eight million employed South Africans earn too much to rely on free public healthcare but find medical schemes unaffordable.

Many are turning to health insurance products. Armstrong estimated 1.3 million people have low-cost primary healthcare plans – insurance cover for private out-of-hospital services.

The move back to insurance

Before the policy shift to NHI, the Department of Health, the Council for Medical Schemes and the industry were exploring low-cost benefit options within medical schemes to accommodate lower earners and strengthen medical scheme risk pools.

Regulations enabling these options were never finalised and instead insurers’ low-cost primary healthcare plans, priced on the risk of insured groups, mushroomed under exemptions from the Medical Schemes Act.

Armstrong said these policies do not offer full sharing of costs for a basic benefit package, margins are quietly being eroded and benefits are being cut. Users are also vulnerable to product withdrawals or insolvencies, she said.

Unless minimum requirements are introduced, South Africa risks drifting back to the pre-1998 environment when healthcare was priced based on your health risk, she said. This was what the Medical Schemes Act was intended to fix, she added.

Echoing this Christoff Raath, joint CEO of Insight Actuaries & Consultants, told the conference that in the face of government inaction the market is moving beyond medical scheme regulation with products that could ultimately see older and sicker people paying more.

Incomplete healthcare reform

Raath said the Medical Schemes Act was intended to prevent healthcare cover being priced according to age or health risk by requiring schemes to accept all applicants, charge the same contribution to all members on a particular option and provide certain prescribed minimum benefits (PMBs).

However, the reforms were never completed because no mechanism was created to equalise the cost of the PMBs across schemes and membership was not made compulsory for those who could afford it, he said.

Without this, the sustainability of medical schemes and private healthcare is fundamentally endangered, Raath said. Contributions will inevitably continue rising by consumer inflation plus three, four or five percentage points a year because the system is structurally broken, he added.

Costly minimum benefits

The PMBs have not been updated since 2003. Raath said the average cost of providing them is about R1 600 per life per month, meaning the cheapest cover for a family of three would cost around R4 000 before administration costs.

If the PMBs were redesigned today to meet affordability constraints, about 100 conditions would need to be removed, he said.

The Competition Commission’s divisional manager for market conduct, Mapato Ramokgopa, encouraged the industry to collaborate with it to establish a forum to set prices for essential health services and a standardised benefit option for medical schemes, as recommended by the Health Market Inquiry.

The recommendation was made in 2019 and a draft exemption from the Competition Act to enable it was published for comment in February 2025.  

The industry can’t wait

Van den Heever said it was futile to wait for government. The industry had the technical skills to distribute healthcare risks to those who can bear them. At present, funders transfer risk to households, while providers avoid risk by charging for every service they provide, he said.

He said the industry needed an essential benefit package offered to all members, with the cost equalised across funders to ensure proper subsidisation from the young and healthy to the old and sick. Funders would then compete on the quality of delivery.

Although the Competition Act and Medical Schemes Act constrain collaboration on this, Van den Heever said if industry proposals meet the social objectives the laws were designed to achieve it should be possible to obtain exemptions from the Acts. If regulators refused exemptions, their decisions could be reviewed by the courts.

Raath said work done between 2004 and 2006 on risk equalisation, low-cost benefit options and growing medical scheme coverage in a social health insurance (SHI) system may be worth resurrecting.

Providers weigh in

Dr Simon Strachan, CEO of the South African Private Practitioners Forum (SAPPF), said specialists also support risk equalisation and social health insurance. The SAPPF, which represents 5 000 specialists across 14 disciplines, is challenging NHI in court and is a founding member of the Universal Healthcare Access Coalition to promote universal health coverage.

Strachan said there was enough money, policy and regulation available to solve South Africa’s healthcare problems under accountable leadership. Specialists are preparing to contract with and provide services to multiple autonomous well-governed health facilities the providers hope will emerge in future, he said.

In particular, the forum is exploring how to contract for services across medical disciplines and report transparently on the outcome of these contracts, allowing both patients and those funding their healthcare to make better-informed choices.

Dr Mzulungile Nodikida, CEO, South African Medical Association (SAMA), added his voice saying the government is missing in conversations about the funding problems and evolving medical practices that are not supported.

But it is possible for industry players to drag them into the room and have these conversations with them, for all South Africans, “because this is our country and it really needs to work”.