HomeBusiness DigestNIPC and medical aid societies: Way forward

NIPC and medical aid societies: Way forward

By Nhlanhla Nyathi

JUST as we had thought that the disturbing era of price controls was over and done with, the National Incomes and Pricing Commission (NIPC) is at it a

gain. This time they are refusing to grant Medical Aid Societies the right to increase subscriptions in line with underlying medical expenses.

The massive upsurge of prices across the board over the past four months gave the impression that the NIPC was no longer actively involved in the determination of prices or at least that they had seen the error of their ways.

Surely one would have been justified that in believing that they have indeed learnt something from the disastrous effects of the July 2007 price controls that caused market-wide shortages that still exist today.

The continued involvement of the NIPC in the commercial sector shows the fallacy of the institution’s policy of controlling the price of a finished product without fully factoring in the cost build ups.

If the NIPC argues that cost build-ups are factored into their pricing models then they are guilty of denial of the effects of inflation on the prices of drugs and medical expenses.

They are guilty because a number of members of medical aid schemes are burdened with paying huge cash components whenever they visit the doctor or buy drugs from pharmacies on account of their membership proving the inadequacy of current subscriptions.

Medical drugs have gone up unabated in tandem with parallel market indicators and it would be counter-productive to control subscriptions while compromising service delivery.

It’s a case of giving with one hand while taking back with the other. The stance taken by the NIPC will inevitably result in the irrelevance of medical aid schemes as it compromises the initial founding objective of providing medical aid cover to members.

If members end up paying more than 50% of their medical expenses in cash, it becomes somewhat inconvenient to have a half-baked medical aid cover.

The very fact that the subscriptions paid by employers on behalf of their employees for the purpose of creating medical aid cover are perceived as a form of levy that can be controlled by the NIPC puts the operationally efficiency of medical aid schemes at risk.

The NIPC in this case justifies its intervention due to the fact that subscriptions payable to medical aid schemes are perceived indirectly as a levy on employees and hence feels obligated to protect them from escalating costs.

However, this hard-line stance, well-intentioned as it may be in lowering the subscription burden for employees, falls prey to causing unintended consequences through employees having inadequate medical cover.

This might result in an unhealthy and unhappier employee, which is more than what the NIPC bargaining for. Unfortunately because the NIPC owes its existence to an all empowering statutory instrument, it can implement whatever policy it deems fit even if it is crystal clear that such a policy would compromise service delivery.

Employers and employees might be sympathetic to the plight of medical aid schemes but cannot do anything if the NIPC has ruled on it.

Many people will have higher co-payments when they visit their doctor next time. Concerned employers, who genuinely want to provide good medical cover for their employees ask: is there an alternative product that can be structured within the confines of statutory provisions that enables better coverage while not being susceptible to NIPC control?

To answer this question, people need to understand the concept of medical aid societies and how they function.

Medical aid societies are non profit making body corporates with perpetual succession established for the purpose of providing medical, dental and allied services for its members.

Allied requirements can stretch as far as the society operating hospitals, clinics, and pharmacies for the benefit of its members.

To be a member of a society requires one to pay a periodic subscription, normally on a monthly basis which is paid into a fund and managed by the society for the purpose of providing medical, dental and allied requirements.

Medical aid societies use the concept of the law of large numbers which implies that those members who do not use medical services on a frequent basis help finance those who claim frequently.

Looking at it now it makes sense why someone who contributes loyally to their medical aid society for twenty years without claiming anything would not be entitled to a cumulative twenty year claim in the future on the fund. In essence the twenty years of non claims would be forfeited to other members who claim frequently and some of the money from accrued investments of the fund used to build hospitals, clinics, etc will accrue to other future members that will join the society in perpetuity.

Well-intentioned as the concept of medical aid schemes may be, it clearly has its own inherent weaknesses that can be improved significantly.

The intrusive tendencies of the NIPC in this case might actually offer some innovative financial institutions the opportunity to structure medical cover products that eliminate the just mentioned inherent weakness of medical aid schemes.

The opportunity arises in the sense that the management of funds is the work of financial institutions who can work hand in glove with companies wishing to pay monies into a fund for the purpose of providing medical cover for its employees.

The concept is that companies agree to pay monies into a fund that will be grown for the objective of providing medical cover for its employees and claims can be made on the fund on some agreed formula when covered employees access medical facilities and drugs. The advantage of this product is that investment policy can be structured with the active involvement of the concerned contributors to the fund and they are the sole beneficiaries of the inevitable future value of the fund.

This product would be out of the NIPC’s jurisdiction because the monies paid into the fund are for investment purposes and do not entail a subscription that can be controlled as in medical aid schemes.

* Nhlanhla Nyathi is a director of a private equity company. He can be contacted on 0912250092 or Kexhe@yahoo.com

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