Concept Paper on Medical Aid Schemes

Introduction

Healthcare finance and services providers in Zimbabwe were not spared by the economic downturn of the past decade. Most medical aid societies, practically collapsed when co-payments demanded by service providers exceeded their global limits on benefit payaments. For example, patients were being asked to pay Z$10 billion cash as o-payment and the medical aid society would only pay Z$1 million according to their tariffs. This mismatch, saw many clients, the state universities included, canceling their membership to such schemes and retaining the risk themselves, either funded or unfunded. The introduction of the multicurrency system in February 2009 brought the much needed stability to various sectors of the economy. However, the system was not backed by significant foreign currency inflows and as a result economic activity has remained subdued.

Many organizations are currently operating below capacity and are downsizing to remain afloat. This development has significantly reduced inflow of contributions to medical aid societies, who although operating, are still to fully recover and offer full scale benefits.

Recent developments

Contributions made to medical aid societies are made on the understanding that “if you do not use it you lose it”. This is understandable as medical aid schemes are basically risk pooling and sharing solutions and premised on the concept that the misfortunes of a few should be met by fortunes of many.

However, the tight liquidity situation is forcing many entities to adopt innovative risk management strategies intended to retain as much cash as possible and only outsource those risks that exceed their risk appetite. The economic challenges of the past decade, we faced as a nation exposed the limitations of insurance as a risk financing mechanism. We have all learnt that insurance is not “THE” solution but part of the solution and that there are also equally good alternatives to insurance.

Some medium to large scale organizations have since created self administered insurance schemes to cater for a variety of risks they face in their operations, e. g. material damage, health, funeral, superannuation, etc.

Cell Insurance

Company has spearheaded the adoption of the concept in Zimbabwe through its “rent-a-cell” captive arrangement and today it administers a lot of these schemes. However, a worrisome development in Zimbabwe is the transfer of the superannuation and morbidity risk to the employees by cash strapped or unscrupulous employers.

Recently most if not all of the state university staff had no membership to any medical aid or health insurance scheme. They were paying for their health and related expenses from personal resources. The extent to which this approach could be used was obviously limited due to the low salaries and allowances staff is currently receiving. The state universities have started receiving funding from the fiscus and renewed their membership to medical aid societies. However, the concept is still the same: if you do not use it, you lose it! How many times have been to the doctor lately, once, twice or none?

Literally, medical aid societies are getting richer at the expense of the members, university staff included. Retaining in-house the contributions state universities currently pay to various medical aid societies and health insurance schemes could make a difference to the underfunded institutions.

Suggestions for the state universities

It is against the above background that I propose that the state universities should consider setting up a unified independent medical benefit fund to finance health and related risks the state university staff are exposed to on a daily basis.

It is also proposed that both the employer (state universities) and the employees should make periodic contributions to the fund, the employer paying 80% and the employees meeting the balance of 20%.

Costing basis

According to latest personnel records, the state universities employ about 3100 in total. Costing of commercial health and self insurance schemes is based on the “law of large numbers”. The larger the statistical base, the more accurate the loss ratio becomes. Many schemes operating in Zimbabwe today actually started as in-house schemes with even fewer numbers, e. g. FLIMAS and First Mutual.

The 3100 university employees constitute a sizeable number, to allow for costing of the proposed medical benefit fund. In addition to the level of benefits required, existing university clinic utilization figures should be analysed and included in the costing model.

Advantages of the proposed scheme

The proposed scheme has the following advantages: – Contributions to the fund should be lower as members will not pay for medical aid society or insurer’s administration and profit margins. – Interest from the investment of funds will accrue to the benefit fund – Any profits will accrue to the benefit fund Benefits can be tailor made, improved and enhanced with time as the fund grows – There will be no disputes with medical aid society or insurers over claims settlement – There would be a strong incentive by members to reduce claims and control losses – Global limits can be increased easily with minimum or no increase in contributions from the employer and employers – Improvement in staff morale can be achieved thereby increasing productivity and the restoration of financial independence and dignity. 6. Disadvantages of the proposed scheme

The proposed scheme has the following disadvantages: – The claims statistics, which are used to decide on contributions will come from a narrow base – A catastrophic loss (although remote) could occur in the formative years and wipe out the fund. However, catastrophe cover can be separately arranged with leading reinsurers for a very low premium to cover the fund against an accumulation of claims above the expected budget in any given accounting period. – Individual small claims may not affect the fund too much but their aggregate effect may have catastrophic effects.

Catastrophe cover, described above can also mitigate this risk – There will be need to employ additional staff to handle the fund’s administrative matters. True, but use of existing clinics and facilities at state universities should reduce the number of additional staff required. – There may be a temptation to dip into the fund and pay for unrelated activities. This must be resisted by the board of management/trustees. In any case the business of the fund should be separate from that of sponsoring universities.

If the ”dip” is to be allowed it should be a loan based on prevailing commercial bank loan terms and conditions. – Benefits from the basic insurance principle of spreading risk will be lost. From the foregoing, it can be concluded that the advantages far outweigh the disadvantages. The disadvantages, although real, are highly theoretical and remote.

Establishment of a technical working committee

To expedite the process a technical committee consisting of representatives from the state universities should be set up.

The committee should consist of both management representatives (50%) and employee representatives (50%). This intended to ensure buy in at the early stages and also incorporated the various stakeholders’ interests and ideas in the scheme. 8. The mandate The technical committee must be mandated to carry out the following tasks: 10. 1 Drafting of the constitution The proposed benefit fund will be run according to its Rules and Regulations as enshrined in its Constitution. The technical committee will be responsible for drafting the Rules and Regulations, which will include, inter alia:

• The name and objects of the proposed benefit fund
• Board of management/trustees, appointment and composition, meetings, its powers and functions
• Membership issues e. g. eligibility, application, termination, deprivation of membership, etc
• Subscriptions e. g. level, frequency and mode of payment of subscriptions.
• Beneficiaryship e. g. eligibility, application and termination of beneficiaryship.
• Schedule of benefits e. g. nature and amounts of benefits, eligibility for benefits, waiting periods, claims for benefits, rejection of claims, ex-gratia payments.
• Assets, liabilities, rights and obligations of the medical fund
• Actuarial valuation
• Dissolution/wing-up of medical benefit fund
• Amendment of rules e. g. power, requirements for amending the rules
• General information for members e. g. benefit exclusions, lodging of members’ complaints and requests, payments of awards not supported by receipts, payment of service providers, list of approved providers, letters of guarantees for services provided outside Zimbabwe, shortfalls, travel cover on holiday, business or study.
• Promotion of the medical fund for acceptance by target service providers and establishing working relationships with them

Benefit design

The technical committee must develop a number of benefit options which members can choose from. I propose the following plans, that I have christened, for want of better names, the university premier plan, university medium plan and the university standard plan.

• University Premier Plan This would be similar to the CIMAS Medexec Plan/PSMAS Pinnacle Plan and is meant to provide executive benefits for the principal officers and senior management.
• University Medium Plan This would be similar to the CIMAS Private Hospital Plan/ PSMAS Select Plan and is meant to provide members who want global limits higher than those provided under the University Standard Plan described below: c
• University Standard Plan This should be the entry point and would be similar Excel Plan from PSMAS which currently covers most staff. The plan will pay for consultation and treatment received from Government, Mission, Municipal & Private Hospitals, general practitioners and specialists up to a limit, per person per annum

Registration of the fund with the authorities

The technical committee should be mandated to register the proposed medical benefit fund in terms of the Medical Services Act, Chapter 15: 13 and any other applicable and relevant legislation.

Administration The technical committee should consider the following issues that affect the efficient running of the business of the proposed medical benefit fund.

Location of registered office and other offices

This could be either in Harare or Bulawayo with satellite offices at all state universities. Any other center could be considered for the location of the head office.

My suggestion is based on the density of service providers in Harare and Bulawayo. Most members would be referred to these big centers for specialist medical tests and treatment. Existing facilities could be used as satellite offices e. g. the existing clinics could be expanded and resourced to offer a variety of services normally available from general practitioners. This will save on costs.

Staffing issues

Additional staff will be required especially for the head office. This will include the principal officer, finance manager, membership and claims administrators.

However, they should be very few, because most of the work will be done from satellite offices. Initially there may be a lot of work when the office is set up but that should stabilize with the effluxion of time

Finance and claims administration

This could be centralized at head office and payments to service providers and refunds to members made once every fortnight i. e. only on two occasions per month.

Dispensary

It is advisable to buy the essential drugs from source and keep them in stock for use by members. It will also save on costs.

Railmed currently operates such a facility countrywide for the benefit of railway employees scattered across the country. The state universities should use the existing clinics for a similar purpose. Alternatively, mutually beneficial arrangements (drug schemes) can be made with leading private pharmacies to allow members’ access to drugs without paying for them upfront.

Approved provider network

For the members to benefit, the scheme should be promoted for broader acceptance by as many service providers as possible so that members are not inconvenienced in the time of need.

The management of the medical fund should promote the scheme and establish working relationships with all health service providers. This can also save on cost as it is possible to negotiate preferential rates.

Access to technical advice

The state universities have a large pool of experts on their payroll. The technical committee should tap on that expertise. This will not only serve on cost but show the world that we can use knowledge to the benefit of mankind and practice what we preach!

Conclusion

Emerging trends in risk management indicate that more and more organizations are electing funded risk retention strategies in an effort to contain cost and get more value for their money. State universities should embrace the philosophy and design and implement robust enterprise wide risk management strategies that mitigate the risks they are exposed to. For a start, establishing a unified independent medical benefit fund to finance the morbidity risk university staff are exposed to will be a good step in that direction.