Discrimination and anti-selection

Medical Schemes in South Africa are actually pretty fair.  It doesn’t matter how old or sick you are, as long as you’ve been part of the programme at some scheme, you’re generally covered.

There is a natural subsidy from young to old, healthy to sick and that is absolutely intentional. It’s “fair” in that you get cover no matter what your genes gave you at birth or what you’ve been exposed to in life. It’s “unfair” in that healthy individuals will pay more on average for cover than they will claim.

The black-and-white meaning of the word “fair” really breaks down here. What is important is what the outcomes are and whether it is the best system.

Enter the Consumer Protection Act and Anti-gender-discrimination laws in Europe. The Consumer Commission is investigating whether Medical Schemes discriminate against pregnant women by requiring a waiting period before providing cover.  Well, yes they are, but pregnant women (and not-yet-pregnant women) are anti-selecting against medical schemes when they choose not to belong for years, or upgrade to a more comprehensive plan just before giving birth and incurring all the additional costs of childbirth for the expense of other members.

I’m not saying this is “fair” or “unfair”. The point is, do we feel all pregnant mothers should be able to claim full benefits for their pregnancy regardless of whether they belonged to a particular scheme or any scheme at all before they became pregnant? This cost will be picked up by other members.

The theory goes that as medical scheme contributions increase to fund this increased cost, more members will elect not to belong to a scheme until they are actually pregnant, this decreases the pool of people paying the subsidy, requiring an increase in the subsidy per remaining member. And so on.

In practice I’m not convinced this matters much except at the absolute margin.

Whatever the decision, the Consumer Commission should deal directly with the Council for Medical Schemes and not individual schemes.  When our laws are possibly inconsistent, the laws must get resolved first before any individual scheme, trustees or administrator incurs costs of explaining the issues and trying to figure out how to comply with inconsistent legislation.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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