Efficiency Discount Options (EDOs) were introduced in 2008 to allow for differentiated contributions within an option of a Medical Scheme. EDOs are options where a discount can be offered to members who agree to limit their use of providers to a network designated by the scheme. The Medical Schemes’ Act does not allow differentiation of contributions except on the basis of income, family size, or both (in order to support the principle of cross subsidisation and social solidarity). Schemes must therefore be granted (by the Council for Medical Schemes (CMS)) exemption from section 29(1)(n) of the Act in order to operate an EDO.
The 2013/2014 Annual Report of the CMS outlines the advantages of an EDO as follows:
Benefit options with network arrangements offer advantages to both members and medical schemes. Members receive discounts because the scheme is able to obtain efficiency from a selected provider network. Members’ contributions are fair and non-discriminatory and they retain a measure of choice within the efficiency of the network. Medical schemes also achieve cost savings because network arrangements allow schemes to negotiate better reimbursement and healthcare delivery terms. [Emphasis added]
The number of Schemes offering EDOs in 2013 was eight, up from seven in 2012. The Schemes are Momentum Health, Discovery Health Medical Scheme (DHMS), Fedhealth Medical Scheme, Liberty Medical Scheme, Thebemed, Compcare Wellness Medical Scheme, Medihelp, and Hosmed. These Schemes offering 39 benefit options provided cover to 186 559 members (375 448 beneficiaries). Total contribution income for EDOs was approximately R4,18 billion in 2013. The claims ratio for EDOs was 66,1% (84,2% non-EDOs) resulting in a net underwriting surplus of R109.25 per beneficiary per month (R18.64 non-EDOs).
This would suggest that, at least on the face of it, Medical Schemes have been able to use EDOs to negotiate better reimbursement and delivery terms and thereby achieve cost savings.
However, there are other factors contributing to the cost savings achieved by EDO options. The average age per beneficiary for EDOs is 30,5 whilst that for non-EDOs is 34,9. The pensioner ratio for EDOs is 4,8% whilst that for non-EDOs is 9,4%. Both the average age and pensioner ratio is well known to have a significant impact on claims ratios.
In addition, it would appear that the discount offered on contributions is a fixed percentage discount. If this is the case, it represents a once-off saving, and thereafter the EDO contribution increases would increase in lock step with the rest of the option. This, in turn, means that the EDOs do not get off the treadmill of above inflation cost increases borne by the industry year after year.
It is evident that EDOs are attractive to younger members. If the trend of attracting young members out of non-EDOs continues, does this represent an additional threat to the principle of cross subsidization, leaving older members in non-EDOs?
Considering that the savings achieved are, at least in part, attributable to the attracting of younger members (and not by the believed efficiency of these options), that EDOs would appear not to break the health care inflation cycle, and considering the threat to cross subsidisation posed by EDOs, the CMS should very carefully consider its policy of granting the required exemptions to enable EDOs.
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