> Posted by Jeffrey Riecke, Communications Associate, CFI 

In South Africa, where fewer than 20 percent of people have medical insurance, the alternative product of hospital cash plans (HCPs) is becoming increasingly popular, but it remains to be seen where within the country’s shifting healthcare landscape HCPs will settle, and what HCP products will look like as they mature. There are currently 2.4 million people covered by HCPs in South Africa and this number is growing by 50,000 each month.

As their name might suggest, hospital cash plans don’t offer comprehensive healthcare, but instead offer cash payouts at the time of hospitalization. Payouts depend on the premiums customers pay, which means that not all medical treatment can be fully covered. However, with HCPs rising popularity and the poor state of South Africa’s health system (the country was ranked 175 out of 191 in a WHO assessment of country-level health system performance), this product area deserves thorough attention, and a few recent reports from Finmark Trust offer just that.

But first, a few basics on HCPs. Premiums paid for HCPs are determined by the individual’s age and desired level of coverage. Their cash payout at the time of hospitalization is determined by the level of coverage and the number of days spent in the hospital. In some cases the type of medical treatment received affects payout, too. Though as payout is most often determined just by days in the hospital, not the cost of care, insurers typically don’t monitor how the financial support is spent. This allows policyholders to use the money for other expenses that come up during illnesses, like getting to hospital, and to substitute for income lost due to missed work. HCPs are aimed mainly at users of public health services. Only the wealthiest 20 percent of South Africans use private services, and they are more likely to be the users of traditional medical insurance. There are currently between 30 and 40 insurers offering HCPs and about 100 offering traditional healthcare.

In late 2012, Finmark investigated the effectiveness of hospital cash plans in South Africa in meeting the needs of lower-income earners, as well as their impact on the country’s overall healthcare landscape. Finmark’s analysis, based on literature reviews and stakeholder interviews, found that HCPs do offer protection against both direct and indirect costs to lower-income earners (less than R 6,000 (US$550) per month) who use public hospital facilities, even with policy benefits as low as R 500 to R 1,000 per day. HCPs typically provide coverage between R 250 and R 5,000 per hospital day for premiums between R 100 and R 850, respectively.

The discrepancy in coverage level between hospital cash plans and healthcare insurance suggests that there isn’t a threat of the two products encroaching on one another. Of the small portion of South Africans that have health insurance schemes, only 6 percent are in lower-income segments, while 62 percent are in the highest segment. Most of those with HCPs are in the lower-middle income bracket and have coverage lower than R 1,000 per day. Even high HCP coverage levels like R 5,000 don’t come close to the coverage of typical healthcare schemes.

In another report, Finmark gathered demand-side perspectives through focus groups containing both current and potential HCP subscribers. Among the report’s findings are the following:

  • All participants preferred private healthcare facilities, but indicated that they were not affordable and that they usually use public facilities
  • The majority of participants indicated that medical aid (i.e. health insurance) is unaffordable
  • A frequently-cited advantage of HCPs was that cash payouts can be spent as the recipient desires
  • Most participants with policies indicated they experienced a positive HCP enrollment experience
  • A frequently-cited disadvantage of HCPs was the minimum of three-day hospitalization requirement for cash payouts
  • Among reasons for cancelling HCP subscriptions included financial constraints, bad service, rejected claims, and paying premiums every month with infrequent opportunity to claim
  • Most participants indicated an awareness of fraud and its potential impact on claims processes and premiums

As indicated in the last bullet, fraud is an issue for the HCP system. The most frequent fraud involves overstating the number of actual days spent in the hospital, and staying in the hospital longer than necessary.

For more background on the legislative landscape affecting hospital cash plans in South Africa, see an additional report from Finmark Trust here.

Image credit: Ho John Lee

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