15. Design of the NMBF
15.4 Actuarial costing of benefit packages
The feasibility of the NMBF rests in the design and level of benefits offered and its associated costs. This report has detailed the design of the Fund from a Social Health Insurance perspective and expands on the key requirements and principles to be met. This section of the report details the design and its implication from an actuarial and insurance perspective, including the benefits to be offered under various health packages and its associated cost implications.
In general, healthcare benefits on a medical fund/scheme can be classified into the following high-level benefit categories:
Hospital benefits
Emergency evacuation
Chronic care
Day-to-day benefits
Major disease benefit
The cost of a healthcare benefit package is a function of a number of factors including:
The type of benefits offered e.g. Are day-to-day benefits included? Will chronic care be covered?
etc.
The limits applied to the various benefits e.g. Will hospital benefits be unlimited? What limits are applied to out-of-hospital diagnostic and preventative care? etc.
Re-imbursement of service providers e.g. Will providers be reimbursed at 100% or higher than the NAMAF tariff? etc.
Demographic and health profile of the lives to be covered
Thus, balancing the cost of a benefit package and providing comprehensive benefits is a delicate task. In designing the benefit package, the following factors need to be considered:
past utilisation patterns amongst the covered lives
occupational health priorities of employer groups
disease burden of the country
competitor product offerings
This approach to benefit design will most likely result in a benefit package that is marketable and addresses the health needs of the concerned population. However, benefit design alone does not provide sufficient tools for ensuring both cost-effective healthcare delivery as well as sustainability of the Fund.
The Fund will need to consider a range of more direct interventions such as managed care and contracting with providers to control claim costs whilst still maintaining quality of care. These recommendations will be discussed in a later section of the report.
Based on the above considerations, we have considered three illustrative benefit packages for the NMBF, namely:
1) “Hospital” benefit package which covers:
a. Hospital benefits (private hospitalization) b. Emergency evacuation
c. Major disease benefit
2) “Hospital plus Day to Day” benefit package which covers:
a. Hospital benefits (private hospitalization) b. Emergency evacuation
c. Chronic care d. Day-to-day benefits e. Major disease benefit
3) “Adjusted PSEMAS package” which covers:
a. Hospital benefits (public sector only) b. Day-to-day benefits
It is important to note that PSEMAS affords cover only in Windhoek Central Hospital (public sector hospital) while the Hospital and Hospital plus Day to Day packages are based on private sector hospitalization.
Data received
We received the following data for the purposes of costing benefits for the NMBF:
Medical scheme demographic and claims data per benefit option covering all Namibian medical scheme benefit options.
PSEMAS demographic and claims data.
Demographic data for all the government employees
The above claims data sets are for the calendar year 2010 and are therefore fully run off.
“Hospital” benefit package
In order to understand the total costs associated with a hospital benefit package, the claim experience of a number of hospital options in Namibia were analyzed. In doing so, the benefits offered and risk profiles were compared to ensure consistency across the different options. Costs were standardized to allow for differing benefit levels and age distributions between options, where applicable.
Based on the data provided, practice code descriptions were subsequently used to map claim costs to various benefit categories as per the benefit schedules. However, this approach limited the extent to which certain hospitalization benefits such as maternity, major diseases etc. could be identified. On further analysis it was confirmed that these costs were implicit in the hospitalization practice code.
Once practice codes were mapped to the various benefits, claim costs were modeled by calculating the claim frequency and severity using past experience for the various benefits. This provided an initial cost per family based on the benefit offering. In order to extrapolate this experience to be applicable to the proposed covered lives on the NMBF, statistical models were applied to unpack the drivers of claim experience. Due to limitations in the data provided we were only able to allow for the impact of a difference in age profile between the investigated population and that to be covered on the NMBF.
In the absence of a desirable volume of relevant medical scheme data with respect to Hospital benefit packages having definite reliability and consistency, the representative benefit package was also adjusted in light of comparable South African experience to ensure the reasonability of the constituents of the benefit package. It is important to note that the South African medical scheme database used accounts for approximately 4 million beneficiaries ensuring that the sample size is sufficient. In addition, benefit schedules were reviewed to ensure that benefits are comparable in this regard and hence claim costs will not be distorted by the availability of benefit. In addition, the costs implicitly reflect current management practices and hence improvements in claim costs associated with better benefit, case and hospital management have not been included. Therefore it should be noted that future management practices will have an impact on the level of costs arising from the NMBF.
Apart from the costs, the age profile of the South African database was compared to the medical scheme population of Namibia, to ensure that claiming behavior would be comparable and claim costs not distorted due to differing risk profiles. This is shown below:
From the above table, it can be seen that the underlying age distribution is negligibly different between the South African database and the medical scheme population in Namibia. Therefore the application of the South African database is deemed reasonable for the purposes of this study.
Benefit package based on Hospital plan costs
It is important to note that the claim costs shown below are based on 2010 claim experience. The costs are grossed up by approximated health care cost inflation to reflect 2012 values. Costs shown are based on tariff amount and not claimed amount i.e. the costs assume that the Fund would pay a 100% of NAMAF tariffs. In addition, the costs implicitly reflect current management practices of the underlying benefit packages used in the calculations as explained above. This implies that differences in claim costs associated with better or worse benefit, case and hospital management have not been included. The table below summarises our recommended Hospital benefit package and the associated costs per family per month. The benefit package has been designed to ensure consistency with current benefit levels offered in the market and simultaneously address the basic health concerns of the Namibian employed population.
Age South African Database
Medical Scheme Population Namibia
A: Under 1 0.00% 0.01%
B: 1-4 0.00% 0.01%
C: 5-9 0.00% 0.03%
D: 10-14 0.00% 0.06%
E: 15-19 0.04% 0.54%
F: 20-24 3.29% 7.32%
G: 25-29 13.07% 13.88%
H: 30-34 16.67% 15.28%
I: 35-39 19.09% 14.18%
J: 40-44 16.68% 13.36%
K: 45-49 13.07% 13.34%
L: 50-54 9.01% 9.68%
M: 55-59 5.24% 5.83%
N: 60-64 2.43% 2.99%
O: 65-69 0.84% 1.52%
P: 70-74 0.38% 1.01%
Q: 75-79 0.14% 0.58%
R: 80-84 0.03% 0.27%
S: 85+ 0.01% 0.11%
Furthermore, the costs for the South African experience shown below provide a comparative basis and a reasonability check on the expected base costs (as described above) per family per month for the hospital benefit packages currently found within the medical scheme environment in Namibia.
*All benefits are subject to prior approval and the overall annual limit
**Private Wards are excluded
*Benefit Recommendation Expected
Cost per family per
month
Overall Annual Limit (OAL) 1.5 million per family
General Hospitalisation
All services (including chemicals) N$300 000 per family
Internal Prosthesis
Includes all materials used and actual cost of prosthesis N$30 000 per family Specified Illness Condition
Organ Transplants - Full procedure N$400 000 per family
Renal Dialysis N$150 000 per family
HIV/AIDS (in-hospital) Unlimited (subject to OAL)
General Practitioners/Medical Specialists
Advanced Radiology (in and out-of-hospital) N$10 000 per family
N$95.63 Basic Radiology and Pathology (in-hospital) Unlimited (subject to OAL)
Mental Health
Mental Health Psychiatric Treatment (inclusive of medication) N$20 000 per family N$0.51 Other Services (subject to OAL)
Physiotherapy (in-hospital) Unlimited (subject to OAL) N$8.20
Private Nursing N$3000 per family N$1.95
Emergency services Unlimited (subject to OAL) N$17.21
Total 2010 N$1091.86
Total 2012 N$ 1196.68
Costs are shown per family per month as at 2010 which are again increased by approximate health care inflation to reflect 2012 values.
Benefit South African Experience Per family per month
Expected Hospital benefit Per family per month General Hospitalisation
R820.84 N$793.64
Maternity Oncology
Internal prosthesis
Specified Illness Condition
General Practitioners/Medical Specialists R201.32 N$174.31
Dentistry R0.40 N$0.40
Diagnostics R123.94 N$95.63
Mental Health R14.53 N$0.51
Physiotherapy (in-hospital) R20.44 N$8.20
Private Nursing R10.92 N$1.95
Emergency services R16.39 N$17.21
Total 2010 R 1208.78 N$1091.86
Total 2012 R 1324.82 N$ 1196.68
Overall, it can be seen that the expected cost of this package is reasonable and consistent with industry experience. The differences in mental health and physiotherapy claim costs are a function of “medical practice/culture” in South Africa.
“Hospital + Day to Day” benefit package
A similar analysis as per the Hospital package was performed to determine the costs associated with a Hospital + Day to Day benefit package i.e. the claim experience of a number of options with comparable day-to-day benefits in Namibia were analyzed. In doing so, the benefits offered and risk profiles were compared to ensure consistency. Costs were standardized to allow for differing benefit levels and age distributions between options, where applicable.
It is important to note that the costs shown below are based on 2010 claim experience. These costs are grossed up by approximated health care cost inflation to reflect end of year 2012 values. Costs shown are based on tariff amount and not claimed amount i.e. the costs assume that the Fund would pay a 100% of NAMAF tariffs.
Due to limitations in the coding of the medical scheme data, in-hospital and out-of-hospital claims could not be segregated at the desired level. However, based on the discipline and practice code, claims were mapped to the various benefit categories. In addition, the costs implicitly reflect current management practices and hence improvements in claim costs associated with better benefit, case and hospital management have not been included. As stated above, it should be noted that future management practices will have an impact on the level of costs arising from the NMBF.
Similarly to the hospital option, to ensure that the cost per family quoted below is both reasonable as well as consistent with industry experience, a comparison to the South African medical scheme industry was performed. It is important to note that the South African medical scheme database used accounts for approximately 4 million beneficiaries ensuring that the sample size is sufficient. In addition, benefit schedules were reviewed to ensure that benefits are comparable. The table below summarises our recommended Hospital + Day to Day benefit package and the associated costs per family per month.
The benefit package has been designed to ensure consistency with current benefit levels offered in the market and simultaneously address the health needs of the Namibian employed population.
Benefit Recommendation Expected Cost per family per
month
Overall Annual Limit (OAL) 1.75 million
General Hospitalisation
All services (including chemicals) N$300 000 per family
Internal prosthesis
Includes all materials used and actual cost of prosthesis N$35 000 per family Specified Illness condition
Organ Transplants - Full procedure N$400 000 per family
Renal Dialysis N$150 000 per family
HIV/AIDS (in-hospital) Unlimited (subject to OAL)
General Practitioners/Medical Specialists
Consultation and Procedures (in-hospital) Unlimited (subject to OAL)
N$384.66 Consultations and out-of-hospital services (out-of-hospital) N$5 500 per family
Dentistry
Eye Examinations/Consultations N$2 700 per family over two
year benefit cycle i.e. frame every two years
N$67.74 Spectacles and Lenses
Diagnostics
Advanced Radiology (in and out-of-hospital) N$12 500 per family
N$187.58 Basic Radiology and Pathology (in-hospital) Unlimited (subject to OAL)
Basic Pathology and Radiology (out-of-hospital) N$4 500 per family Mental Health
Mental Health Psychiatric Treatment (inclusive of medication) N$25 000 per family N$3.85
Allied Health Services Chiropody, Psychology, Dietician, Homeopath (consultation only),Occupational therapy, Speech Therapy, Physiotherapy
(out-of-hospital),Podiatry, Chiropractor, Social Worker N$10 000 per family N$68.19
Medication
Acute Medication (out-of-hospital) N$5 000 per family
N$442.59
Acute Medication (in-hospital) Unlimited
Chronic Medication N$ 17 500 per family N$250.32
Other services (subject to OAL)
Physiotherapy (in-hospital) Unlimited (subject to OAL) N$8.20
Private Nursing N$28 000 per family N$6.32
Emergency services Unlimited (subject to OAL) N$17.21
Total 2010 N$2313.67
Total 2012 N$2535.78
Due to marketing considerations as well as the need to cater for different health profiles etc. the day-to-day benefits offered differed. Nonetheless, we have provided a comparison to the South African environment and noted the differences that were benefit driven.
Benefit South African Experience Expected Hospital plus day-to-day benefit cost General Hospitalisation
R867.84 N$758.91
Maternity Oncology
Internal Prosthesis
Specified Illness Condition
General Practitioners/Medical Specialists R466.25 N$384.66
Dentistry R72.98 N$118.09
Optical R76.59 N$67.74
Diagnostics R206.33 N$187.58
Mental Health R14.53 N$3.85
Allied Health Services R15.99 N$68.20
Medication R222.20 N$692.91
Physiotherapy (in-hospital) R20.44 N$8.20
Private Nursing R10.92 N$6.32
Emergency services R16.39 N$17.21
Total 2010 R 1990.47 N$ 2313.68
Total 2012 R 2181.56 N$ 2535.78
From the above table, it appears that for the level of overall benefit offered on the Hospital + day-to-day benefit package, the associated cost per family per month is consistent with industry experience.
However, what is evident is the impact of availability of benefit on claim costs for categories such as dentistry, diagnostics and allied health services. This is a function of a number of factors including:
Supplier induced demand particularly for radiology and pathology i.e. service providers perform unnecessary tests and scans due to the availability of benefit. As such we have recommended limits that aim to reduce this behavior.
Different “medical culture” i.e. we have seen significant utilisation of allied health services in Namibia compared to the South Africa and such behavior has been incorporated in the estimation of the expected cost of the NMBF under the Hospital + day-to-day benefit package
Benefit package and membership base combinations: Risk Matrices
This section combines the analysis performed for the potential membership bases and the benefit package options into risk matrices, showing the significant risks faced for each benefit–membership combination.
Included in the risk matrices are the expected costs for each combination, based on the actuarial costing performed in the previous section.
The key below provides an indication of the level of risk for each colour-coded element of the risk matrix:
High risk Medium risk Low risk
The risks will have varying levels of significance on the overall effect of the combination chosen. For this reason the risks have been grouped into “Design” risks and ‘Implementation” risks. Design risks refer to risks due to the benefit-membership combination not meeting fundamental insurance principles. The Implementation risks stem from risks in actually enforcing the chosen combination and the potential hurdles to pass prior to NMBF implementation.
An overall risk rating has been given to the Design and Implementation risk headings in order to provide a weighted effect of the risks on the overall result.
Costings Methodology
The Hospital benefit package costs presented in section 16.4.2 and the Hospital + Day-to-Day benefit package costs presented in section 16.4.3 serve as the base costs from which the expected per family per month(pfpm) costs for the different membership groups in section 16.4.5 are calculated. These costs are determined as follows:
Base cost is as described in section 16.4.2 and 16.4.3 respectively.
The proportion of principal members in each age band for each target membership group is calculated.
Through the use of Generalized Linear Modeling, a statistically derived factor which is based on the population underlying the relevant base cost (described above) is calculated.
Using this information, an appropriately weighted adjustment is determined and applied to the base cost to obtain the expected pfpm cost for the applicable membership group.
The expected cost allows for approximate health care cost inflation to reflect the value as at 2012.
The methodology used was deemed appropriate due to the following:
The statistical exercise employed to obtain the cost adjustment factors is a generally accepted method for determining average claims costs used in the medical scheme industry. However, the specific application thereof applied for the purposes of this report results in the implicit
assumption that the family sizes of the underlying base cost populations are representative of all other populations costed as per section 16.4.5.
However, the analyses shown below provides comfort in that sufficiently similar average family sizes of the population underlying the base cost and the membership groups to which the expected costs apply can be seen.
Average Family Sizes Hospital benefit package Hospital + day-to-day
benefit package
PSEMAS Medical Scheme Population
2.33 2.45 2.13 1.88
The average family size of the Uncovered and Government Uncovered principal members is assumed to be the same as that of the lives underlying the Hospital and Hospital + Day-to-Day packages. Hence, a vast deviation from the estimated cost is not expected due to significantly differing family sizes.
In the absence of data of the desired detail the method is deemed to be sufficiently rigorous.
Public hospital benefit package*
Uncovered
Uncovered + PSEMAS
Uncovered + PSEMAS + Medical Schemes
Uncovered +
Medical schemes PSEMAS
PSEMAS + uncovered government
Design risk
Limited risk pool
Pricing risk
Affordability risk (for members)
Buy-down risk (between options)
Buy-down risk (between sectors)
Insufficient risk cross-subsidisation
Insufficient income cross-subsidisation
Financing risk
Implementation risk
Legal risk
Political risk
Provider supply capability
Sustainability
Extent of reform required
* Costs cannot be determined for this benefit package due to the data limitation of not being able to extract public hospital costs from the PSEMAS data.
Adjusted PSEMAS benefit package
These costs are based on PSEMAS claims experience and hence indicate the costs expected if the PSEMAS benefit package were to be extended to the above populations. PSEMAS benefits are provided at either ninety-five percent of the 2008 NAMAF tariff (less ten percent payable) or ninety-five percent of the cost3. The benefits to which these rules apply are stated in the PSEMAS benefit schedule.
3
Uncovered
Uncovered + PSEMAS
Uncovered + PSEMAS + Medical Schemes
Uncovered + Medical
schemes PSEMAS
PSEMAS + uncovered government
Design risk
Limited risk pool
Pricing risk
Affordability risk (for members)
Buy-down risk (between options)
Buy-down risk (between sectors)
Insufficient risk cross-subsidisation
Insufficient income cross-subsidisation
Financing risk
Implementation risk
Legal risk
Political risk
Provider supply capability
Sustainability
Extent of reform required
Estimated costs pfpm (N$) 725.61 841.85 874.43 815.02 998.46 972.89
Total costs per annum (N$) 1 009 503 250 2 038 841 237 2 787 336 170 1 757 992 568 1 029 023 245 1 340 876 911
Private Hospital benefit package
Uncovered
Uncovered + PSEMAS
Uncovered + PSEMAS +
Medical Schemes
Uncovered + Medical
schemes
PSEMASPSEMAS + uncovered government
Design risk
Limited risk pool
Pricing risk
Affordability risk (for members)
Buy-down risk (between options)
Buy-down risk (between sectors)
Insufficient risk cross-subsidisation
Insufficient income cross-subsidisation
Financing risk
Implementation risk
Legal risk
Political risk
Provider supply capability
Sustainability
Extent of reform required
Estimated costs pfpm (N$) 898.74 936.35 954.73 939.25 987.13 979.23
Total costs per annum (N$) 1 250 369 966 2 267 706 827 3 043 300 735 2 025 955 828 1 017 346 429 1 349 614 959
Private Hospital plus Day-to-Day benefit package
Uncovered
Uncovered + PSEMAS
Uncovered + PSEMAS +
Medical Schemes
Uncovered + Medical
schemes
PSEMASPSEMAS + uncovered government
Design risk
Limited risk pool
Pricing risk
Affordability risk (for members)
Buy-down risk (between options)
Buy-down risk (between sectors)
Insufficient risk cross-subsidisation
Insufficient income cross-subsidisation
Financing risk
Implementation risk
Legal risk
Political risk
Provider supply capability
Sustainability
Extent of reform required
Estimated costs pfpm (N$) 1850.87 2146.90 2222.12 2067.11 2546.53 2506.05
Total costs per annum (N$) 2 575 018 648 5 199 487 143 7 083 237 596 4 458 742 137 2 624 480 264 3 453 940 921
Limitations and considerations:
Population covered
The costings are based on the claims experience of a subset of the current medical scheme population and PSEMAS. These costs therefore take into account the health seeking behavior of these lives. The healthcare costs relating to the uncovered employed population who would be covered by the NMBF are not accounted for explicitly in these costs as there is an absence of data for this group. This limitation is fairly commonplace in countries where detailed public healthcare sector data is not available. Therefore it is necessary to conduct further research to understand the healthcare claiming of these lives. The cost of claims may be higher for this group since on entry to an insured environment, their health seeking
The costings are based on the claims experience of a subset of the current medical scheme population and PSEMAS. These costs therefore take into account the health seeking behavior of these lives. The healthcare costs relating to the uncovered employed population who would be covered by the NMBF are not accounted for explicitly in these costs as there is an absence of data for this group. This limitation is fairly commonplace in countries where detailed public healthcare sector data is not available. Therefore it is necessary to conduct further research to understand the healthcare claiming of these lives. The cost of claims may be higher for this group since on entry to an insured environment, their health seeking