Sunday Times (Johannesburg) - August 20, 2000

In 10 years' time between 35 and 46% of costs in the total medical schemes industry will be directed towards HIV and AIDS, predicts a healthcare actuary, but the true impact of AIDS on medical schemes and premiums will depend on three big unknowns.

The first of these, says Old Mutual's Adrian Baskir, is what's going to happen to medical inflation over the next 10 years. The big question is whether it will continue to outstrip normal inflation?

"There is no prospect that it will come under control to the same extent we've managed to control general consumer price inflation," he says.

Most medical development is taking place overseas, so medical inflation is driven by the cost of importing new technology, machines such as the MRI machine or catscan machines.

Another inflation driver, now specifically, but not only, relating to AIDS, is the cost of medication. Most are developed outside the country, so the cost in SA is driven by costs in the country of origin.

Pharmaceutical companies exist in order to make a profit. They understand they can make huge margins in SA which is why the price of drugs in this country relative to other countries is very significant. An indicator is the fact that the proportion of medical money spent in South Africa on drugs is higher than in other countries.

The second great unknown that will affect the impact AIDS has on medical schemes, says Baskir, is the relative level of AIDS-related inflation compared with medical inflation.

"The costs of treating someone with AIDS relative to the costs of treating someone with another disease will be proportionately more," he says. But if Government is successful in negotiating with pharmaceutical companies to get AIDS-specific drugs at cost then clearly that would change the picture.

"But my scenarios say that AIDS relative to other diseases is going to become more expensive to treat," says Baskir.

Because the medical treatment for the disease has not yet matured, over time treatment protocols will improve and there's a cost associated with that, he points out.

The third unknown is how effective AIDS management programmes being introduced will be in terms of improving the quality of treatment and reducing the cost to the schemes.

"My projection says that in 10 years 35-46% of costs in the total medical schemes industry will be directed towards HIV and AIDS," says Baskir.

So how will this affect premiums?

"A factor driving premiums up is medical over-inflation," explains Baskir. In other words even without AIDS medical scheme contributions will be taking a growing bite out of the consumer's wallet.

The wallet share colonised by such contributions has doubled over the past seven years, says Baskir. About 12% of the consumer's wallet now goes on medical aid contributions, taking both employer and employee contributions into account. And it is going up. "Maybe over the next 10 years it will double again," suggests Baskir.

Employers will find themselves in an "interesting" situation, he says. "A medical scheme, like a pension scheme, is an independent legal entity and it is a non-profit entity. The employer is a stakeholder of the scheme just as the member is.

"Looked at only from a scheme's point of view, there is very little benefit to the scheme of footing the full cost of treating AIDS. By putting the person with HIV onto anti-retroviral treatment as soon as possible and having the most effective treatment for him, there are some benefits," he says.

There's a lot of wastage in the system because doctors often don't quite know how to treat HIV positive patients. "He sends them for a whole battery of pathology tests, puts them on the wrong treatment protocol in terms of the drugs they're taking, and they may be hospitalised," he says.

If one picked the disease up early enough and treated it effectively the patient could be kept alive and stable for much longer. So while the cost of that treatment would be expensive, a lot of wastage would be eliminated.

"It's a bit of a trade-off between the two," remarks Baskir. The employer benefits from having his employees on an effective treatment programme as soon as possible because then he can get more production out of them. They can work for longer before the disease eventually makes this impossible.

An effective anti-retroviral programme on average gives someone eight more productive years. It will also reduce by around a third hospitalisation and out-patient costs. So from the employer's point of view there is a definite incentive to have people managed with their disease properly.

However, these trade-offs don't always work out in the medical schemes' favour.

What all this means is that there will have to be a change in mind-set at an employer level, from current thinking which is that, "we can deal with the disease through the medical scheme which we're funding, either through fixed contributions or by paying a certain percent of contributions."

But employers will have to understand that medical schemes may find the costs of treating AIDS unaffordable, and thus they might have to change the way they fund the medical scheme, Baskir believes.

Medical schemes will have to find more money. But if they look to members these members might find medical cover unaffordable. Schemes will therefore have to look to employers to help pay, given that the employers are going to benefit from this treatment in the long run. "Not many employers recognise it yet but this is a responsibility that will be forced on them," says Baskir.

In response to AIDS medical schemes have only two options, he says. They can push up contributions, or reduce benefits.

As Baskir points out, from a purely financial point of view AIDS is different from other diseases, because it's an epidemic that is growing. If a medical scheme pays for a diabetic or an asthmatic, the member knows how many diabetics there are in his scheme and the costs associated with it.

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