Agenda

2. Agenda Introduction � Anton le Roux and John Cranke, PSGK Corporate Social Security Reform and it�s impact on employee benefits � Sheshi Kaniki, MMI Retirement Fund Reform � Nerine Brink, PSGK Corporate Unpacking NHI in South Africa � Sue Zanninello, PSGK Corporate Medical Schemes Vital Signs and Financial Stability � Sue Zanninello and Ann Havinga, PSGK Corporate

3. House rules Questions specific to the topics presented can be put to the presenter/s at the conclusion of their presentations Kindly approach your Consultant if you have a question pertaining to your organisation Clients will receive a link to website to access all presentations after 26th September

5. 2011 State of the Nation Address

6. Challenges in current system Lack of mandatory retirement provision in SA Systemic exclusion of at least 2,7 million formally employed Poor performance of private retirement industry average  25% income replacement Excessively high charges in excess of international norms Inadequate regulation of more than 12000 funds Poor consumer protection Inadequate coverage of death and disability benefits

7. Preservation : National Crisis In recent member survey: 71 % of members who withdrew took cash 18% invested or preserved Members used cash for: 36 % short term debt 29 % mortgage bonds 29 % home improvements 24 % living expenses 22 % own business

8. Understood consequences? 76 % understand tax consequences 85 % understand that they may not reach retirement goals 29 % thought that they were on track to reach retirement goals

10. NSSF proposals discussed in 2011 Establishment of a National Social Security Fund (NSSF) Mandatory contributions for retirement, death and disability Sufficient unemployment protection to minimise withdrawal from retirement savings All workers to contribute up to income threshold � currently R157, 000 Contribution subsidy for low income earners Mandatory contributions to approved private funds for income > R157, 000 to R750, 000 Voluntary savings for income above R750, 000 Mandatory preservation

11. Proposed multi-pillar system

12. Where to Now or only in 2015? Sponsor role clearly defined created competitive market with consumer choice / mobility intermediary / consultant role vital Economies of scale now the norm Risk management embedded within offering, e.g. investment consulting function or risk re-broking function New member representation model in place Independent intermediary playing pivotal role in communication / member advisory functions

13. The Future : FSB Report 2015:

14. Industry Consolidation Evident Average membership vs. average assets 29/200 surveyed stand-alone funds expect to move to umbrella fund arrangement

15. Being proactive Investigating costing structures Investigating different retirement fund vehicles Educating members Active asset consulting vehicles

16. Another option?

17. Well planned�

19. What is the Green Paper? Outlines broad policy proposals for National Health Insurance Is published for comment and consultation Thereafter a policy document (white paper) will be finalised Draft legislation will be developed and submitted to Parliament

20. What is more detail still required on? The benefit package Details of the funding model Income threshold above which NHI contributions are mandatory for employed individuals The role of private healthcare providers contracted to NHI Governance and accountability structures

21. What is National Health Insurance? (NHI) NHI is a healthcare funding system aimed at universal coverage Universal coverage means everyone will have access to quality healthcare services, and be protected from financial hardships linked to accessing these services NHI will ensure everyone has access to a defined comprehensive package of healthcare services irrespective of whether they are employed or not

22. How and when will it be implemented? NHI will be phased in over a 14 year period, commencing in 2012 The process is divided into 3 phases The first 5 years are dedicated to improving the public health sector and piloting of NHI in 10 districts

23. So what can we expect in the first phase? 18 Action points, with the main objectives Completion of audit of public facilities Building, upgrading and designation of hospitals Piloting NHI in 10 districts (from April 2012) Establishing the Office of Health Standards Compliance

24. So what can we expect in the first phase? 18 Action points, with the main objectives: Introduction of re-engineered Primary Health Care System, via District Clinical Specialist Support teams, Municipal Ward-based and School-based agents and teams Short to medium term increase in the supply of medical doctors and specialists, nurses, pharmacists and allied healthcare professionals Accreditation and contracting of private providers

25. What is NHI going to cost? Cost estimates are: 2012 - R125bn 2020 - R214bn 2025 - R255bn However, the NHI benefit package has not been specified, which means that costing models have been adopted to arrive at the estimates, and the Green paper acknowledges that further work is required to refine the estimates. Further debate about the costs of NHI in the absence of more detail is therefore premature

26. How will it be Funded? Detail unknown, BUT broadly funding will be via: Public finances (taxes) Mandatory contributions from individuals and employers Partnerships with the private sector To a lesser degree, co-payments and / or user charges  from individuals VAT..?

27. How will it be Funded? Cont. Finance Minister has gone on record stating that additional individual taxes would be a last resort Mandatory contributions from individuals would made by all employed persons earning above a specified level of income (still to be determined) Based on the implementation timetable in the green paper, it is unlikely that contributions to NHI will commence in the first phase (5 years) The first phase will be funded from existing public finances and a conditional grant

28. What will the challenges be? The quadruple disease burden in SA will put immediate pressure on the provision of healthcare services Internationally, successfully implemented NHI systems have all relied on high net incomes, low unemployment and large and stable tax bases There is a severe shortage of healthcare professionals in SA Poor quality of care in the public healthcare system

29. What will the challenges be? Cont. Periodic public sector labour unrest Proposed central procurement system Production of NHI �membership� cards Getting private healthcare providers to contract to NHI Convincing private healthcare consumers (medical scheme members) that they will maintain their current access to, and quality of, healthcare in the NHI system

30. What are the positive factors? The proposed implementation of NHI will be phased in over a minimum period of 14 years The expertise available in the private sector is acknowledged and will be drawn upon The door has not been closed on a multi-payer system Medical scheme cover will not be done away with

31. What are the positive factors? Cont. The proposed risk-adjusted capitation system will address spiralling costs, and minimises the potential for fraud and over-servicing Reimbursing hospitals according to diagnosis related groups also addresses spiralling costs and aids the analysis of quality The re-engineered Primary Healthcare System, which will shift the healthcare system from a predominantly curative to a preventative one

32. What are the positive factors? Cont. The establishment of an independent watchdog body, the Office of Health Standards Compliance, to monitor whether the required standards are being adhered to Public Private Partnerships will be encouraged � which will assist with the skills transfers and training required to achieve the desired standards The improvement of the public hospitals will result in competition with private hospitals, which should have a positive result on the cost of services in those facilities

33. What does this mean for medical schemes? Difficult to predict without clarity on benefits and funding of NHI Registrar has stated that he will continue to regulate schemes until a well-developed NHI is in place � minimum 14 years You will be able to retain medical scheme membership even after NHI contributions become mandatory The only expected short term change to the status quo is the conversion of the tax-free fringe benefit amounts, to tax credits in 2012

34. Likely implications: Mandatory NHI contributions will result in most low income earners leaving their medical schemes This will have a negative impact on the remaining risk pool Medical schemes will evolve into top-up insurance products The development of products to address the gaps in NHI cover What does this mean for medical schemes? Cont.

35. Conclusion NHI is a social and political imperative The scope of the project is immense! The implementation period of the project is not as important as the fact that the point of departure has been determined Success in the first phase alone will make the project worthwhile

36. Conclusion cont. Ultimate implementation of the full NHI proposals will rely on the success of other Government objectives (e.g. job creation) Don�t avoid medical scheme cover in the expectation of imminent NHI cover! We will keep you appraised as the gaps are filled in

37. Conclusion cont. Doctor groups have commented as follows: Dermatologists have advised patients not to make any rash moves Gastroenterologists have apparently developed a gut feeling Ophthalmologists consider the idea short- sighted Obstetricians feel everyone is labouring under a misconception

38. Conclusion cont. Psychiatrists think the idea is madness Radiologists can see right through it ENT�s won�t hear of it BUT Podiatrists think it�s a step in the right direction Anaesthetists think it�s a gas Cardiologists don�t have the heart to say no!

39. Questions

41. Medical Scheme Vital Signs

42. Medical Schemes Vital Signs Scheme long-term sustainability directly linked to underlying membership risk profile In turn influenced by scheme size Larger = more diverse = more favourable risk pool Size = greater stability in claims experience = predictable costs and increases year on year Larger = economies of scale

43. Medical Scheme Vital Signs

44. Medical Scheme Vital Signs

45. Medical Scheme Vital Signs

46. Medical Scheme Vital Signs

47. Medical Scheme Vital Signs

48. Medical Scheme Vital Signs

49. Medical Scheme Vital Signs

50. Medical Scheme Vital Signs

51. Medical Scheme Environment

52. Medical Scheme Environment

53. Medical Scheme Environment

54. Medical Scheme Environment

55. Medical Scheme Environment

56. Medical Scheme Environment

57. Medical Scheme Environment Fedhealth 7%, Discovery 8.9% Expect to see specialist networks (NHI) Expect to see more consolidation 5 largest schemes = 50% a decade ago Now 80% of members PMB claims will need to be effectively managed Governance controls must be strengthened

58. Where to from here? Business as usual for now There will be an ongoing role for the private sector We will continue to monitor an update you Impact assessment of macro developments on your EB and HC arrangements Needs based solutions