Cape Town – The announcement last week by Momentum and Discovery Medical Schemes of average increases in contributions of between 10.2% and 11% came as a shock for consumers.
All schemes announce their contribution increases between September and October annually, but these two schemes were the first to do so – and the announcement came as an unpleasant surprise, as other schemes are likely to follow suit with double-digit increases.
Discovery Health Medical Scheme announced an average increase across its 22 different options of 10.2%, with hikes ranging from 7.8% to 14.9% on the various options. The increases are weighted according to the number of members belonging to the specific options.
The options range from the low-cost basic KeyCare Core Plan (basic hospital cover), which currently costs as little R665 for the principal member if your income is lower than R7 550 per month, to the Executive Plan (extensive medical cover both in and out of hospital) which comes at a cost of R4 953 for the principal member. The highest increase of 14.9% is on the Coastal Core option.
Discovery Health Medical Scheme has almost three million members, and is by far the biggest open scheme in South Africa – commanding around a 53% share of the open-scheme market (up from 16% in 2001).
By the end of 2014 almost 60% of scheme members in South Africa belonged to open schemes, and the rest to restricted schemes (often limited to employee groups).
The growth of the restricted scheme GEMS (Government Employees Medical Scheme) has been huge since its inception, but the scheme is currently under pressure as a result of having only 10% of members’ contributions in reserve.
The 11% average increase (ranging from 8.9% to 15%) announced by Momentum Medical Scheme, one of the three largest open schemes in SA, is also a weighted average across its five options – currently ranging from the entry-level Ingwe option, available at R305 and R638 for a principal member, depending on their earnings.
The Momentum Extender Option comes in at between R3 303 and R4 616 per month for the principal member, depending on which level of cover and which provider the member chooses to have.
Why the high increases?
Medical inflation is higher than normal inflation – and this is not a tendency restricted to South Africa. It is not unusual for medical inflation to outstrip CPI inflation by 4% to 5%. The reasons cited are various: the falling rand and the rising cost of importing medical equipment, the rising costs of medication, the increasing costs of private healthcare, where doctors can charge higher than medical-fund rates, increasing average age of principal members on the schemes, and high private hospital costs.
Another reason cited by schemes is the increase in expenditure on hospitals. Most schemes are also experiencing a spike in the claim patterns of their members.
All schemes are under pressure and according to figures released by Alexander Forbes Health in 2015, in the year 2014 just over a third of schemes achieved an operating surplus.
The schemes’ only sources of income are contributions and income from investments. When there is a shortfall, the scheme can either increase contributions substantially (and risk losing members), decrease benefits (and run the same risk), or use their reserves to offset the losses (endangering their financial stability in some cases).
Options within a scheme are supposed to be self-sustaining, but this is not always enforced.
Schemes are supposed to maintain their reserves at 25% of their contributions, and there are strict rules governing the way in which this money may be invested. These are currently being reconsidered by the Council for Medical Schemes, as is the blanket rule regarding the 25% level of reserves to be set aside by all schemes, regardless of their number of members.
The reasons for the double-digit contribution increases were reiterated by Damian McHugh, Head of Health Marketing at Momentum Group in press release from 23 September:
“The financial sustainability of medical schemes has increasingly been under pressure this year and the economic climate certainly has not supported this”, McHugh points out.
“We have noted an increase in healthcare costs industry-wide and evidence suggests a correlation between increased healthcare utilisation and the stress often associated with financial concerns.
“The fluctuating exchange rate has also impacted the costs associated with imported healthcare appliances and medicines – all translating in higher-than-anticipated claims.”
Possible results of high contribution increases
The knock-on effects of high contribution increases have been clear over the last few years in the medical scheme industry:
· The number of scheme members in South Africa remains relatively unchanged, as scheme membership is still out of the financial reach of many citizens – and is likely to remain so.
· Existing members buy down to cheaper options within their scheme, and as this process gathers momentum, the individual schemes or options with the scheme could be put under financial pressure.
· For those who are healthy, a buy-down does not have immediate consequences. However, if your day-to-day medical costs are high, you could find yourself with large out-of-pocket expenses – quite possibly larger than the cost of the contribution increases.
· People with high medical costs stay on as scheme members and simply absorb the higher contribution costs, while many younger and healthier members either opt out completely or buy down. As schemes rely on cross-subsidisation among members on the same option, this could put the scheme under further financial pressure.
· Those who opt out completely and resign from the scheme become dependent on the already overburdened state health care service.
What scheme members can do
Many people are simply unable to absorb these rising medical scheme costs, especially as salary increases (for those who are fortunate enough to get these in the current economic climate) have not kept up with the rate of medical inflation.
Before you buy down to a cheaper option, make sure that you know the facts on the different benefits. Click here for a summary of the benefits and contributions of some of the open schemes in South Africa.
Also speak to a broker, who might be able to find you another scheme or option with lower contributions, which might be more suited to your needs.
Experts often recommend saving the contribution difference after joining a lower-cost option to offset possible co-payments on medical bills, but that requires a huge amount of discipline, and not everyone can manage to do that.
When will your scheme announce its contribution increases?
None of the restricted schemes have announced their increases to date, but these should follow in the last week of September and the first two weeks of October. Of the open schemes, only Momentum and Discovery have made their announcements: the average increase so far is 10.6% according to Alexander Forbes Health.
The dates for the announcements of contribution increases from some of the other open schemes are as follows:
Bestmed: 7 October
Bonitas: 29 September
Fedhealth: 10 October
Medihelp: 27 September
Medshield: 5 October
Spectramed: 11 October
Sizwe: 11 October
Topmed: 11 October