Medical schemes heading for crisis

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The Council for Medical Schemes (CMS) appears to be having second thoughts about its announcement that certain low-cost medical aid products will be illegal in just over a year. Picture: Supplied
The Council for Medical Schemes (CMS) appears to be having second thoughts about its announcement that certain low-cost medical aid products will be illegal in just over a year. Picture: Supplied

BUSINESS


There are serious challenges for the sustainability of the medical aid industry, including too few new members joining annually, growing dissatisfaction among beneficiaries and consumers’ salaries not increasing at the same rate as premiums.

Last year, there were 78 registered medical aid funds in the country, with about 8.9 million beneficiaries.

This is an increase of only about 0.8% from 2018, according to the Council for Medical Schemes’ (CMS’s) 2019/20 annual report.

Although many funds have adjusted their premium increases for next year to align with the consumer price index (CPI) or kept them unchanged for at least the first half of the year, medical aid fund premiums have increased at a higher rate than CPI in recent years.

Read: Lower medical costs thanks to lockdown

According to the CMS, contributions increased by an average of 7.6% this year, while the CPI averaged 3%.

About one-third of medical aid members in the country are 44 or older, but use about 60% of what is paid out for health services.

Last year, R186 billion was paid out in medical claims.

Beneficiaries aged between 20 and 44 make up 34.8% of medical aid fund members and use 27% of benefits, while those who are 19 or younger make up 33%, but use only 13% of the benefits.

The average cost per beneficiary is R19 999, but for those in the age group 80 to 84, it is R68 944.

The CMS says this shows the importance of cross-subsidisation of older, sicker beneficiaries by younger and healthier members.

Too much – almost 80% in total – of the expenditure goes towards specialists, hospitals and medicines, while primary healthcare, general practitioners (GPs) and dentists receive a significantly smaller share.

Last year, R186 billion was paid out in medical claims.

That is 8% more than the R172 billion paid out in 2018. Risk benefits accounted for 90% of benefits paid. Of the total paid, the three biggest payments were for:

  • Hospital services (37.1%);
  • Specialists (25.5%); and
  • Prescribed medication (15.3%).

The largest percentage of payments from members’ medical savings accounts were for:

  • Medication (37%);
  • Specialists (19.4%);
  • Complementary and related health services (18%); and
  • General practitioners (14%).

Another serious challenge for the sustainability of the industry, according to the CMS, is that more scheme plans are not efficiency discounted options – where members may only use a network of certain doctors and hospitals.

These options allow medical schemes to apply economies of scale on behalf of their members when they negotiate rates with healthcare providers.

According to the CMS, members probably benefit from efficiency discounted options through lower annual increases of their contributions.

However, it is worrying that the share of beneficiaries now covered by efficiency discounted options accounts for 25.8% of the total number of beneficiaries, compared with 20.4% in 2017.

Read: Reviewing your medical scheme options for 2021

At the end of March, 15 funds offered efficiency discounted options. These included Discovery Health’s Delta options, Emerald Value of the Government Employees Medical Scheme, Medihelp’s Dimension Prime plans and Moto Health’s Classic network.

The net healthcare figures show that the combined efficiency discounted options contributed 27.9% to the total surplus of medical funds in the financial year, although the beneficiaries made up only 25.8% of the total membership.

Medical funds’ reserves are there to protect members’ interests and guarantee that the fund can continue operating.

These improved operating results are partly attributed to the fact that efficiency discounted option beneficiaries are younger – their average age is 32.1, compared with 34.8 for non-efficiency discounted options.

Last year, private medical funds received R186.6 billion from member contributions (2018: R173.9 billion) and paid out R169 billion (2018: R157 billion).

For every R100 received last year, R90.58 was spent on claims, R8.87 on non-healthcare costs and 55c was kept as a reserve.

Currently, the industry’s solvency level is 35.6%, which is higher than the minimum legal requirement of 25%.

Medical funds’ reserves are there to protect members’ interests and guarantee that the fund can continue operating.

They also serve as a buffer against unforeseen, large-scale health issues such as Covid-19.


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