Where to from here for financially embattled Medical Aid members?

South African Medical Aid schemes and their members face an uncertain future financially. Medical schemes have announced their revised schemes and rates of contribution for 2017 and alarmingly, contribution rates will increase on average by more than 10% and in many instances, annual benefit levels have either not been increased or have been reduced. Medical inflation is running at levels well in excess of 12% per annum and there appears to be no respite in the near future. This is double the rate of the official consumer price index (CPI) and the reality is that most family’s incomes will at best increase by CPI and not at the rate of medical inflation.

What this will mean to a typical family comprised of 2 parents and 2 minor children is illustrated in the following indicative cost analysis of popular plan types for 2017

  • A typical Comprehensive medical aid plan will cost the family between R10000 and R11000 in 2017.
  • An entry level Comprehensive plan with no restriction on providers or hospitals will cost the family R6700 per month in 2017
  • An entry level Comprehensive plan aligned to specified Network providers and hospitals will cost the family R4800 per month in 2017
  • A Hospital Plan with no restriction on providers or hospitals will cost the family R5000 per month in 2017, and
  • A Hospital Plan restricted to specified Network hospitals and providers will cost the family R3350 per month in 2017.





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The frightening aspect of these monthly contributions is that not one of these plans is likely to cover all costs incurred for medical services both in hospital and for non-hospitalisation day to day consultations. The so called “Medical Aid Rate” (officially, the National Health Reference Price Listing ) which is the agreed rate per type of medical procedure/consultation is the rate at which Medical Aids will fund actual expenditure incurred by members. In the major Metropolitan areas, the reality is that healthcare specialists (doctors, dentists etc..) seldom charge their patients the “medical aid rate” and this results in members incurring substantial additional costs which are often not covered by their medical aid schemes. It is not uncommon for medical practitioners to charge between 200% and 500% of the “medical aid rate”. In the majority of instances, Comprehensive medical aid plans will pay “in-hospital” costs at 200% whilst more entry level plans only pay at 100% of the “medical aid rate.”

We have observed an understandable need over the past 3 or more years for our medical aid clients to contain their medical aid contributions and costs not covered by their schemes. This has resulted in a proliferation of scheme types offered by the main medical aid schemes and clients have had to migrate/downgrade their plan types in order to at least remain on medical aid. Inevitably, lower scheme types do mean lower levels of benefits offered and so many members are increasingly taking on a self-insurance element. As a result, Insurance based “Gap cover” plans which dovetail with the medical aid schemes and provide additional cover of up to 500% of the “medical aid rate” mainly for in-hospital type procedures have become popular. These Gap plans are relatively inexpensive add on’s (average premium of R165 per month per family) and allow for clients to sensibly downgrade their Medical Aid plans in order to accommodate their affordability restrictions. Importantly, these Gap cover plans significantly reduce the self-insurance risk of members.

 

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Why is medical inflation so high and why has Medical Aid cover become so expensive?

There are a number of reasons for the relentless increase in medical costs and therefore medical aid contributions. Some of these are

  • Imported costs. The weakening of the Rand impacts directly and indirectly on medical costs. As we all know, the Rand has been in decline against major world currencies for many years.
  • The state of the SA economy and declining formal employment rates over the years have resulted in a decrease in the numbers of younger members joining schemes. Medical Aid schemes require a cross subsidisation of older members by younger incumbents. Additionally, many employed South African can no longer afford medical aid and have reverted to the National healthcare system. Older members are virtually forced to remain on their medical aid schemes regardless of the cost and as a result, most medical aids have experienced a gradual but consistent increase in the average age of their members.
  • Only 16% of South Africa’s population is covered on a medical aid scheme. A strong medical aid system requires broad membership subsidisation across all age and demographic groups and South Africa simply does not have sufficient breadth in membership.
  • Increased capital reserve requirements and currently weak investment markets contribute to cost increases.
  • The expenditure by Medical schemes on specialists and hospitals has increased 3times more rapidly than CPI over a 20 year period. As a result, expenditure by Medical schemes on private hospital expenditure accounts for in excess of 98% of all medical aid expenditure.
  • The advent of “Prescribed minimum benefits” for a defined range of long term health conditions has certainly resulted in increased costs for medical schemes but the flip side is that members apparently live longer and healthier lives.
  • Reports of fraudulent practices against medical schemes by both members and medical practitioners continues seemingly unabated. As with any form of unethical behaviour this infers an additional cost on schemes.
  • Positive developments in medical aid legislation over the past 20 years have resulted in the decrease of expenditure on medicines per beneficiary by nearly 6% in real terms over the past 20 years.
    • Legislation was introduced requiring pharmacists to offer “generic” medicine options where suitable.
    • Medicine prices were controlled at the retail level.

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It is not clear how or when medical inflation and therefore medical aid contributions will show a decline in the rate of increase. What we do know is that the situation of the past few years cannot continue unabated as medical aid is becoming increasingly unaffordable for most families. Contributions ranging from R3400 per month for the most basic plan up to in excess of R10000 per month for a Comprehensive plan for the “typical” family of 4 are simply entering the realms of unaffordability. Whilst members of medical aid schemes enjoy world-class medical care, they are overpaying for it in internationally comparative terms. The alternative of not being on medical aid and depending upon the National health system is, sadly, a reality for 84% of South Africans and despite the relatively high amounts spent on this system by our government, the quality of care is very poor by international standards. This does look like a well-developed crisis in the making and urgent and decisive action by all controlling parties is urgently required.

We do however urge clients to consider all factors before downgrading their plans or, even worse, terminating their medical aid cover. Some cover is always much better than no cover at all and the range of options can accommodate most family’s needs.

Article written by Sabra and Jeremy Squier, Key Individuals, Squier Financial Services (Pty) Ltd, a registered Financial Services Provider and accredited Medical Schemes Council intermediary.