The real cost of medical aids
Anyone belonging to a medical aid scheme has probably felt they are paying ever more in premiums for ever shrinking coverage. But although above-inflation increases in healthcare costs is a worldwide trend, South Africa’s private healthcare system has some unique features that drive up costs.
Legislation is extremely prescriptive about how medical schemes raise and spend money. Simultaneously, costs have increased due to patients living longer, going to hospital more often and spending more on treatment because of new technology and new drugs.
By law, medical aids are by law not allowed to charge older, sickly, “high-risk” patients higher membership fees than young, healthy ones. It is also not mandatory for employed people to belong to a medical aid.
The result is that many people only join a scheme once they need expensive healthcare benefits: when they have children or become prone to chronic conditions.
This means an ever higher proportion of older members who are more likely to claim for expensive treatments, and fewer young, healthy members to cross-subsidise them. Medical aids then charge higher premiums to cover their risks.
Heidi Kruger from the Board of Healthcare Funders, a representative body for medical aid schemes, said there was also a growing trend that employers do not subsidise their employees’ medical-aid contributions, which shrinks the pool from which schemes can raise contributions.
In addition, the Medical Schemes Act requires schemes to pay in full for about 300 high-cost medical procedures and chronic conditions.
These specified treatments, called prescribed minimum benefits (PMBs), have accounted for a large proportion of the increase in medical costs in the past decade. According to the Council for Medical Schemes, PMBs increased from 39% of net healthcare expenditure by medical aids in 2005 to 53% by 2012.
Alex van den Heever, an economics professor at Wits, notes in a submission to the competition commission that medical schemes, under financial pressure from increased hospital and specialist costs, have shifted many day-to-day benefits such as GP and dentist visits into medical savings accounts to have more funds available for expensive, serious medical conditions.
This explains why medical aid members frequently see their medical savings accounts run out long before the end of the year, forcing them to pay cash for most of their medical expenses while continuing to pay their monthly medical aid premiums.
There have been no uniform prescribed rates for doctors and specialists since 2006, so there are no price codes on which doctors can claim for some procedures. As a result, schemes decide unilaterally to only pay up to a certain amount for specialists to keep costs down.
Other peculiarities in the local healthcare market include a number of virtual monopolies. Most of the private hospitals are owned by one of three groups – Netcare, Mediclinic and Life.
There are claims before the commission that suppliers to private hospitals are forced to pay kickbacks. There are also claims that private hospitals overinvest in expensive equipment to lure specialists, and the cosy relationships between hospitals and specialists incentivises hospitals to admit patients rather than treat them as outpatients.
But hospitals ascribe rising costs to increased staff costs – because they have to compete with salaries paid to unionised government nursing staff – and the fact that they are not allowed to employ doctors and specialists, who have to operate separate practices, which increases the costs of practising medicine.