A lack of young, healthy members is driving up medical aid costs, writes Maya Fisher-French
By now, most medical schemes have announced their premium increases for next year. Although these increases still need to be approved by the Council for Medical Schemes, they are a pretty good indication of how much you will be paying for your medical cover in 2016.
The increases announced so far have ranged from 8.6% to as high as 15%. If your medical scheme has announced increases well above the market average, it could suggest that the scheme or its members are not as healthy as they could be.
Paresh Prema, head of benefits management for the council, explains that the two main drivers behind medical scheme increases are medical inflation and the claims experience of the scheme.
Medical schemes are not-for-profit organisations. They have to match the premium collection to the amount paid out in claims while retaining at least 25% of premiums as a reserve (known as the solvency ratio) to protect them against unexpected large claims.
If a fund had a bad claims experience during 2015, resulting in higher claims than expected, the scheme may have had to draw down on their reserve.
That means that next year, they will firstly need to adjust their premiums to account for a higher claims experience, as well as replenish any reserves used in the previous year.
Prema says the council will study the price increases, along with the motivation for the increases, to ensure that they are fair to members.
This process also ensures that members’ benefits are not reduced to maintain lower increases.
“We need to ensure that the increase that is being applied for will make the scheme sustainable for the following year and that they have sufficient money to pay for claims,” says Prema.
A rising-claims experience is bad news for a medical scheme and its members. The problem is that this is often driven by an ageing membership – older people claim more. So if you are worried about future price increases, then you need to understand the age profile of your fund.
This information can be found in the council’s annual report, but what is concerning is that apart from Discovery Health and Momentum Health, most medical schemes are experiencing an ageing membership as they struggle to attract new, young and healthy members.
Both Momentum Health and Discovery Health managed to keep their average increase across the range of scheme options to about 8.6%, while Fedhealth announced an average increase of 9.9% and Liberty Health’s average increase came in at 10.5%.
Bonitas Medical Fund announced an increase of 10.9% across all its options, and noted that expenditure on claims continued to increase at a rate of more than 11%.
These increases are an average across the options, and different options within the scheme will experience different rate increases. Typically, comprehensive options will experience higher increases because they have a higher claims ratio.
The dilemma that faces the medical scheme industry is that unless the industry can attract healthier members, the cost of medical cover will continue to increase. But as the costs rise, so it becomes more unaffordable for those younger members they are hoping to attract.
Low-cost option available next year
In recognition of the affordability issue for many South Africans, the Council for Medical Schemes has announced the intention to introduce a low-cost benefit option, which should become available next year.
The details were released earlier this year, but are being revised after comment from the industry.
The aim is to provide affordable cover for individuals earning less than R60 000 a year. This represents about 7 million to 9 million South Africans.