A lack of young, healthy mem­bers is driv­ing up med­i­cal aid costs, writes Maya Fisher-French

CityPress - - Busi­ness -

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.

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