How can mem­bers af­ford it?

Con­tri­bu­tion in­creases too high

Finweek English Edition - - News -

ABOVE INFLATION IN­CREASES by med­i­cal schemes will put mem­bers un­der in­creas­ing fi­nan­cial pres­sure, es­pe­cially next year as con­sumers feel the full brunt of the typ­i­cal 18-month lag in the ef­fects of in­ter­est rate in­creases. The high in­creases in mem­ber con­tri­bu­tions also feed the vi­cious cy­cle of med­i­cal inflation and high pri­vate sec­tor health­care costs, a cy­cle med­i­cal scheme ad­min­is­tra­tors should be try­ing to break by us­ing their lever­age to push doc­tor and pri­vate hospi­tal costs down.

If pri­vate health­care doesn’t get costs down, Gov­ern­ment might step in and do it for them – not the ideal so­lu­tion, but a pos­si­bil­ity as long as med­i­cal inflation and med­i­cal scheme con­tri­bu­tion in­creases are higher than the al­ready too high con­sumer price in­dex.

Last week Lib­erty Health Med­i­cal Scheme ( LHMS) an­nounced av­er­age in­creases for 2009 across all its med­i­cal plans of 12,7%. It called those “value-for-money” rates. Two weeks ear­lier, Dis­cov­ery Health said head­line con­tri­bu­tion in­creases for 2009 would be 12,8% – with an av­er­age in­crease of 12,4% across the Dis­cov­ery Health plans.

Mem­bers can ap­pre­ci­ate both schemes are try­ing to keep a bal­ance be­tween suf­fi­cient fund­ing, main­tained or im­proved ben­e­fits and af­ford­able in­creases. But for many mem­bers, par­tic­u­larly re­tired mem­bers, con­tri­bu­tion in­creases of that mag­ni­tude aren’t af­ford­able.

It’s also no­table that two pri­vate sec­tor schemes, backed by large life in­sur­ance groups, should come up with such sim­i­lar in­creases. If that con­tin­ues, the med­i­cal schemes might at­tract the at­ten­tion of the Com­pe­ti­tion Com­mis­sion.

An­drew Ed­wards, ex­ec­u­tive prin­ci­pal of­fi­cer at LHMS, says the in­crease will con­tinue to fund the level of real ben­e­fits for mem­bers. “We en­cour­age our mem­bers and po­ten­tial mem­bers to look at the ac­tual cost of their scheme ver­sus the real ben­e­fits re­ceived, be­cause it’s sim­ply not pos­si­ble to have be­low med­i­cal inflation in­creases yearon-year without com­pro­mis­ing on mem­bers’ ben­e­fits. That isn’t some­thing we’re pre­pared to do.”

His dilemma is un­der­stand­able and, of course, the scheme should strive to main­tain mem­ber ben­e­fits. But us­ing med­i­cal inflation as a bench­mark, as Ed­wards seems to im­ply, is prob­a­bly worse than Dis­cov­ery’s “corridor of cer­tainty” of CPIX plus 3%, which we called an un­healthy bench­mark ( Fin­week 25 Septem­ber).

Ed­wards says, gen­er­ally, very few changes have been made to most op­tions for 2009 but some scheme of­fer­ings prom­ise to be more at­trac­tive due to a mar­ket seg­men­ta­tion study con­ducted this year. “That study seeks to de­ter­mine in­di­vid­u­als’ needs and wants based on a com­bi­na­tion of fac­tors, such as cur­rent life cir­cum­stances, pur­chas­ing power and even where mem­bers live. By looking at needs and then cat­e­goris­ing them, the scheme is able to build more rel­e­vant op­tions that ful­fil an in­di­vid­ual’s re­quire­ments in a cost-ef­fec­tive man­ner and de­velop a log­i­cal move­ment through the var­i­ous op­tions as an in­di­vid­ual’s needs change.”

What’s en­cour­ag­ing is the en­try-level cor­po­rate net­work op­tion LHMS in­tro­duced this year, aimed at em­ploy­ers want­ing cover for their lower-paid staff. Only about 3m work­ing South Africans be­long to med­i­cal schemes out of nearly 10m em­ployed peo­ple. It’s vi­tal to get more peo­ple un­der med­i­cal cover, for their sake and the health of med­i­cal schemes, where mem­ber­ship growth in many schemes is stagnant. Called Cor­po­rate Net­work, the over­all pre­mium in­crease for

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