How to decide whether you should change medical scheme options
A key issue is whether it will be more cost-effective to pay a higher contribution for more benefits, or move to a cheaper option and pay more out of your own pocket for medical treatment. Martin Hesse and Kabelo Khumalo report
MANY of South Africa’s medical schemes have announced their annual contribution increases for 2018, which are, as usual, well above the Consumer Price Index inflation rate. This is the time of year to review your cover and perhaps change your option to one that is more cost-effective for your circumstances.
Schemes allow you to change plans (or options) at this time of year for your cover for the following year, with the cut-off date around the beginning of December. There are no penalties or other adverse consequences for changing options within your scheme during this window period.
However, if you want to take the more radical step of changing medical schemes, which you can do at any time of the year, the new scheme is likely to impose a waiting period (typically three to six months) during which you will be covered only for emergency conditions. The new scheme may also charge you higher premiums or late-joiner penalties, depending on your age and how long it is since you were a member of a scheme.
If you are remaining with your current scheme, how do you go about deciding whether or not to change options?
You need to calculate how much your medical expenses amounted to over the year and how much of that was covered by your medical scheme. You then need to work out whether it will be more costeffective, based on your anticipated expenditure for 2018, either to move to a higher option and pay a higher monthly contribution in return for increased benefits (and pay less from your own pocket) or move to a lower-cost option and pay more out of your own pocket.
Paul Roelofse, a Certified Financial Planner, in a blog for Radio 702, says no one knows what medical expenses they will incur in the future, so it is difficult to know which plan is best. However, he says an appropriate plan is one which is likely to provide benefits relative to your health and your affordability.
Roelofse says you get what you pay for. “The plans differ in price because of one reason: benefits. So the more the plan costs, the more the benefits compared with cheaper plans.”
He says if affordability is a problem, you should at least have a plan that covers you adequately for hospital admissions. “The cost of surgery is horrendous – so much so that hospitals won’t even admit you if you do not have sufficient cover,” Roelofse says.
He also recommends that you take advantage of the opportunity many schemes offer in managing – and improving – your state of health. “Schemes offer wellness programmes, which are really worth it if you work with them. They aim at rewarding you for being healthy, offering a definite value proposition that could compensate for the cost of your plan. The trick is to get involved and keep up with the programme,” Roelofse says.
When changing plans/options, it is important to thoroughly study the benefits and conditions of both your current and future plans. These are often complex, and it may take some time and effort to understand in what respects your cover will change. For example, cover for specialists used while you are in hospital may be covered up to 200% of the medical scheme’s suggested rate on one option, but covered only up to 100% of the scheme’s rate on another (see “What you need to consider when changing options”).
Kerry Vermeulen, the consulting manager at Alexander Forbes Health, says it may well be worth your while to consult a specialist healthcare broker before making a decision: “Your family has unique and changing healthcare needs and it makes sense to review your plan every year based on these needs. It is important that you understand how your healthcare requirements are covered on the plan you choose. This can be an overwhelming task and your broker can assist you with your decision.”
Vermeulen says a specialist healthcare broker will conduct a financial needs analysis, taking into account your medical history, anticipated hospitalisation and chronic medication requirements and day-to-day cover, as well as the affordability of the plan.
She says if you choose an option with a medical savings account, a maximum of 25% of your contribution may go into the account.
Vermeulen says the full savings amount for the year is available to you from January 1.
Once your savings account has been used up during the year, you have to fund your day-to-day expenses from your own pocket.
“Some options within schemes have additional ‘threshold’ cover for members who feel that the savings allocation is not sufficient for their day-to-day needs. Unused savings for the year will roll over to the following year,” Vermeulen says.
Medical schemes also offer hospital plans with no medical savings accounts that cover in-hospital events only, as well as certain chronic conditions and the prescribed minimum benefits, which all schemes must provide by law.
You could also go for a network option, which limits you to healthcare providers within a network with which the scheme has an arrangement. “These options are cheaper, as the medical schemes have negotiated discounted rates with these network providers. Some low-cover and network options charge a premium based on your monthly earnings; therefore they could benefit lower-income earners, as they would pay a lower premium yet still obtain sufficient benefits,” Vermeulen says.
martin.hesse@inl.co.za kabelo.khumalo@inl.co.za
MEDICAL schemes are doing a good job in containing non-healthcare expenditure, which is mainly on administration, and the regular above-inflation increases in your contributions are largely to cover rocketing medical costs, according to the 2016 annual report of the Council for Medical Schemes (CMS), which was released last month.
According to the report, medical schemes have, on average, maintained their non-healthcare expenses within reasonable limits, even decreasing them in real terms slightly over the past few years. In other words, the increases in these expenses per beneficiary have been in line with or slightly below the Consumer Price Index inflation rate (see graph). The reason annual contribution increases are above CPI inflation is that medical inflation (increases in the cost of medicines, medical equipment and healthcare services) is several percentage points higher than general consumer inflation.
The accompanying graph shows that in 2016 the average beneficiary of a medical scheme paid just over R1 400 a month in risk contributions (this excludes amounts paid into medical savings accounts). Of that, about R1 300 covered medical claims, and about R150 (or just over 10%) went towards non-healthcare costs. Ten years previously, in 2006, non-healthcare expenses were over 17% of the average beneficiary’s monthly risk contribution (see table for funds with the highest expenditure on administration).
Medical schemes receive other revenue, mainly in the form of investment income, and they have cash reserves to fall back on if claims exceed contribution income. The percentage of annual contribution income a scheme has in reserve is known as its solvency ratio – the statutory requirement is 25%.
The CMS annual report states that for 2016 schemes’ income and expenses were as follows:
• Gross contributions increased 8.1% to R163.9 billion as at December 2016, from R151.6bn in December 2015. Risk contributions (excluding medical savings account contributions) increased 8.1% to R147.8bn from R136.7bn in 2015. Gross contributions per beneficiary per month rose 7.2% to R1 543 from R1 439 in 2015.
• Total gross healthcare expenditure incurred by schemes increased 8.9% to R151.2bn from R138.9bn in 2015. Healthcare benefits that medical schemes covered from their risk pools amounted to R135.98bn in 2016, compared with R124.54bn.
MORE FACTS AND FIGURES
The report also contained the following information about South Africa’s medical schemes:
• The total number of medical schemes registered as at the end of December 2016 was 82, down from 83, as a result of the amalgamation of LMS Medical Fund and Bonitas Medical Scheme on October 1, 2016. There were 22 open schemes and 60 restricted schemes. (Open schemes are those such Discovery and Bonitas, whose membership is open to all. Restricted schemes are restricted to specific employers, employer groups or business sectors, such as the Government Employees’ Medical Scheme.)
• The 82 medical schemes had a total subscription of 8.879 million beneficiaries (members and their dependants) at the end of last year. This was up from 8.809m in December 2015.
• The average medical scheme beneficiary in 2016 was 32.5 years of age compared with 32.3 years in 2015.
• Female beneficiaries were, on average, older than male beneficiaries: the average female beneficiary was 33.4 years of age and the average male beneficiary 31.5 years of age.
• The pensioner ratio increased slightly to 7.9%, with a general rise in the ratio for both men and women.
• The net healthcare results (contributions towards healthcare versus healthcare expenses) for all medical schemes reflected a deficit of R2.390bn in 2016 (in 2015 there was a deficit of R1.208bn). Eighteen of the 23 open schemes and 37 of the 60 restricted schemes showed net healthcare deficits for 2016.
• The solvency ratio of the industry as a whole decreased to 31.6% in 2016 from 32.6% in 2015. The solvency ratios of open medical schemes decreased, on average, by 2.1% to 28.6% in 2016 (2015: 29.2%). Restricted medical schemes had a decrease of 4.5% in their solvency ratios, to 35.8% from 37.5% in 2015. These declines in solvency ratios mean schemes had to delve into their cash reserves to fund higher expenses.
PRESCRIBED BENEFITS
All medical schemes are obliged by law to cover a range of life-threatening conditions from their risk pools, and these are known as the prescribed minimum benefits (PMBs).
Expenditure by schemes on PMBs amounted to R73.1bn in 2016, which was 54% of the total risk benefits paid by schemes in 2016 (R136bn). In 2015, PMBs constituted 51% of total risk benefits paid.
martin.hesse@inl.co.za