Medical aids – the deferred increase debate
TIMES are tough and South Africans are feeling the financial pinch of increased costs on food, fuel and utilities. And while everyone is busy consolidating household expenses and looking for ways to save and get value for money, it’s no different when it comes to healthcare.
Traditionally, medical aid schemes increase fees annually from January 1. However, the pandemic has resulted in new trends, including deferred increases and dipping into reserves to reduce increases. What does this mean for consumers?
Balancing act
Lee Callakoppen, principal officer of Bonitas Medical Fund, says it’s a delicate balancing act to maintain the sustainability of a scheme, while ensuring members have access to affordable and quality healthcare.
“For 2022, we opted to utilise around 3.2% (R600 million) of the scheme’s reserves to limit contribution increases to below CPI for around 82% of our members. Otherwise, the increases would have been closer to pre-pandemic levels of CPI+ 4%.We also announced an industry-first by reducing the BonStart premium by 7.9%.”
Deferred increases versus using reserves
The Council of Medical Schemes (CMS) recommended the use of reserves to cushion members against increasing costs. However, despite these guidelines, several schemes opted to defer increases from January to later in the year. These deferred increases range from 5.5% to 7.9% – which is above CPI.
Freedom to change schemes with deferment
Members are free to change their options once a year, during an open period. However, when there is a deferred increase, this open period does not always correspond to it.
“This complicates matters, especially for companies that allow
their staff to choose between various medical schemes. If an employee chooses not to stay with a scheme offering a deferred increase, it is difficult and sometimes impossible to switch to another plan. This is exacerbated by the fact that the increase is often above CPI and doesn’t always include an increase in benefits – so members effectively pay more for fewer benefits.
Know what you’re getting
“By announcing our contribution increases in September, members knew what they would be paying from the outset and could plan accordingly. In addition, they could adjust their benefits to align with their healthcare needs and budgets. In the case of deferred increases, we advise companies to consider a later open period to allow already cash-strapped employees to change schemes or options to their benefit.”
The downside of deferred increases
The past year has shown that the actual contribution increases after the deferment period, are typically higher than the industry average. In addition, these cannot be viewed in isolation without looking at the rand value of the contribution.
“Based on our analysis, we feel that a deferment strategy is not ideal. It provides short-term relief to members, who subsequently experience an above market-related contribution increase. This results in members being worse off compared to the scheme that applied a lower, market-related contribution increase from the beginning of the year.
“Regardless of whether a scheme has chosen to increase contributions or defer them, South Africans need to ensure they get the healthcare cover they need. It’s important to interrogate what is covered, the value-added benefits offered and your healthcare needs before finalising your decision.”