SIKI MGABADELI: It’s that time of the year when many people are considering possibly changing their medical scheme to one that has lower premiums because we are trying to save as much money as possible, or changing to a less expensive benefit option for a number of reasons. Now the average increases announced for the larger schemes for 2015 are:
For Discovery Health Medical Scheme it’s 9.9%, for Bonitas it’s 7.2%, for Momentum Health it’s 7.9%, Medihelp is 12.8%, Bestmed up 8.59% and Medshield up 9.5%.
So what should you be thinking about before taking such a big step, because the last thing you want is not to be covered?
Len Deacon is an independent healthcare consultant and joins us now. Len, thanks for your time this evening. Lots of people of course are thinking about all sorts of changes, new year resolutions, at this time of the year. People start thinking about how to save more money in the new year, and the medical contribution is one of those expenses. Right?
LEN DEACON: That’s correct, and yes, greetings to you and all your listeners. Hopefully 2015 is a great year for everyone.
SIKI MGABADELI: Thank you. So what should people then be considering? What should you think about even before you take this big step?
LEN DEACON: Well, I think the first thing is we tend to all look at the money side first – and that’s actually the last thing that you should look at. What you should really look at in the beginning is: are there going to be any changes in the coming year, are your healthcare costs going to be different, are you going to have a family, are there operations that you need to have? And based on those particular questions you then say to yourself, these are the changes that are happening – the plan that I have, does it address those needs? Have a look at the other plans, do they also address them, and is it possible for me to make a shift while not compromising my needs for the coming year? And then look at the actual prices.
SIKI MGABADELI: So when you are deciding – we’ll get back to that. One of the things I’d like to understand is what has led to this widening gap that we see between medical scheme contribution increases and inflation, because the numbers that I quoted a moment ago all are above the official inflation rate. We’ll get to that in a moment. But when you are deciding where to go, how do you evaluate the different medical aid schemes?
LEN DEACON: Well, I think there are a number of ways that you can do that. No 1, you need to look at the index that Alexander Forbes uses [see Moneyweb.co.za], the sustainability index. It looks at four things – things like the size of the medical scheme, the operating results as compared to the average operating results, the actual solvency of the scheme, and then the average age change in beneficiaries. Now all of those things actually play into the sustainability of the scheme.
So it’s quite important that you don’t just want to move from one scheme to another scheme because the contributions are lower, when in actual fact the sustainability of that scheme is such that they might have a low increase this year, but next year they might have double-digit increases because in actual fact they get below the solvency requirements.
SIKI MGABADELI: OK.
LEN DEACON: So you’ve got to look at those kinds of aspects as well.
SIKI MGABADELI: So when you are moving out of a scheme, that’s kind of drastic and you’ve got to think about whether you are still going to have cover and for how long, I suppose, while the transition takes place. But when you are moving within a scheme, so from one [plan] where you are paying a higher premium to one where you are reducing your premium, what could be the issues?
LEN DEACON: I think as I mentioned in the first part, the issues are about what cover you need, whether you need a threshold benefit, whether you prefer a savings benefit, whether you want a traditional plan where you don’t have to make the choices about savings and that there are limits in terms of the insured benefits – they are called the more traditional plans – or whether you are actually on chronic medication. And all of those aspects play into what your medical need is, which to me is the most important thing. It’s the aspect that most members don’t look at. They only look at the bottom line. So they must look at their medical needs first, and what those are going to be for the next year. Once they know that, then they can look at the different plans and then look at what’s affordable for themselves and make the decision based on affordability.
I agree with you, a very important thing that you mentioned was that people shouldn’t just switch between schemes. Most medical schemes have multiple plans and they should first look at switching between the plans before looking at switching between the schemes. Switching a scheme is a very big decision – and in fact they need help with that. It’s not a decision that they all by themselves are able to navigate. So either they need to speak to their financial consultant or to the different medical schemes and do a bit of research work to actually make that decision. It’s not a decision that just a normal Jan Alleman in the street can actually make by himself.
SIKI MGABADELI: Why is that? Why shouldn’t they just do it themselves?
LEN DEACON: Because it’s complex. And because, when you look at it at face value, you think you are comparing apples with apples, but you are not. It’s like the increases that you mentioned right at the beginning when I was listening to you on the radio.
The interesting thing is you mentioned all the big schemes. But there are some smaller schemes. For example, there is a small scheme, an open scheme, called Genesis, whose contribution increase this year was only 5.5%, which is below CPI. But their reserves are substantially above the average in the medical schemes. Now, people wouldn’t even look at Genesis because they are unknown, they don’t do a lot of marketing, they are not like Discovery, Momentum, etc, which are out there in the open domain. But if you look at that, this is a very small scheme, very tightly run, very profitable and in actual fact doing extremely well.
There is another small scheme, TopMed, which also is among the articles that I have reviewed over the last little while. They’ve got reserves in excess of 170%, while the statutory level is 25%. Now, an individual person won’t be able to pick that up unless they work with an adviser who knows that these other schemes do exist as well.
SIKI MGABADELI: What happens to the “size matters” metric of judging schemes, then, in that scenario?
LEN DEACON: Well, I think size does matter because if you look at a small scheme which doesn’t have 170% reserves – if you look at Discovery they’ve got roughly around the statutory requirement of 25/26/27% reserves. Now, when you compare them to a scheme like Genesis, which may have 110/120% reserves, you then actually start comparing apples with apples, because a small scheme has to have much bigger reserves to be able to compete with a big scheme from a size point of view. Also size does help the scheme do better negotiating with providers’ service, and they are able to secure better contracts than a small provider can do.
But if you look at the Alexander Forbes sustainability model, there’s one thing I think that it doesn’t look at, it actually looks at the average operating results of the average scheme out in the marketplace. So if you look at your big schemes, and you look at it just from an actuarial point of view, you have regression to the mean. So they are going to look good because they are the biggest and they are so big that they influence the average anyhow. So everything starts looking pretty good for them because they are the average.
So size does count from a negotiation point of view and from a security point of view.
SIKI MGABADELI: Thanks for your time today, Len Deacon.
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