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Medical schemes have to do with small premium increases

Relief for members who fork out a small fortune every month.
The real measure of value for money is hidden in the confusing array of plans and their varied benefits. Image: Shutterstock

Most medical aid schemes have announced how much members will pay for their medical cover in 2021, giving them the usual few months’ warning of increases in one of the biggest expenses families face every month.

Most medical aids have limited their increases for the coming year to around official consumer price inflation, even though the cost of medical care goes up much faster than general retail prices.

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While officials at the Council of Medical Schemes (CMS) might feel pleased that the industry it regulates has responded to its pleas to limit increases in member contributions to the general inflation rate of 3.9% or close thereto, most schemes have adjusted their rates by a little more, and for different reasons than the simplistic guideline issued by the CMS.

Commentary by Discovery, which operates the largest medical aid scheme in SA, indicates other reasons for lower increases in medical aid premiums. Firstly, it says medical aids should have ample reserves available to make larger increases unnecessary, and secondly because the real cost of medical care is expected to increase by less than expected.

Demand down during lockdown 

The general lockdown of the economy for a few months at the beginning of the year also meant that people actually used less in terms of medical services than usual. For instance, visits to dentists were expressively prohibited for months, while the medical profession has reported fewer cases of normal winter flu as people took careful precautions to guard against viruses during the Covid-19 pandemic.

“In the first half of 2020, non-Covid patients on Discovery Health have used a lot less of their medical aid compared to previous years,” said Discovery in a release when announcing its premiums for 2021. “As a result, the solvency of the Discovery Health Medical Scheme has improved.”

Briefly, medical schemes in SA are non-profitable trusts that are owned by the members of the scheme.

They are structured in such a way that the scheme itself does not make profit, but merely charge premiums to cover members’ medical expenses. In addition, the scheme needs to hold enough reserves to be able to honour future claims.

The management company of any medical scheme does however aim to make profit for its shareholders.

Balancing costs, claims and reserves

This means that medical schemes need to balance the expected medical cost for the next year with its actuarial forecast of claims and its available reserves.

Discovery told its members that lower claims in the first half of 2020 means “there will be no increase to your medical aid premium in the first half of 2021”.

It expects the demand for medical services to return to previous levels and premiums will be adjusted in the middle of 2021, by a maximum of 5.9% for all its different medical aid plans.

The cost of medical aid has increased by the inflation rate plus 3-4% per annum over the last four years, according to Discovery. Now it has announced no increase for the first half of the year and a maximum increase of consumer inflation plus 2% in the second half.

Read: Members are ditching top-end Discovery Health plans

This will result in an average increase of less than 3% for the year, making Discovery’s increase in premiums the lowest of the big ‘open’ medical schemes.

Range

The latest CMS quarterly report lists 80 registered medical schemes in SA, 21 of which are open to all members while 59 are restricted to certain individuals and their dependants, usually limited to the employees of a specific company or the government.

Bonitas, the second largest open scheme, announced that its premiums for 2021 will increase by an average of 4.6% across all it different plans, but that the premiums of some of its options won’t increase at all.

“Individual plan increases ranged from 0%, with an average increase of 4.6%. This translates into 95% of members experiencing an increase of under 4%,” according to Bonitas’s announcement to its members.

The Bonitas announcement shows how difficult it is to try and compare different plans and premiums – Bonitas itself has 16 different options to choose from.

Momentum Medical Scheme, the third largest open medical aid scheme in SA, says its premiums will increase by 3.9% in 2021 on a weighted average basis. It claims the increase is lower than those of its competitors and notes that is much lower than its own previous increase of 8.2% (effective in 2020).

Momentum attributes the low increase to the fact that the average age of its members is well below the industry average and that claims (from the presumably healthier younger members) will be lower over the long term.

Favourable member profile

“When one factors in a pandemic such as Covid-19, the impact of a favourable member profile becomes even more important,” said Damian McHugh, head of marketing at Momentum Health Solutions, when announcing the new premiums. “We have made provision for the unexpected future pandemic-related costs, but we are able to focus more on helping our members retain their medical aid cover during these tough economic conditions.”

Bestmed, the fourth largest open scheme in SA according to CMS statistics, announced an annual average increase of 4% in premiums for 2021. Management says this is the lowest in the history of the scheme. It also increased its benefit limits by 5%.

Bestmed noted that this was possible because the scheme is financially healthy, indicating lower claims and/or lower medical inflation than in the past.

Medshield said in its announcement to its members that monthly contributions will increase by an average of 5.9% over its product range. This is somewhat higher than the increases claimed by other medical schemes, but not as high as the average increase of 8.6% announced by FedHealth Medical Aid.

However, the percentage increase in premiums is only a small part of the story, with the real measure of value for money hidden in the confusing array of plans and their varied benefits.

Comparing all the plans from different companies – ranging from less than R1 000 per month to R10 000 per month – is extremely complex.

Read: Healthcare costs in retirement: Don’t rely on wishful thinking

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No Covid relief given to members as far as premiums were concerned . Even though surgeries were down at least 70 % for 4 months . To all the CEOS of medical aid companies thanks for nothing and remember never to miss a crisis to profit even further ………. You shouldn’t be increasing premiums at all in 2021 ! Where is the Council For Medical Schemes when you really need them ?

The ignorance of how the medical aid model in South Africa works is widespread! “CEOs of medical aid companies” do not benefit from lower claims or higher contributions. ALL medical aid schemes / funds are ring-fenced, not-for-profit funds. The administration of the funds may, however, be outsourced to companies operating on a for-profit / commercial basis (e.g. Discovery, AfroCentric/Medscheme). These administration companies typically do not benefit if member contributions go up or if claims fall as with elective claims during the pandemic. They typically earn an administration fee for each life managed. The law requires schemes to maintain reserves of 25% of annual contributions, so they are not legally empowered to offer reductions or contribution holidays. If contributions don’t go up in an inflationary economy such as South Africa, benefits will have to be eroded to maintain the solvency of the schemes. There is a bizarre misconception out there that the CEO of Discovery or Medscheme, for example, would get a big fat bonus for denying granny’s cancer treatment claim. This just is not true. That is not how the medical aid funding model in this country operates.

Exactly. People are anti everything these days. You can’t be anti NHI and anti Medical aid. The only expensive thing with medical aids are the fees they charge for administrating the fund.

There appears to be very little exposure of the administration fee rates charged by MA Scheme Administrators. Or have I missed it? Do they charge a flat fee per “life managed”? Does a benefit of scale kick in? What percentage of each Medical Aid Fund’s total contributions from members is paid to the Administrators? Higher than the top marginal rate of tax I’d guess? Finally there’s no denying that Administrators make it as difficult as possible for MA members to claim expenses. That suggests there is an incentive somewhere along the line to minimise claims which must ultimately benefit the CEO? I suggest the “ignorance .. of the medical aid model” you rightly point out might have something to do with what little exposure there is on the administrators and how/why they flourish. The greater the “ignorance” is perhaps to their benefit? Nevertheless, administering a MA Fund is not for sissies and few would undertake such a thankless task. Perhaps Moneyweb can trace and interview a retired insider and let readers know.

So this then begs the question . Why do premiums not adjust when margins change ? Does the system just hide behind its current beyond reproach structure ?

The (relatively) high cost for us South Africans of med aid schemes, is a manifestation of maintaining a quality, first world healthcare system, within a 3rd world country.

(I say “relatively”, because many foreigners from developed nations undergo ‘medical tourism’ to 3rd world countries, like SA, where the cost vs quality remains attractive to them, due to our Zupta exchange rate).

Pity Saffas don’t earn income in USD, Euro, etc…but we pay for imported medical equipment in dollars.

Indeed – apart from paying for medical equipment, like radiology machines, we also have to pay for drugs, particularly the latest drugs like cancer biologicals and antibodies, in hard currency. Luckily, however, the ANC has a plan to open a state-owned pharmaceutical company. What could possibly go wrong?!

Interesting- there are only 2 reasons to increase medical aid contributions. The first is that lots of members get I’ll/ the amount of health care per member per year keeps going up. The 2nd is that the healthcare providers increase their tariffs.
We definitely dont have the former this year. So why do the health care providers keep increasing costs and how. They all work on ICDN codes which the medical aid sets a price on.

Then the Doctors etc all seem to belong or work in practices run by listed medical companies e.g. Mediclinic/ Life etc. This sounds as though in many instances is a franchise type model. The Dr gets the benefit of someone else doing the admin but pays a very large monthly fee for this.

So perhaps the fat cat CEO aren’t the med aid ones but the medical franchise owners and how many of these businesses have made some very expensive internationalisation moves?

This is fundamentally wrong. ICD codes are diagnosis codes, not procedure / consultation codes. Those are a whole different thing. Although each medical aid will decide what it will pay for each code for each healthcare intervention, no doctor or medical professional is required to charge only up to what a medical aid scheme will pay. The medical aids will negotiate with hospital groups to cover those bills in full – e.g. nursing, consumables and theatre time. But doctors are legally required to set their own rates, without consulting with each other. Essentially, most medical aids take the old so-called “medical aid rates” (from 2006, I think, before the competition commission banned this) and inflate them annually by their own estimate of inflation, which is always less than the true medical inflation, which worldwide runs above CPI). This is why co-payments and out-of-pocket costs have steadily soared – no specialist can run their practice at break-even at these rates. They probably wouldn’t even be able to pay their monthly clinical negligence insurance premium!

I fail to see why premiums are going up at all. Surely they should be dropping. Hospital admissions for planned procedures and trips to doctors and specialists are well down on 2019.These items must make up 40-50% of costs.To add insult to injury my own medical aid plans to increase their premiums by 8.6%, a full 4.5% more than anybody else. It’s daylight robbery!

Medical aid scheme trustees have a duty to plan and run the schemes for solvency on a long-term basis, working with their actuaries. They cannot reactively adjust contributions for short-term blips, whether positive or negative. In an inflationary economy and facing the fact that medical inflation is higher than consumer inflation, contributions simply have to go up if benefits are to be maintained. I don’t like it either, but I like it less than the prospect of being confronted with no or reduced cover when something catastrophic happens health-wise…

Wait!The fees are just one part of the equation.Let us see how the benefits will be reduced,as a result of the “low” increase.

End of comments.

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