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Consumers face rude awakening as Covid impacts medical schemes

Could be in for a period of steep rate increases.
Trends suggest that members are prioritising medical aid as they have seen its value amid the pandemic. Image: Shutterstock

Consumers should prepare themselves for a rude awakening, as medical schemes are struggling to balance the costs of the Covid-19 pandemic.

This could result in a period of rate hikes higher than the usual above-inflation increases, as there are no signs of the pandemic ending any time soon, with concerns that we will soon be entering a fourth wave.

With experts predicting that full recovery from the pandemic may only be achieved in 2024, and a possible two-year period of medical schemes balancing Covid cases as well as normal surgical claims, medical schemes will be looking to financially recover from the pandemic.

Cost pressures rise

Ordinarily, medical schemes would have announced their rate increases in December 2020. This was put on hold as Covid-19 impacted the country. Medical schemes have had to deal with the crisis without the luxury of increased revenue from rate increases. The costs that some schemes have had to face are astronomical.

Read: Discovery Health increases medical aid contributions (May 2021)

Jeremy Yatt, principal officer for Fedhealth Medical Scheme, points out that, up to mid-July, the scheme had paid R375 million in Covid-19 expenditure since the onset of the pandemic.

The largest driver of this expenditure is the cost of hospital care at R240 million, followed by pathology (mostly Covid-19 tests) claims that amounted to R55 million.

He points out that so far this year the average cost per Covid-19 hospital admission has been R163 000, with an average stay of 10 days per admission.

Fedhealth’s largest Covid-19 hospital account so far has been R4 million.

Yatt states that when looking at 2020 and 2021 in isolation, it has been a tale of two distinct halves. He says the scheme was positioning itself to implement rate increases for 2021, as were other medical schemes, but this had to be put on hold.

This was never going to be a permanent stay of execution though, as medical schemes have to find a way to make up for lost ground.

Yatt says that Fedhealth will be implementing rate increases for 2022 along with the rest of the industry. These increases will be based on the 2021 claims experience and future predictions around the pandemic and potential further waves.

“However, an important factor to consider this year is how much of an impact the return of elective surgeries will have post-Covid. Pre-Covid statistics indicated some over-servicing related to elective surgeries in the industry and the scheme would like to try and ensure that we don’t go back to old habits.”

Waves that become tsunamis

Yatt says 2020 was a year characterised by hard lockdowns and, consequently, a large number of procedures were postponed, as people tended to stay away from hospitals and opted to be admitted only when absolutely necessary. The reduction in non-Covid-19 claims in 2020 as a result of these postponements was significantly larger than expected.

But, schemes that experienced a large reduction in previously-postponed procedure claims will at some point likely experience a large resurgence of these procedures.

The fact that these procedures will take place in the future may possibly compound the costs due to inflation and/or exchange rate differences. Again, as Yatt warns, this may be a key determinant of future rate increases.

Fedhealth for one has been severely impacted by the pandemic this year. As lockdowns eased Fedhealth saw a catch up of these postponed procedures – leading to large increases in non-Covid-19 claims.

Furthermore, the peak of the second and more severe third wave of the virus occurred in 2021, leading to much higher Covid-19 claims than seen in 2020. While Covid-19 claims accounted for 5% of total contributions in 2020, the projection for Covid-19 claims for 2021 is around 10% of contributions.

The time taken to recover from the pandemic will be highly dependent on a scheme’s experience.

Schemes that are severely impacted will likely take longer to build up reserves, as they were likely to have turned to their reserves during the pandemic to ease the financial burden. This may impact future rates increases.

Careful planning

It’s not like medial schemes are on the verge of financial ruin, however.

Medical schemes follow the same principle as life insurers when it comes to risk management. They typically plan for a one in 10- or 20-year event that will have a significant financial impact. Therefore, while they have to momentarily dip into their reserve margins (a practice all insurers actively want to avoid) medical schemes should not be significantly impacted by the pandemic.

Medical schemes are tightly regulated by the Council for Medical Schemes (CMS). One piece of regulation from the CMS states that medical schemes are required to hold a statutory solvency reserve of at least 25% of contributions. These reserves are meant to serve as a buffer against any sort of adverse claim experience that may suddenly arise.

Most medial schemes also undertake regular calculations of a risk-based solvency amount which considers the risks specific to the scheme as opposed to the more standardised solvency reserve measures (25%). In calculating risk-based solvency, a wide variety of scenarios are considered, one of which is a one-in-20-year risk event of severe financial consequences such as a pandemic.

Moving around

While insurance is widely regarded as a grudge purchase, the pandemic has highlighted the value of medical aid.

Yatt points out that during the 2021 renewal period, 5% of Fedhealth’s members downgraded to a lower option. This is marginally higher than the scheme typically saw in pre-pandemic years. In addition, the scheme also noticed a decrease in the number of members cancelling their membership.

These two observations suggest that members are prioritising medical aid as they have seen its value amid the pandemic.

This trend was replicated in the industry. Statistics from the CMS show that Bonitas recorded a 0.6% drop in membership during 2020. However, almost 62% of members downgraded to more affordable, mid-level options. Momentum experienced a similar dip in scheme membership. Consumers scaled down to more cost-effective plans or swapped to providers that charged less for the same level of cover.

The pandemic has created some winners.

The CMS statistics show that Discovery grew its market share in 2020. It also recorded lower opt-out numbers compared with previous years. Of the 6% of Discovery Health members who switched options at the end of 2020, half upgraded to a higher level of cover and half bought down.

Read: Even in the pandemic, Discovery Health members ditch pricier plans

Bestmed grew its membership base in 2020 and registered one of its lowest termination rates in recent years.

What does this mean for the consumer?

While medical scheme members were relieved they did not face above-inflation rate increases at the end of 2020, they may not be happy when medical schemes announce their rate increases for 2022.

All indications are that medical schemes will have no choice but to implement these increases, and with these schemes being forced to deal with massive cost pressures, we may see above inflation rate increases very soon.

The rate increases may mean that there will be a lot of movement from comprehensive to less comprehensive options. In addition, there may be significant interest in lower-level options with the possibility of upgrading once the pandemic is over.

Listen to Nompu Siziba’s interview with Annelé Oosthuizen from Alexander Forbes Health (or read the transcript here):

COMMENTS   28

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Bring on NHI. That will stop the increases.

It’s OK to be somewhat daft. I am too, but I try hard to hide it :). This comment is aimed at the ANC – I actually realise that your comment is sarcastic.

Witty sarcasm, Mmmm! 😉

As a member of a medical aid I refuse to pay for any member of my scheme or for that matter for any other scheme who’s not prepared to vaccinate. Why must I be ‘punished’ for anti-vaxxers?? In my opinion, if you’re a member of a private scheme and refuse to vaccinate then you as anti-vaxxer must be penalised with higher premiums and should you as anti-vaxxer be hospitalised then there must be a cap on what the scheme is to pay because of your personal viewpoint.

Your medical aid already paid for non-members’ free vaccines. You are already cross-subsidizing.

Unfortunately you and I don’t get to make those decisions.

As a cyclist I refuse to pay for any member of my scheme or for that matter for any other scheme drives cars. One is more at risk of dying in a car accident than from a disease with a 99.97% survival rate where the median age of death is higher than life expectancy.

If you’re a member of a private scheme and refuse to sell your car then you as a car-owner must be penalised with higher premiums and should you as car-owner be hospitalised then there must be a cap on what the scheme is to pay because of your personal viewpoint.

What about those who are obese due to their lifestyle? We pay premium because they are more likely to have complications. Do we tell them that they must change their lifestyle or find Dedicated medical scheme? Let’s may be start with common sense…

There are no such things as medical aids, or schemes, just risk adjusters.

So they are readjusting their risk.

Heresy is disagreeing with the government, or their health authority, even if they are all wrong and even if their policies harm people. Today we no longer call it heresy; it is labeled as misinformation.
The truth will out. Suppression is unsustainable.

Medical aid schemes should refuse to pay for Covid treatment for anyone who refuses to be vaccinated. Why should those who act responsibly and vaccinate cross subsidise the anti-vaxxers

or smokers, or drinking to excess, or kfc eaters, coke drinkers, drug takers, etc, etc. I would suggest that most complications are not from the virus directly, but underlying conditions. Why must I support these unhealthy lifestyles with my contributions. Be careful when you paint with these broad brushes, unless, of course you are just a pillar of health and an example to all.

None of those “conditions” are infectious and directly place other people at risk through contact. You are making a profoundly false equivalence. Your argument about complications is patent self serving nonsense. People die because they contract the virus

or, here’s a thought – the medical aid providers are required to pay for the treatments that their members’ contributions cover. Stop the moral grandstanding. Healthcare in this country is a service (to those with private medical aid), and the people paying the contributions are paying customers. They should be treated as such.

Unvaccinated people should be charged more just like smokers are. They are the gormless ones that will prolong this pandemic!!

Vax doesn’t stop transmission or infection so do tell us how its going to stop this pandemic. We’re never getting to zero covid.

And the ones with obesity and diabetes (lifestyle diseases) are the most at risk, whether vaccinated or not. So if we’re doing an honest risk-adjustment per member, many will be in for a shock.

Interesting. Did you even think before typing this statement?

Someone who chooses to smoke does so at their own free will full well knowing the risks associated with smoking.

Someone who chooses not to get the vaccine does so at their own free will because there is NO LONG TERM data on risks associated with these experimental vaccines which have a trial period that stretches till 2023.

So someone who takes the vaccine can get the virus and still die, but also from adverse reactions.

Someone who does not get the vaccine can die from the virus, but cannot die from an adverse reaction.

What’s next? Flu and rabies shots will also become mandatory?

Smokers don’t get charged more than anyone else – you’re thinking of LIFE policies. Medical aids cannot apply loaded premiums to people for health reasons (anymore).

One word – India

Its a wall of censorship for anything more.

Rubbish. Discovery increased reserves by over 11%. Current reserves sit at 36.9%… regulatory requirements 25%. They made a huge surplus due to the decrease in planned procedures.

and used that money to pay for the vaccines of non-members. Redistribution 101.

Reserves grew by R9bil last year. If they vaccinated every single person in SA, at R100 a cycle, then they would still retain R3bil, which is double the reserve increase from the previous tax year.

Not totally sure of their numbers, but they probably vaccinating 10mil people? So I don’t see them sliding into poverty, and with a RR like that, it will be hard to justify a dramatic increase with the CMS.

https://www.discovery.co.za/assets/discoverycoza/corporate/investor-relations/2021/dhms-ir-2020.pdf

Charles, I saw the account from Discovery for my first vaccination – a touch over R345 – definitely NOT close to R100. Throws your calc out a bit. . .

A period of steep rise in medical costs, is to be expected.

One realise that, to uphold and manage a western 1st world system, be it medical or whatever, in a 3rd world country (with govt policies slanting towards socialism, working against economic progression) it will have to become more costly. Much more costly.

(That is what Saffas have been experiencing the past few decades, with cost of medical care rising steeper than inflation.)

But allas, SA’s medical system must be still reasonably affordable: when American actress Ashley Judd shattered her leg while exploring deep inside the DRC, SA was the chosen medical destination for her ICU leg-operation…

Speaking of Discovery. How about co-incidence that they also now have a bank. Wonder how long till they ban the unvaccinated people from using their bank.

George Orwell would be so proud to say with his book 1984 in hand, “Told you so!”

I think the CMS should relax their regulation on the 25% solvency reserve because this pandemic undoubtedly qualifies as an “adverse claim experience that may suddenly arise” and it’s going to remain adverse for some time to come. Forcing schemes to “sit on a pile of cash” would be rather foolhardy at this stage.

End of comments.

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