South African medical aid schemes that had deferred their annual increases to April or October this year have once again announced a deferment of increases to next April, providing some relief to members’ pockets.
However, says Jill Larkan, head of healthcare consulting at financial advisory firm GTC, this is likely to be the last time the schemes will defer and the normal January increases will probably revert in 2024.
Local medical schemes saw a decline in claims during the pandemic as members deferred elective procedures or were reluctant to seek medical treatment for health issues not related to COVID, reports News24.
This meant they were running surpluses, where the value of claims was lower than the premium income, so many used these surpluses to defer premium increases, apply below-inflation increases and boost member benefits.
“The reduction in claims, alongside a desire to maintain affordability for members in a low-inflation environment, saw many schemes defer their 2022 increases, with the biggest open medical scheme – Discovery – originally deferring its increase from January to May 2022, and then again until October this year,” said Larkan.
According Discovery Health, “the scheme’s excess solvency has been used to the benefit of members, with R6.8bn achieved in contribution savings during 2020 and 2021 through the deferred increases”.
“This also achieved effective annual contribution increases that were 50 basis points below the market over these two years.”
Bonitas Medical Scheme says that by applying low contribution increases since December 2020, the scheme has effectively passed R1.4bn in savings back to members.
The Council for Medical Schemes says the increases announced last year were the first time, in more than a decade, that the industry had implemented contributions below the official consumer price index (CPI).
In previous years, medical scheme premium increases have typically exceeded CPI by about 4%, and Larkan says that, with a “return to normal”, many schemes have announced increases above inflation, because of a rise in claims.
“Medical inflation continues to increase, and we expect this will be on a greater scale in 2023,” said Damian McHugh, an executive at Momentum Health Solutions, adding that the scheme has noticed an upward trend in terms of in-hospital events.
“Coupled with this, we have seen the costs of these treatments increase, mostly in line with medical inflation, which is 3% to 4% above CPI.”
Discovery Medical Scheme said hospital admissions had almost entirely returned to pre-COVID-19 levels, said Deon Kotze, head of research and development.
Leo Dlamini, the principal officer at Bestmed Medical Scheme, said they have seen a significant increase in the value of claims by members in the second half of the year, specifically around hospitalisations.
These higher claims have affected the claims ratio of the scheme, resulting in higher premium increases for next year, he added.
Age plays a significant role in the claims experience of a scheme, and Dlamini said that, for every year the scheme members’ average age increases, a member’s claims increase by about 1.5% to 3%.
This means that, if the average age of the beneficiaries of a scheme increases by just one year, for example, from an average age of 37 to 38, the claims could increase by about 3%. Add this to rising medical costs and an ageing scheme could soon find itself in financial difficulty.
This was the experience of Health Squared, which was recently put under curatorship. The Council for Medical Schemes pinpointed its high proportion of elderly members as the reason for its financial woes. Its pensioner ratio was 25.9%, notably higher than last year’s open schemes industry average of 11%.
A knock-on effect of this is higher hospital admission rates and higher costs when individuals are admitted.
Many schemes would have registered members from Health Squared, which has had an impact on the average age of the scheme.
Dlamini said, for example, the average age of the members that have applied to BestMed from Health Squared was around 60. Schemes that can attract younger members are able to contain their premium increases.
Bonitas announced that it had increased its membership by 190 000 individuals, with the average age of the new members around 15 years younger than the current membership.
Increases announced
While Discovery confirmed a 7.9% increase this month, it announced that it would be deferring its 2023 increase to April.
The scheme has not formally announced its increase for next year, which it says will “be in line with medical inflation, which is typically 3% to 4% above CPI, though members will experience a real annual increase of between CPI and CPI+2%, considering the deferral”.
Depending on the inflation rate next year, members could experience a double-digit increase in April.
Momentum Medical Scheme announced a 6.4% annual effective contribution increase in the market, without reducing benefits. The deferred increase comes into effect on 1 April.
Medshield announced a 6.7% increase from January, as did Fedhealth, which will be increasing its average rate by 8.8%.
Bonitas Medical Fund has introduced a three-month price freeze on contributions, meaning increases will only come into effect from 1 April. That increase will be an average of 5.9% across the plans, but, with the deferment, it averages out to 4.8%, with a 0% increase on Bonstart, its entry-level plan for young, single individuals.
News24 article – Medical aid schemes hikes return (Open access)
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