Medical scheme contribution increases of between 8 and 12 percent next year are going to be a bitter pill for members to swallow in the current economic environment, and Tracy Janssens, branch head at Alexander Forbes Health believes it could result in option downgrades and cancellations of memberships.
Why are increases in the medical scheme environment so high?
One needs to compare medical scheme contribution inflation and medical care and healthcare expense inflation trends to consumer price index (CPI) inflation, Janssens says. Over the past 18 years, CPI inflation has been 5.7 percent a year, medical care and health expenses inflation 7.5 percent a year, while medical scheme contribution inflation has tracked at 7.6 percent a year, Janssens says.
Over this period, medical scheme increases exceeded CPI inflation by at least 1.9 percent a year, Janssens says. The gap between medical scheme contribution inflation and CPI inflation has reduced in recent years, most likely as a result of efforts by medical schemes to manage costs charged by providers; buy-downs to lower cost benefits; changes to family size, possibly removing dependants due to affordability constraints; new entrants joining low-income options.
The general observation in the industry is that medical inflation will be about 2 to 3 percent higher than CPI over the long term, Janssens says. Increases in a particular year may be significantly higher due to adverse claims experience. The deviation from CPI is mainly due to:
* High increases in healthcare service provider fees and an increase in hospital admission rates.
* Utilisation.
* The requirement to maintain medical scheme reserves of at least 25percent of gross contribution income.
* Benefit enhancements.
Medical schemes’ audited financial results, which include size scale, membership growth, membership profile, financial results and solvency levels, provide a good indication of the scheme’s performance and an indicator of the increase for the following year, Janssens says. Schemes need to balance all these factors to grow consistently while achieving a positive operating result.
Medical schemes that are running at a financial loss and have not met the required solvency may need to take corrective measures. This can be done by introducing higher increases or reducing benefits, Janssens says. Schemes that are performing well in most key indicators may give back to the members by way of lower increases. Traditionally, high cover and network options are under the most pressure and schemes are likely to make some corrections on these plans next year.
Cost increase assumptions analysis for this year showed that scheme demographic and utilisation factors are projected to add about 1to 3.9percent to the total cost increases for medical schemes, Janssens adds.
Choosing the right medical scheme option is a complex decision, with 20 open medical schemes available in South Africa, each offering several benefit options. It is therefore crucial that a medical scheme broker assists members with their individual needs based on healthcare requirements and affordability.