Medical Inflation

Here is a simple fact-calculated over the past few years, the inflation in medical aid premiums of medical schemes, both open (for the public in general) and closed schemes (private schemes allowing membership only to people employed by certain corporations served by the scheme), has exceeded both the average household inflation in South Africa, as well as the increase in earning power of the household itself. This inflationary effect must be understood in terms of it consisting of two parts:

  1. the actual increase in premiums on an annual basis, which in themselves exceed household inflation, to be read in conjunction with
  2. the gradual reduction in benefits within each scheme-this is evidenced by small inflationary increases in some benefits of an inconsequential level, being more than offset by reductions in significant benefits, such as (1) prescribed medicine refunds or (2) in-hospital surgeon or anaesthetist costs measured against benefits payable by the scheme.

The logical outcome will be that the affordability of medical aid premiums and therefore the ability of the average household to maintain membership of a scheme will gradually decline, with a disastrous effect on the national economy as well as an increasing drain on the public healthcare system, due to more people not being covered by medical aid schemes. The government has repeatedly stated its commitment to a National Health Insurance (NHI), and it will need to take its share of responsibility for this over-utilization.

Private healthcare has its own responsibilities in the issue. In very general terms, the main reasons given for the rise in healthcare inflation are:

  • fraud, by medical practitioners, sometimes in collusion with members
  • new medical developments, such as improved medication, which have to recover huge research and development costs-ie. the price of medical advancement.
  • administrative ability of schemes and their administrators to control their own medical aid businesses

fraud-this is perpetrated by some practitioners, either on their own or in collusion with medical aid patients. It can be controlled by peer reviews and with information being submitted by all schemes to a central body under the control of CMS. In addition, fraud necessitates independent audits of medical schemes on a regular quarterly basis by a panel of auditors accredited for the purpose by CMS.

What this article is suggesting is a combined initiative between private enterprise (ie. the medical schemes themselves) and government as represented by the Dept. of Health through the CMS.

PMB’s and compulsory scheme membership

The following matters need to be dealt with by government. They were on the agenda some years back, but have been shelved for the time being:

  • cross-subsidisation between schemes of PMB expenditure
  • making medical aid membership compulsory for all employed people, and forcing inclusion of all their defined dependants.

Having said this, the definition of the term ‘employed people’ would present its own sphere of difficulty.

Gap Cover

In addition, recognition needs to be given at all levels to the fact that GAP cover products are better priced for the consumer-the ‘hidden’ costs of this within schemes between options is a part-cause of the inflationary result ‘imposed’ by medical schemes. By way of explanation, a comparison of options within any scheme sometimes brings to light the fact that the difference in benefits between two options is mainly hospital cover (for instance 200% cover versus 100% cover) plus a small additional benefit for perhaps MRI scans out of hospital. When this additional benefit is measured against the cost and cover of an established GAP cover policy, it is regularly found that the GAP policy is far less costly; ergo, the medical scheme charges too much. The GAP cover policy will be registered and operate under the Short-Term Insurance Act instead of the Medical Schemes Act-it is in fact a wonder that there has been so much inappropriate fuss made by the authority guiding the medical scheme industry about the mere existence of the Gap Cover policy mechanism, as it is so clearly, even in its imperfection, (high distribution costs) nonetheless of clear benefit to the consumer.

Scheme solvency levels

Although required solvency levels of 25% of the premium income has been established and is constantly subject to objection, it could be argued this is not an issue that needs urgent revision. While it may be true that schemes with a large membership might have the advantage of critical mass, they may also, again by virtue of their size, be subject to negative exposure to large numbers of new members ie. growth in proportion to their size and because of their market visibility.

One of the suggested solutions to deal with cost escalations of the medical aid industry is the introduction of lower cost options funded by members on the basis of salary levels. This means that members who earn more will pay higher premiums to the scheme for the same benefits, under these options. These options will usually utilise networks of hospitals and practitioners, and these networks will charge lower rates to the scheme in return for members having no ‘out of network’ choice of doctor.

Disclaimer: The information and opinions in this document have been recorded and arrived at in good faith and from sources believed to be reliable, but no representation or warranty, expressed or implied, is made to their accuracy, completeness or correctness. The information is provided for information purposes only and should not be construed as the rendering of advice. Informed Healthcare Solutions accordingly accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this document or its contents. IHS is a licensed financial service provider: FSP # 12239

Author: Informed Healthcare Solutions
About Informed healthcare Solutions: Why not use our 25+ years of experience as medical aid brokers,? We can help you choose the most appropriate medical aid, at no extra cost. Changes to legislation, new product innovation and the vast range of available medical aid cover, make choosing or even understanding your medical aid a daunting task. We believe, more than ever, people need professional advice in order to make an informed decision on their healthcare requirements. We offer: • Medical Aid Quote Comparisons • Gap Cover Quote Comparisons • Discovery Life Insurance • Discovery Vitality Rewards We also offer Free Expert Medical Aid, Life Insurance & Financial Planning Advice. Why Use Our Services? Our consultants at Informed Healthcare Solutions will assist you in analysing your healthcare needs and supply easy to understand Medical Aid Comparisons and quotes to ensure you get the best possible benefits to premium value. To this end we are contracted to all major schemes, offering a range of products including Hospital plans, Medical Aid Gap Cover, Comprehensive plans, Hospital plans with savings or limited day-to-day cover and Traditional Schemes.

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