Medical schemes are adopting a variety of strategies to return part of the cash pile accumulated during the coronavirus pandemic to members, cushioning financially strapped consumers with below-inflation increases in January or deferring hikes until later this year.
Contrary to initial expectations, most medical schemes experienced such a sharp decline in non-Covid claims that they more than offset the costs associated with the disease, allowing them to accumulate reserves.
Schemes reported a net surplus after paying claims of almost R2bn in 2020, and while healthcare expenditure patterns began to normalise in 2021, the industry closed the year with its solvency ratio at a high of 46.7%.
The solvency ratio is a key metric used to gauge schemes’ claims-paying ability, as it measures the ratio of accumulated funds to gross annual contribution income.
“A medical scheme cannot declare a dividend or pay a bonus to members.
“It is a trust, so the only way it can give back to members is to budget for a deficit and hold contribution increases down,” said Insight Actuaries joint CEO Christoff Raath.
“Schemes recognise that consumers are struggling, as the lockdowns harmed income-generating capacity. Most schemes have gone with contribution increases that are lower than medical inflation (which is typically 3%-4% higher than consumer price inflation), but some have opted to delay increases and keep them in line with medical inflation,” he said.
SA’s two biggest medical schemes illustrate these divergent strategies.
Discovery Health Medical Scheme, which is available to anyone who can afford its premiums, deferred increases in 2021 and 2022, and will do so again next year. Its 2.79-million beneficiaries will face a contribution increase only in April, which the scheme says will be in line with medical inflation. Increases will be announced in February.
The scheme expects to end this year with a solvency ratio of 34.4%, well above the 25% statutory requirement, and will draw R1.9bn from its reserves to fund the delayed contribution increase.
‘Huge fluctuations’
Roseanne Harris, head of the health policy unit at of Discovery Health, which administers the medical scheme, said: “The past three years have been quite extraordinary, and it has been really challenging to ensure members are not exposed to huge fluctuations in contributions. Delaying increases is a way to give them the benefit of increased solvency levels in a way that doesn’t expose them to a huge adjustment in contributions when utilisation returns to historic levels.”
The scheme has added extra screening benefits for 2023, to encourage more members to get checked for diseases such as bowel or breast cancer, which have a better prognosis if caught early.
Many medical schemes have reported that screening rates plummeted during the pandemic as members postponed non-emergency care, and have yet to fully recover.
Discovery Health Medical Scheme says general wellness checks are down 50%, mammograms down 15% and prostate checks 10% below prepandemic levels.
The Government Employees Medical Scheme (GEMS), which is restricted to civil servants and their dependants, is taking a different approach, putting through a below-inflation 5% contribution increase in January for its more than 2-million beneficiaries. The Treasury expects consumer price inflation to come in at 6.7% this year.
“We have considered the challenges facing our members,” said GEMS principal officer Stan Moloabi. “During Covid-19 people realised the value of [cover], but family budgets are under pressure and medical scheme contributions need to be affordable,” he said.
GEMS’s financial position is the best yet, and it is budgeting for a deficit in 2023, taking R3bn from its reserves to fund the projected shortfall between contribution income and healthcare expenditure. Its solvency level was 47% at end-2021.
Below inflation
SA’s second-biggest open scheme, Bonitas, is holding contribution increases below inflation and deferring its 5.9% hike until April 2023.
“The strategy is to pass a short-term benefit to members with the contribution freeze for quarter one, and then give them a long-term benefit with very low contribution increases,” said Bonitas technical marketing consultant Shepherd Murashiki.
“We are projecting 2023 claims will still be below prepandemic level, so we are [confident] that the scheme will not need to apply any corrective pricing for 2024,” he said.
Bonitas will draw more than R1bn from its reserves.
Damian McHugh, marketing manager of medical scheme administrator Momentum Solutions, said medical scheme trustees are constantly weighing up pricing scenarios against members’ ability to pay.
“How consumers respond to changes is key,” he said.
Medical scheme membership largely depends on employment, and many workers have been hit with below-inflation wage increases this year, which, combined with a sharp rise in the cost of living, makes steep contribution increases unpalatable, he said.
Momentum Solutions’ biggest client, Momentum, delayed its 2022 contribution increase until September and is delaying next year’s 8.5% increase until May.
Alexforbes head of technical and actuarial consulting solutions Paresh Prema said the uncertainty about how Covid-19 will play out in the next year or two has heightened the balancing act facing trustees. “They need to weigh up the need to ensure affordability with the risk of underpricing and threatening their sustainability,” he said.
Correction: October 31 2022
A previous version of this story quoted Roseanne da Silva (her maiden name) and referred to her as a health policy actuary at Discovery Health, she is in fact Roseanne Harris, the head of Discovery’s health policy unit.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.