SA’s medical schemes regulator has advised the industry to keep 2024 contribution increases as close as possible to the inflation rate, which the Reserve Bank estimates will be 5% in 2024.
It warned that higher-than-inflation increases would add to the financial stress facing households and would risk making membership unaffordable for current beneficiaries.
SA’s medical scheme market has remained stagnant for the best part of a decade, hovering just shy of 9-million beneficiaries.
With the exception of the past two years, medical schemes have consistently pegged their annual contribution increases several percentage points higher than the consumer price index (CPI). The Covid-19 pandemic saw an unexpected drop in claims, leading to an accumulation of reserves that enabled below-CPI contribution increases in 2021 and 2022. Now that claiming patterns have normalised in the wake of the pandemic, schemes are expected to motivate for higher contribution increases.
The Council for Medical Schemes (CMS) publishes annual industry guidance before it considers medical schemes’ proposals for changes to benefits and premiums for the upcoming year. In a media briefing on Tuesday, the CMS said schemes had in the past overestimated their projected cost increases due to demographic changes and increased utilisation, and urged them to be more conservative going forward.
It previously noted that schemes had seen a marked drop in utilisation during the Covid-19 pandemic. “While emerging trends point towards a ... return to the prepandemic health-seeking behaviour, there is still a high degree of uncertainty about post-Covid utilisation trends. Medical schemes must therefore assume reasonable utilisation estimates for 2024 based on historical utilisation data [before the] pandemic,” it said.
Cost increases
Its cost increase assumptions analysis for 2023 showed the combination of demographic and utilisation changes were projected to add 3.2 percentage points to the total cost increases for medical schemes.
SA’s biggest medical scheme administrator, Discovery Health, said tariff estimation was particularly challenging in 2023 because underlying CPI was volatile and hard to predict. “Consensus among SA economists estimates CPI in 2023 at 6% and in 2024 at 5%. These estimates vary widely and have not proven accurate through the recent volatility, though do offer some guidance,” said Discovery Health CEO Ryan Noach. Discovery Health has 18 client medical schemes, including Discovery Health Medical Scheme (DHMS).
“We maintain the guidance that medical inflation in SA will continue to track at 3-5 percentage points above CPI and expect that scheme contribution increases will be in this realm, in order to ensure that scheme contributions remain correctly matched to claims,” Noach said.
Data analytics
The CMS has for many years provided benchmark guidance to the industry, but accepts that schemes motivate from their own data analytics and actuarial evaluations for their final contribution increase per scheme, he said. “In many cases, these have been different due to utilisation factors ... This will be the case again this year,” he said.
While the pandemic has eased, Covid-19 remained a significant cost driver for medical schemes. “The costs of diagnosing, mitigating and treating Covid-19 amount to 1.5% of total healthcare costs for DHMS in 2023. It is significant that this new disease has driven medical inflation by at least 1.5% in 2023, relative to the pre-Covid period,” he said.
The CMS said schemes will no longer be permitted to defer contribution increases beyond January unless there are exceptional circumstances, as it is confusing for consumers and makes it difficult for them to compare rival medical scheme offerings.
Many schemes accumulated extensive reserves during the pandemic, as Covid-related claims were more than offset by a decline in claims for other conditions. Patients stayed away from health facilities for fear of infection, and many medical scheme members deferred non-urgent tests and elective procedures. Medical schemes used their accumulated reserves to reduce annual contribution increases in 2021 and 2022, with some schemes opting to defer their usual January price hike to later in the year.
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