The Council for Medical Schemes (CMS) has warned that the rising costs of medical schemes were threatening the long-term sustainability of the industry because consumers were struggling to afford the high membership fee increases.
This came after half of the 85 medical schemes evaluated by the CMS implemented tariff increases greater than what it advised based on consumer price index (CPI) expectations.
The cost increases projected by the medical schemes, on which they based their annual contribution fees, were before the medical schemes’ utilisation and demographic profile changes were factored in.
Utilisation indicates the frequency at which benefits are used while demographic profiles reflect the age and health status of a scheme’s member population.
The registrar of medical schemes had advised that this year’s tariff increases be capped at 6 percent. But when the council analysed schemes’ costs, tariff increase assumptions were on average 1 percentage point above the maximum tariff increase assumptions the CMS had advised.
Although the average assumed increase for benefits such as private hospital wards and operating theatres were only 1 percentage point and 1.1 percentage points higher than the CMS’s advised tariff increase assumptions, respectively, most schemes assumed bigger increases for most in-hospital items.
For instance, the average cost increase for in-hospital managed care was estimated at 4.3 percent but a quarter of the schemes analysed made an increase provision of 7.3 percent or more. Assumed out-of-hospital managed care increases were 5.6 percent on average but 75 percent of schemes set an increase of 7 percent.
The only tariff increases that were consistent with those advised by the CMS were for professional services, which averaged 6 percent. But half the schemes assumed that this increase would be greater than 6.5 percent for specialists and at least 7.6 percent for allied health professionals such as chiropractic and homeopathy practitioners.
“This is concerning as 50 percent of schemes’ tariff increase assumptions are greater than those advised in Circular 29 and prevailing CPI levels. This is exacerbated by the impact of utilisation and demographic effects,” CMS registrar and chief executive Monwabisi Gantsho noted.
The CMS requires each scheme to present its pricing assumptions and final contribution rates during the third quarter of any given year in order to assess and approve the scheme’s planning for the future.
Johan Lombard, the actuarial marketing specialist at Momentum Health, said the assumptions were presented to the council a few months before negotiations with service providers were finalised and therefore forced schemes to use estimates of what these would yield for the coming year.
“The assumptions need to be based on what is expected to come from the negotiations, but also what is expected to happen in terms of benefit utilisation in the coming year,” he said.
The increases set by all medical schemes for this year averaged 9.6 percent. Utilisation rates and demographic changes contributed 2.8 percentage points of this.
The country’s biggest open medical scheme, Discovery Health, said that, since some of the service provider tariff negotiations might not be concluded by the time it submitted contribution increases for its plans, one might expect some variation between actual and expected costs.
“This variation, along with the variation in other assumptions regarding benefit utilisation and demographic influences, will contribute towards the net operating result of the scheme, which ultimately reflects the actual experience for the scheme at the conclusion of the benefit year,” the company said.
It also pointed out that its assumptions were largely in line with the advised assumptions of the CMS.
The Treasury’s projected increase in headline CPI for 2012/13 was 5.5 percent and Statistics SA put consumer inflation in December last year at 5.7 percent.
However, members of 74 medical schemes representing 87.1 percent of medical aid beneficiaries have experienced increases greater than December’s inflation rate and 24.7 percent bore increases of more than 10 percent. Only 11 schemes increased their contributions by 5.7 percent or less.