The medical scheme environment is guided by rules of open enrolment and community rating. These principles on their own without the implementation of ‘mandatory membership’ generally results in anti-selection, which has the effect of driving up medical scheme contributions. Evidence suggests that this is happening in the South African medical scheme environment.
What is Open Enrolment?
A medical scheme must accept anybody who wants to become a member regardless of their age or health status.
What is Community Rating?
Everyone is charged the same contribution rate (within a medical scheme option) regardless of age or health status. So your medical aid contribution is not based on your individual health status, but on the health status of everyone in your medical scheme option.
What is Mandatory Membership?
Membership to a medical scheme is made compulsory. For example, it could be compulsory for all those formally employed to belong to a medical scheme.
What is Anti-Selection?
The principles of open enrolment and community rating without mandatory membership encourages younger and healthier members to drop out of medical schemes and defer purchase of medical scheme cover until they are older and sicker. This is because older and sicker members have to be accepted by the medical scheme (open enrolment) at standard rates (community rating), removing the incentive for younger and healthier members to join now. This behaviour of the young and healthy is known as anti-selection.
How does this affect me as a medical scheme member?
As the younger and healthier people continue to drop out of the medical scheme pool, the pool becomes older and sicker. As the pool becomes sicker, the utilisation rate of medical services increases for those remaining in the pool. This in turn increases the cost of providing healthcare to this pool, and therefore increases your medical scheme contribution rate.
In South Africa the principle of open-enrolment and community rating is enforced by the Medical Schemes Act, ensuring all medical schemes abide to these rules. As a result, all medical schemes are likely to be at risk of anti-selection. Even those schemes run by employers that mandate all employees to join as a condition of employment will be at risk, as employees are likely to add on older and sicker family members only when the need arises.
Evidence of Anti-Selection
The trend of anti-selection in the medical scheme industry is evident in the graph below. The graph shows the percentage of the South African population with medical scheme cover by age band. It is clear from the graph that percentage of children and young adults with medical scheme cover is much lower compared to older adults. The graph illustrates that as people get older (and sicker); they are more likely to have medical scheme cover.
This aricle was sponsored by Mediclinic.