Why medical aid rates increase… And what it means for you
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As medical scheme members prepare for 2022’s annual rate increases, several factors are at play. What are those factors, and how will the increases affect the average South African family?
Alexia Graham, Director of Hippo Advisory Services, says that medical aids base their rate increases on a combination of the expected and the unexpected. Inflation, for example, is an expected factor, with the SARB pegging the consumer price index (CPI) at 5.0%. But the events of 2020 and 2021 have severely disrupted the medical industry, making it more important than ever for members to regularly compare schemes and products side by side using unbiased comparison platforms like Hippo.co.za.
“The private healthcare industry in South Africa has experienced pressure over the past few years because of factors including the regulatory environment, the state of the economy and the impact of the Covid-19 pandemic,” says Graham. “Medical schemes that demonstrate net growth, stable reserves and good governance are better prepared for volatility in claims experience.
“The sustainability of a medical scheme is largely dependent on its ability to grow membership with young, healthy lives,” explains Graham. “Schemes are also required by the Council for Medical Schemes to achieve minimum solvency levels of 25%, which is challenging in highly regulated environments that are exposed to uncontrollable factors.”
It’s precisely these uncontrollable factors that are driving 2022’s rates increase. “The potential implementation of the NHI as a competitor to private sector healthcare in the future may also place smaller schemes under pressure of long-term survival, which could result in industry consolidation,” Graham adds. “However, this may take time to have an effect.”
Yet the biggest uncontrollable is Covid-19.
“The pandemic is a perfect example of an unexpected, unavoidable crisis impacting the healthcare industry and the risk management, access to appropriate care, and benefit structuring of medical aid schemes,” Graham says. “The annual price increase of a medical aid product is influenced by the claims experience of the membership on that product and the anticipated expenditure for the forthcoming benefit year.”
The pandemic is challenging schemes to manage its associated treatment costs, as well as to prepare for the impact of related comorbidities and Covid-19’s lingering effects. “Although we saw a sharp escalation in the cost of a Covid hospital admission compared to a standard hospital admission over the course of the pandemic, schemes experienced a reduction in standard admissions because of the postponement of planned procedures,” says Graham. “The resultant unexpected claims dynamic that comes with each wave creates a pricing challenge for all medical aid schemes. Members are experiencing changes in the way medical aids usually manage their annual adjustments, with schemes deferring their rate increases to later in the year. Although this may bring temporary relief, a price increase is inevitable.”
For medical schemes, these challenges are compounded by the need to remain competitive, which is why some have introduced new product options aimed at younger, healthier families.
What does all of this mean for South African consumers? This table shows the costs of premiums for single members and for small families (member plus adult dependant plus child) in the entry-level offerings of five leading South African open-market medical schemes.
As Graham points out, those numbers highlight the importance of regularly comparing medical scheme products to ensure you’re still getting the best deal for your needs. She says that the playing field has changed: “Given the state of flux of the market and the inconsistency in the timing of increases across the industry, it’s important to remember that we bank rands not percentages, so it’s critically important to compare like for like when it comes to products and prices,” she says.