Some of South Africa's biggest medical schemes have announced significant fee hikes for 2017. These increases are a clear sign of the challenges that the medical scheme industry is facing. Even more worrying is that the contribution increases will be accompanied by a reduction in benefits, which means that medical scheme members will be paying more for less.

Jeremy Yatt, Fedhealth's principal officer, says medical schemes are under more pressure than ever. “Unlike other types of insurance, medical schemes derive no benefit from higher fees, because there are no shareholders, dividends or bonuses to be paid out,” he says. “Rather, it's an indication that the current medical scheme model in South Africa is deeply flawed.”


Yatt says a combination of factors is making medical schemes unaffordable. These factors are:

1. Insurance costs for medical practitioners are rising. The cost of medical malpractice insurance is sky-high for practitioners in fields such as gynaecology and neurology. Yatt says that, as South Africa becomes an increasingly litigious society, the number of malpractice and negligence suits is on the rise. The high cost of insurance ultimately results in higher contributions for scheme members.


2. An increasing number of people are having medical procedures. Related to the rising cost of insurance, Yatt says that in South Africa doctors practise a fairly conservative kind of medicine where they're often quick to operate in order to avoid potential medical claims. In addition, the current socio-economic climate means more elective procedures and medical illnesses. All these factors, he says, make it more expensive for members to belong to schemes.


3. The government isn't on board. If state hospitals were better, Yatt says medical scheme members would use these facilities, which would cost schemes less - and so there would be less supplier-induced demand. He also says the country cannot afford the planned National Health Insurance system as it is currently proposed.


4. The healthcare system isn't inclusive. In countries such as the United States and India, doctors are salaried employees of a medical centre, which charges one overall fee for a procedure. In contrast, in South Africa the cost of an operation is harder to estimate, because the different components, such as the ward and theatre, anaesthetist, consulting doctor and surgeon, charge separately. It's difficult for medical schemes to negotiate lower costs with a number of different role-players.


5. Legislation makes it difficult for schemes to manage members' behaviour. Medical schemes aren't allowed to reward or penalise members based on their claims behaviour - for example, they can't lower a member's contributions if he or she doesn't claim for a certain number of years, and they can't raise them if the member claims often, as car insurers do. As a result, there's no incentive for members to take responsibility for their health.


So, what can be done to solve these problems?


1. The government should get involved

The government should be more involved in the medical industry by, for example, capping the fees charged by healthcare providers, which would alleviate some of the cost pressure on schemes. Yatt says the government could also introduce tiered compulsory enrolment, which would make it mandatory for young people who earn above a certain amount to contribute to a medical scheme. The burden of disease affects the government in terms of lost productivity and higher healthcare expenditure, among other things, so Yatt says it's in the government's interest to introduce reforms.


2. Long-term health needs to be a priority

People should be encouraged to look after their health, which would help to relieve the pressure on medical schemes. For example, obesity, which is steadily increasing in South Africa, is associated with a host of medical costs, such as chronic medication, operations to relieve joint problems, and an increased chance of heart attacks and strokes - all of which ultimately affect contributions.


3. We need to work together

Yatt says all role-players, including doctors, hospital groups, medical schemes and the government should work together to change consumer behaviour when it comes to health care and medical schemes. Yatt says healthcare providers and schemes want to provide a good service to members, and be remunerated properly. Instead of schemes competing with each other by chasing a small pool of members, they should work together to fulfil their obligations to members, while remaining sustainable.

Yatt says although further consolidation of medical schemes may take place in future, this won't solve the problem of rising costs, contrary to popular opinion. Unless the government and other role-players, including members, start working together to tackle the legislative environment and cost drivers, the cost of medical scheme cover will continue to rise above headline inflation, making this cover even more of a grudge purchase than it is.

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