Medical schemes are doing a good job in containing non-healthcare expenditure, which is mainly on administration, and the regular above-inflation increases in your contributions are largely to cover rocketing medical costs, according to the 2016 annual report of the Council for Medical Schemes (CMS), which was released last month.
According to the report, medical schemes have, on average, maintained their non-healthcare expenses within reasonable limits, even decreasing them in real terms slightly over the past few years. In other words, the increases in these expenses per beneficiary have been in line with or slightly below the Consumer Price Index inflation rate (see graph). The reason annual contribution increases are above CPI inflation is that medical inflation (increases in the cost of medicines, medical equipment and healthcare services) is several percentage points higher than general consumer inflation.
The accompanying graph shows that in 2016 the average beneficiary of a medical scheme paid just over R1 400 a month in risk contributions (this excludes amounts paid into medical savings accounts). Of that, about R1 300 covered medical claims, and about R150 (or just over 10%) went towards non-healthcare costs. Ten years previously, in 2006, non-healthcare expenses were over 17% of the average beneficiary’s monthly risk contribution (see table for funds with the highest expenditure on administration).
Medical schemes receive other revenue, mainly in the form of investment income, and they have cash reserves to fall back on if claims exceed contribution income. The percentage of annual contribution income a scheme has in reserve is known as its solvency ratio – the statutory requirement is 25%.
The CMS annual report states that for 2016 schemes’ income and expenses were as follows:
• Gross contributions increased 8.1% to R163.9 billion as at December 2016, from R151.6bn in December 2015. Risk contributions (excluding medical savings account contributions) increased 8.1% to R147.8bn from R136.7bn in 2015. Gross contributions per beneficiary per month rose 7.2% to R1 543 from R1 439 in 2015.
• Total gross healthcare expenditure incurred by schemes increased 8.9% to R151.2bn from R138.9bn in 2015. Healthcare benefits that medical schemes covered from their risk pools amounted to R135.98bn in 2016, compared with R124.54bn.
More facts and figures
The report also contained the following information about South Africa’s medical schemes:
• The total number of medical schemes registered as at the end of December 2016 was 82, down from 83, as a result of the amalgamation of LMS Medical Fund and Bonitas Medical Scheme on October 1, 2016. There were 22 open schemes and 60 restricted schemes. (Open schemes are those such Discovery and Bonitas, whose membership is open to all. Restricted schemes are restricted to specific employers, employer groups or business sectors, such as the Government Employees’ Medical Scheme.)
• The 82 medical schemes had a total subscription of 8.879 million beneficiaries (members and their dependants) at the end of last year. This was up from 8.809m in December 2015.
• The average medical scheme beneficiary in 2016 was 32.5 years of age compared with 32.3 years in 2015.
• Female beneficiaries were, on average, older than male beneficiaries: the average female beneficiary was 33.4 years of age and the average male beneficiary 31.5 years of age.
• The pensioner ratio increased slightly to 7.9%, with a general rise in the ratio for both men and women.
• The net healthcare results (contributions towards healthcare versus healthcare expenses) for all medical schemes reflected a deficit of R2.390bn in 2016 (in 2015 there was a deficit of R1.208bn). Eighteen of the 23 open schemes and 37 of the 60 restricted schemes showed net healthcare deficits for 2016.
• The solvency ratio of the industry as a whole decreased to 31.6% in 2016 from 32.6% in 2015. The solvency ratios of open medical schemes decreased, on average, by 2.1% to 28.6% in 2016 (2015: 29.2%). Restricted medical schemes had a decrease of 4.5% in their solvency ratios, to 35.8% from 37.5% in 2015. These declines in solvency ratios mean schemes had to delve into their cash reserves to fund higher expenses.
All medical schemes are obliged by law to cover a range of life-threatening conditions from their risk pools, and these are known as the prescribed minimum benefits (PMBs).
Expenditure by schemes on PMBs amounted to R73.1bn in 2016, which was 54% of the total risk benefits paid by schemes in 2016 (R136bn). In 2015, PMBs constituted 51% of total risk benefits paid.