Medical schemes pass their pain on to you
Medical schemes are announcing steep contribution increases for next year – averaging about 10 percent, but on some options as high as 17 percent – as a result of a huge increase in claims for medical services this year (see Health cover will cost up to 17% more).
While the regulator of medical schemes, the Council for Medical Schemes, said at a briefing yesterday that there was a marked increase in claims between last year and this year, some of the trends that result in schemes making operating losses and running down their reserves were already evident last year, according to the latest annual report from the Council for Medical Schemes, released this week.
Last year, schemes were already experiencing higher claims, a higher proportion of older, sicker members and an increasing prevalence of chronic illnesses.
The council’s annual report notes that, on average, members faced annual contribution increases of 8.8 percent from 2014 to 2015. The average for open schemes was higher at nine percent, while the average for restricted schemes (for employee groups) was 8.6 percent.
The increase in contributions from this year to next is likely to be significantly higher.
The council’s annual report also notes that for the 15 years to 2015, contribution increases have averaged almost four percentage points above inflation, which is leading to scheme membership becoming increasingly unaffordable.
The report gives the following insights into why the increases you are facing for next year are again so much higher than inflation, which is 5.9 percent.
CLAIMS ARE UP
The claims we submit to our medical schemes increased by 8.9 percent from R127.6 billion in 2014 to R138.9 billion in 2015.
When claims are calculated as an average claim per beneficiary (members and their dependants) per month, they are up by nine percent, from R1 210 in 2014 to R1 319 last year.
The report also shows that our claims against our medical savings accounts increased by 13.4 percent over the amount spent in 2014: from R116.90 per beneficiary per month to R155 per beneficiary per month.
In addition, the contributions we make to medical savings accounts increased by, on average, 12.1 percent across all schemes.
The report says these increases suggest that schemes have changed benefit options so that a greater proportion of benefits now need to be funded from medical savings accounts.
The report also notes a sharp increase in the ratio of claims paid relative to the contributions schemes collect. The ratio has risen from about 86 or 87 percent over the four years to 2013 to over 90 percent over the past two years. If schemes’ administration costs, broker fees, bad debts and other non-healthcare expenses amount to more than 10 percent, schemes will begin to deplete their reserves, and will typically increase your contributions.
The largest proportion of claims paid is for hospital expenses. The amount paid to private hospitals increased 9.36 percent, from R46.8 billion in 2014 to R51.1 billion last year.
SCHEME MEMBERS ARE GETTING OLDER
The average age of beneficiaries increased from 32.1 to 32.3 years between 2014 and 2015. This may not seem like a lot, but claims rise as the average age of beneficiaries increases, and schemes face these increases each year.
The regulator’s annual report shows the change in beneficiary numbers in different age groups between 2005 and 2015. There were fewer beneficiaries in the younger age bands last year than in 2005 and more in the older age bands.The report notes that the shift towards older age groups is more pronounced in open medical schemes and has a “significant impact” on claims.
Schemes are also facing the costs of funding the claims of an increasing proportion of pensioner members. The number of pensioners on medical schemes increased from 7.1 percent of all lives covered in 2013, to 7.3 percent in 2014, to 7.7 percent in 2015.
In the report, the acting registrar of medical schemes, Daniel Lehutjo, says that the impact of members using more benefits and the lives covered getting older accounts for 3.05 percentage points of the annual increase in contributions.
WE ARE GETTING SICKER
The Council for Medical Schemes annual report for 2015/16 reports on a study it conducted last year on changes in the prevalence of chronic illnesses among medical scheme members and their dependants. It found a “sustained upward trend in diagnosis and treatment of many conditions on the chronic disease list”. These are the common chronic illnesses that fall under the prescribed minimum benefits (PMBs). Schemes are obliged by law to pay for the diagnosis, treatment and care of PMB conditions.
The council says the increase in the prevalence of these illnesses is partly a result of schemes collecting better data and members being more aware of their right to claim for these conditions, but also caused by members getting older and sicker.
THE NUMBER OF LIVES COVERED IS DOWN
The number of lives covered by medical schemes declined slightly from 8.814 million in 2014 to 8.809 million (a 0.06-percent decline) last year. Although the decline seems small, it is the first since 2004, and if the trend continues, it could cause higher contribution increases.
A lot of membership growth since 2006 has been a result of the Government Employees Medical Scheme (Gems), which launched that year. The annual report notes that the number of members and dependants on the scheme decreased by 3.6 percent, from 1 837 809 in 2014 to 1 771 786 at the end of last year.
If schemes do not grow their membership, members just get older and sicker and claim more benefits. Schemes need young and healthy members to subsidise the costs of older, sicker members.
PMB COSTS ARE UP
The cost to schemes of paying for the PMBs has risen significantly, the annual report shows.
The average cost of providing the PMBs to members across all schemes rose 9.4 percent from R556 per beneficiary per month in 2014 to R608 per month in 2015.
The cost of providing the PMBs has a significant impact on the cost of claims the scheme faces, as PMBs account for 51 percent of all claims. Increases in claims, in turn, affect your contributions. The cost across schemes ranges from R200 per beneficiary per month to R1 200 per beneficiary per month, but it generally costs schemes more to provide the PMBs to members over the age of 45.
A worrying trend identified in the report is that the number of members and dependants over this age increased by almost 39 000, while the number of members and dependants under the age of 45 declined by about 45 000 between 2014 and 2015. This unfavourable change in the profile of scheme beneficiaries has contributed to the escalation in what schemes spend on PMBs, the report says.
The report notes that open schemes tend to have lower PMB costs, with only 25 percent of them having PMB costs within the top quartile when schemes PMB costs are ranked from highest to lowest.
The PMBs cover all medical emergencies, 270 conditions that if left untreated could be life threatening and 25 common chronic conditions. Schemes must pay the costs in full unless you fail to use a designated service provider appointed by the scheme (except in certain cases, such as emergencies).
OPERATING LOSSES ARE UP
In the face of claims increasing by more than contribution income, schemes predictably made operating losses totalling R1.2 billion last year. This is almost three times higher than their operating losses in 2014 (R456 million).
Fortunately, many schemes have good reserve levels (money set aside for times when schemes face high claims) and their investment income resulted in them making a net surplus of R2.5 billion at the end of last year, the council’s annual report shows.
The report also shows that, of the 276 benefit options, 150 (or 54.7 percent) made operating losses last year. Schemes are required by law to ensure that each option is financially viable – contributions collected must cover the claims and non-healthcare costs.
SOLVENCY RATIOS ARE DOWN
Schemes are required by law to hold reserves equal to 25 percent of the contributions they collect, which is known as their solvency ratio.
On average, schemes had solvency ratios of 33.2 percent at the end of 2014 and by the end of last year this had declined by 1.8 percentage points to 32.6 percent. This is still on average above the required level of 25 percent, but schemes need to ensure reserves are maintained.
Seven schemes have reserves below the required solvency ratio and are under monitoring by the Council for Medical Schemes, its annual report notes.
If you are a member of one of these schemes, you can expect higher increases aimed at building the reserves to the legally required limit. The seven schemes are: Liberty Medical Scheme, Thebemed, Community Medical Aid Scheme, Platinum Health, Resolution Health Medical Scheme, Gems and Transmed Medical Fund.
The solvency ratio of Gems, the country’s second largest medical scheme, declined from 10 percent at the end of 2015 to 9.5 percent at the end of last year.
The solvency ratio of Transmed declined dramatically from 22 percent in 2014 to 14.1 percent at the end of last year.