Creative solutions are key to the survival of the fittest medical schemes
In the current high inflation environment, where fuel prices and unemployment statistics are at record levels, South Africans are looking for alternative ways of funding their access to private healthcare – and medical schemes need to plan now if they’re to ensure future relevance and sustainability.
With inflation exceeding the higher end of Treasury’s targeted range, consumers are under more pressure than ever, and while medical schemes have responded to COVID-19 conditions with delayed or lower contribution increases, the fact remains that pre-COVID 19 average annual medical scheme contribution increases always exceeded headline CPI.
Medical schemes also must adapt to cover the costs of new technology, prescribed minimum benefits (PMBs) – examples include meningitis, appendicitis, limb amputations and HIV; fraudulent claims, and the requirement to hold 25% of contributions in reserves from day one of a new member joining the medical scheme as well as other drains on their reserves.
Even though younger consumers are unsure of which medical scheme and/or plan option to choose – if indeed they want to join a medical scheme at all – they’re often unsure of whether they need gap cover or not, whether to opt for a medical insurance product, or to rely on public healthcare.
This quest for different ways of funding one’s healthcare needs in South Africa adds to the pressure on medical schemes themselves. For example, as young people turn to more cost-effective solutions (at least in the short term) like hospital plan options or pre-paid healthcare, the pensioner ratio for open medical schemes increased from 7% in 2013 to almost 9% in 2020. South Africa’s very high youth unemployment rate also means that medical scheme coverage is out of reach for most young people. This directly impacts medical schemes’ pricing as this growing group of older members use more benefits than what they contribute towards medical schemes.
Similarly, the average age of beneficiaries in open medical schemes increased from 33.5 years in 2013 to 35.9 years in 2021, while medical schemes’ total membership has remained more or less consistent since 2013. In fact, according to the latest Council for Medical Scheme’s reports, open medical scheme membership reached a high point in 2018, before declining in 2019 and 2020, increasing slightly in 2021.
A smaller portion of younger members means that fewer people are contributing to the cross-subsidisation of older and less healthy members. Medical schemes need to find ways to attract more younger members to protect their members’ interest, but also to guarantee their long-term sustainability. The South African healthcare system and global healthcare systems have come under additional pressures post COVID-19, and should the present trends continue, healthcare systems will be heading for an even greater affordability crisis in the coming decades.
Younger people who choose alternate solutions and only consider joining a medical scheme when they hit their late 30s or 40s face being penalised with loaded contributions when they do eventually join a medical scheme.
Employers are also caught in a difficult predicament: if they’re to manage productivity and count on their employees being able to take care of their own health, employers are more and more considering subsidising or fully paying for medical scheme cover or low-cost healthcare options for low-income earners. This is centred once again around the fact that the high cost of healthcare deters staff from opting in to begin with. It is for these reasons that employers are considering subsidising low-cost options such as primary care, health insurance and even pre-paid healthcare to mitigate this risk.
They also feel compelled to make this a part of employees’ cost to company, when many of those employees would prefer to have the money rather than the cover, either because they’re willing to use public healthcare services, or because they believe they’re at low risk of needing broader cover”.
It’s also an incontrovertible truth that nobody wants to be faced with the choice between slow, substandard healthcare or crippling lifelong debt, when they really need the best care available in an emergency, or in the face of a life-threatening illness.
“It’s time for South Africans to consider – if not demand – hybrid healthcare solutions,” says Fazlin Swanepoel, Managing Director: Employee Benefits at ASI Financial Services, a Level 1 B-BBEE rated independent advisory firm.
“There’s no doubt that medical schemes are already unaffordable – but the need for quality primary, chronic, and emergency healthcare will not go away any time soon – not even if and when NHI rolls out. Everyone in the industry needs to be more creative in finding a solution that more people can afford,” she adds.
“Despite planned changes in public sector healthcare, the private sector is counting on an evolved medical insurance solution. Meantime, regular South Africans are faced with very few real choices that respond to their needs while they wait for the sector to evolve,” Swanepoel adds.
There’s no clear single ‘silver bullet’ solution at present, although market forces are coming into play with the emergence of various insurance products, gap cover, low-income medical schemes, and telemedicine solutions.
“Medical cover was never a simple thing to navigate, for employers or individuals,” Swanepoel says. “As the industry evolves over time, anyone who is making decisions about healthcare cover of any kind is going to need the advice of an independent expert, who has the knowledge and insight to balance peoples’ needs and means, and what their employers are able and willing to offer.