Is your medical scheme healthy?

A lack of young, healthy members is driving up medical scheme costs.

medical schemeThe increases announced by medical schemes for 2016 ranged from around 8.6% to as high as 15%. If your medical scheme announced increases well above the market, it could suggest that the scheme, or its members, are not as healthy as they could be.

Paresh Prema, head of benefits management for the Council for Medical Schemes (CMS) explains that the two main drivers behind medical scheme increases are medical inflation and the claims experience of the scheme.

Medical schemes are non-profit organisations – they have to match premium collection to the amount paid out in claims, while retaining at least 25% of premiums as a reserve (known as the solvency ratio) to protect against unexpected large claims.

If a fund had a bad claims experience during 2015, resulting in higher claims than expected, the scheme may have had to draw down on their reserve. That means the following year they would need to adjust their premiums both to account for a higher claims experience as well as replenish any reserves used in the previous year.

Prema says the Council of Medical Schemes studies the price increases along with the motivation for the increases to ensure that they are fair to the members. This process also ensures that members’ benefits are also not reduced in order to maintain lower increases.

Low-cost benefit option
In recognition of the affordability issue for many South Africans, the Council of Medical Schemes announced the intention to introduce a Low-cost benefit option (LCBO) which will hopefully become available some time this year. The details were released last year but are being revised after comment from the industry. The aim is to provide affordable cover for individuals earning less than R60 000 a year – this represents around 7-9 million South Africans.

“We need to ensure that the increase that is being applied for will make the scheme sustainable for the following year and that they have sufficient money to pay for claims,” says Prema.

Understand the age profile of your medical scheme

A rising claims experience is bad news for a medical scheme and its members. This often indicates that the scheme has an aging membership – older people claim more. So if you are worried about future price increases, then you need to understand the age profile of your fund. This information can be found in the annual report of the Council of Medical Schemes, but what is concerning is that apart from Discovery Health and Momentum Health, most medical schemes are experiencing an aging membership as they struggle to attract new, young and healthy members.

Both Momentum Health and Discovery Health managed to keep their average increase across the range of scheme options to around 8.6% while Fedhealth announced an average increase of 9.9% and Liberty Health’s average increase came in at 10.5%. Bonitas Medical Fund announced an increase of 10.9% across all its options and noted that expenditure on claims continues to increase at a rate of more than 11%.

These increases are an average across the options, and different options within the scheme will experience different rate increases ‒ typically comprehensive options will experience higher increases as they have a higher claims ratio.

The dilemma that faces the medical scheme industry is that unless the industry can attract new, younger and healthier members, the cost of medical cover will continue to increase, yet as the costs rise, so it becomes more unaffordable for those younger members they are hoping to attract.

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