This is a very interesting press release from Discovery Health that argues that medical scheme costs are being driven by higher claims as more ill people sign up for medical schemes than healthy people. Actuarial research estimates that if medical cover was compulsory it would reduce medical scheme premiums by around 14%. An argument for NHI?

• Discovery Health Medical Scheme’s data for the almost 2.7 million members under management strongly confirm the study’s findings that members are getting older and sicker and utilisation is the key reason that medical inflation rises faster than CPI and faster than tariffs.

• These demographic changes indicate that there is a claims inflation of between 2% – 3% each year, over and above tariff increases and any other increases which arise from changes on the supply side, such as new hospitals, new technology and procedures.

• A Lighthouse Actuarial Consulting presentation confirmed this effect to be 2.6% per year for the open medical scheme industry from 2000 onwards.

• Lighthouse Actuarial Consulting further estimates that if the open medical schemes had mandatory cover, the schemes could have lowered their costs by R13.5 billion, or 23% of all contributions, resulting in 14% lower medical scheme members’ contributions for the industry as a whole.

• These demographics serve as clear evidence that the current regulatory environment is leading to anti-selective behaviour in relation to medical scheme memberships, in that young and healthy members are able to opt out of medical schemes due to affordability, or are joining medical schemes at a later stage when their healthcare needs increase.

• Anti-selection is also seen in new medical scheme members buying lower benefit options than previously, and buying higher benefit options when they develop a serious chronic illness, cancer or require any other significant medical needs.

• Chronic disease levels are much higher amongst older ages, and differ significantly by medical scheme option. The graph below shows that by age 65, more than 60% of members suffer from chronic disease, and by ages 75 – 80, 80% of all members suffer from chronic disease.

The impact of chronic lifestyle diseases on the changing demographics of medical scheme memberships

• Discovery Health Medical Scheme members who have a chronic lifestyle disease claim on average 2.2 times the amount than those who do not have chronic lifestyle diseases.
• The top 2% of claimants in a medical scheme claim more than 25% of total costs. The scheme’s claims experience, as a result, can be very sensitive to fairly small increases in the number of critically ill members.

• Up to 60% of families who belong to the Discovery Health Medical Scheme and are on the scheme’s higher benefit plans have at least one family member who has a chronic lifestyle disease and is on the chronic disease benefit.

• Only 11% of families who belong to the lower benefit options on the Discovery Health Medical Scheme have at least one family member who is a chronic member.