The lower-than-average medical scheme premium increases that members enjoyed in 2021 and 2022 are largely over.

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During the Covid-19 pandemic, medical schemes saw a decline in claims as members deferred elective procedures or were reluctant to seek medical treatment for non-Covid-related health issues.

This meant that medical schemes were running surpluses. In other words, the value of claims was less than the premium income collected. Many schemes used these surpluses to either defer premium increases or apply below-inflation increases, and to boost member benefits.

“The reduction in claims experienced during the Covid-19 pandemic, alongside a desire to maintain affordability for members in a low-inflation environment, saw many schemes defer their 2022 increases, with the biggest open medical scheme – Discovery – originally deferring its increase from January to May 2022, and then again until October,” explains Jill Larkan, head of Healthcare Consulting at financial advisory firm GTC.

According to Discovery Health, “the scheme’s excess solvency has been used to the benefit of members, with R6.8 billion achieved in contribution savings during 2020 and 2021 through the deferred increases. This also achieved effective annual contribution increases that were 50 basis points below the market over these two years.”

Bonitas Medical Scheme says that by applying very low contribution increases since December 2020, the Scheme has effectively passed R1.4 billion in savings back to members.

According to the Council for Medical Schemes (CMS), 2021 was the first time in over a decade that the industry implemented contribution increases below the official Consumer Price Index (CPI).

In previous years, medical scheme premium increases have typically exceeded inflation (CPI) by around four percentage points, and Larkan says that with a “return to normal” many schemes have announced increases above inflation.

The good news, however, is that the schemes that had deferred their 2022 increases to April or October 2022, have once again announced a deferment of increases to April 2023, providing some relief to members’ pockets.

However, Larkan says this is likely to be the last time that schemes will defer and that 2024 will most likely see medical scheme premium increases being implemented in January.

Cost push factors

One of the reasons for the “back to normal” increases has been a rise in claims.

“Medical inflation continues to increase, and we expect this will be on a greater scale in 2023,” explains Damian McHugh, Executive at Momentum Health Solutions who adds that the scheme has noticed an upward trend in terms of in-hospital events. “Coupled with this we have seen the costs of these treatments increase, mostly in line with medical inflation, which is 3-4% above CPI.”

According to Discovery Medical Scheme, hospital admissions have almost entirely returned to pre-Covid-19 levels.

“While hospital admissions for Covid-19 have declined with the rollout of vaccinations and the lower severities of Covid-19 waves, hospital admissions not related to Covid-19 (including elective surgeries) have been returning to 2019 levels,” says Deon Kotze, Head of Research & Development at Discovery Health.

Leo Dlamini, Principal Officer at Bestmed Medical Scheme says they have seen a significant increase in the value of claims by members in the second half of the year, specifically around hospitalisations.

“On investigation we determined that it is not necessarily because more members are being admitted to hospital, but that the average cost per admission has increased significantly.”

Dlamini says that these higher claims have impacted the claims ratio of the scheme, resulting in higher premium increases for 2023.

Age plays a significant role in the claims experience of a scheme. Dlamini says that for every year the scheme members’ average age increases, a member’s claims increase by around 1.5% to 3%. This means that if the average age of the beneficiaries of a scheme increases by just one year, for example from an average age of 37 to 38 years old, claims could increase by around 3%. Add this to rising medical costs, and an aging scheme could soon find itself in financial difficulty.

This was the experience of medical scheme Health Squared which was recently put under curatorship.

The CMS pinpointed its high proportion of elderly members as the reason for its financial woes. Its pensioner ratio was 25.9%, which is substantially higher than the industry average of 11% for open schemes in 2021.

A knock-on effect of this is higher hospital admission rates and higher costs when individuals are admitted.

Many schemes would have registered members from Health Squared which will impact on the average age of the scheme. Dlamini says, for example, the average age of the members that have applied to Bestmed from Health Squared is around 60 years old.

Schemes which can attract younger members are able to contain their premium increases. Bonitas announced that it had increased its membership by 190 000 new members and that the average age of the new members is around 15 years younger than the current membership.

Medical scheme premium increases for 2023

While Discovery confirmed a 7.9% increase in October 2022, they announced that they will be deferring their 2023 increase to April. The scheme has not formally announced its 2023 increase, but says it will “be in line with medical inflation which is typically 3% to 4% above CPI, though members will experience a real annual increase of between CPI and CPI + 2%, considering the deferral”. Depending on the inflation rate in 2023, members could experience a double-digit increase in April 2023.

Momentum Medical Scheme announced a 6.4% annual effective contribution increase in the market, without reducing benefits. The deferred increase comes into effect on 1 April 2023.

Medshield announced a 6.7% increase from January 2023 along with Fedhealth which will be increasing its average rate by 8.8%.

Bonitas Medical Fund have introduced a three-month price freeze on contributions, meaning increases will only come into effect from 1 April 2023. The increase in April will be an average of 5.9% across its plans, but with the deferment it comes out to an average increase of 4.8% for 2023 with a 0% increase on Bonstart.

This article first appeared in City Press.