Covid-19

During the various Covid-19 waves, medical schemes have experienced a reduction in claims for trauma events (emergencies) and planned non-emergency procedures. These reduced claims experiences led to medical schemes building up larger financial reserves.

The Discovery Medical Scheme data indicates that those who were hospitalised due to Covid-19 infection, have a 3.5 times chance of developing cardiac related disease and 5 times chance of developing diabetes. This means that there may be an increased cost of treatment post Covid-19 infections, and this poses a concern for both medical scheme members and the schemes themselves.

Medical inflation, built-up reserves & contribution increases

Medical inflation and medical scheme contribution increases have always been approximately 3-4% above consumer price inflation. However, over the last two years, medical schemes have adopted different contribution pricing strategies:

1. Taking overall healthcare systemic inflation into account, or
2. Taking mainly recent claims experience into account.

When taking systemic inflation into account, medical schemes use their built-up reserves to defer premium increases (e.g., Discovery Health Medical Scheme and Momentum Medical Scheme), but still base their future increases on the industry’s medical inflation.

When taking recent claims experience into account, medical schemes use their built-up reserves to supplement premium increases and pass through a lower premium increase to their members (e.g., Bestmed Medical Scheme and Bonitas Medical Fund) and not based on the industry’s medical inflation.

Momentum Medical Scheme says that “there is a chance that even in 2023, the scheme may delay contribution increases again and observe emerging trends before deciding where it should pitch its premiums”.

Future contribution increases

As medical scheme members’ claiming patterns return to, and even exceed pre Covid-19 pandemic levels, medical schemes will have to adjust their contributions to match this increase in claims. They will also have to maintain their reserve levels to 25% of gross annual contributions, as per The Medical Schemes Act (131 of 1998). It may mean that those medical schemes who passed through a low contribution increase over the last two years, may have to have steeper contribution increases in the upcoming years to account for gap between previous low increases and increased claim patterns.

The Council for Medical Schemes, who is the regulator of medical schemes stated in their Circular 42 of 2021 that “…The average contribution increase rate of 7.6 % for 2020, is 4.6% higher than the average CPI of 3.0%. CMS remains concerned about this trend, as this places an undue financial burden on members of medical schemes and further serves as a barrier to entry for potential new members. The high increase differential between medical scheme contributions increase rate and CPI, poses a serious affordability challenge for members, especially in the current and post COVID-19 economy, where annual salary adjustments are unlikely to keep pace with medical schemes contribution”.

With consumer price inflation trending upwards, we as consumers can ill-afford medical scheme contribution shocks and I am hopeful that the medical schemes will be very measured in their approach.