Medical Scheme Industry

It has not been business as usual in the private healthcare sector in the last three years. There has been uncertainty brought on by the impact of COVID-19, manifesting itself through various factors such as change in benefit utilisation which resulted in an increase to the medical scheme reserves, the opposite of the anticipated impact of the virus.

The industry continues to face the challenge of the constant increase in medical inflation and a stagnant membership base.

Medical Scheme Premiums

We have witnessed medical schemes navigate these changes by adapting their contribution strategies. The Council for Medical Schemes (CMS) issued a directive in the height of the COVID-19 pandemic – encouraging schemes to implement below-inflation premium increases. This resulted in many medical schemes introducing mid-year premium increases or below inflationary increases to bring much-needed relief to existing medical scheme members during a challenging financial period.

However, this may soon be coming to an end as most schemes have indicated a return to the usual annual premium increases that will be implemented at the beginning of the 2024 medical scheme benefit year. This is mainly driven by the claims returning to pre-COVID levels and the medical inflation continuing to increase year on year. Schemes also continue to assess the potential impact of the decrease in yearly health checks and the postponed planned procedures during the 2020/2021 benefit years and what effect that will have on the schemes in the future.

Most medical schemes remain cautious in dipping into the excess reserves even though they are above the regulated 25% solvency ratio to extend the deferment of premium increases. Schemes should be aiming to avoid price shocks in the coming years which could result from sustained lower premium increases that largely deviate from medical inflation.

Benefit Enhancements

We have seen some of the top five medical schemes implementing notable benefit changes, such as Bonitas – enhancing and restructuring their day-to-day benefit on their existing options by significantly increasing the Overall Annual Limit and introducing sub-limits that align with member claiming patterns.

Discovery Health Medical Scheme introduced a once-off benefit accessible to all their medical scheme members, called the WELLTH Fund, enhancing their preventative screening benefit; this was as a result of the scheme experiencing a decline in the number of screenings and seeing early warning signs of missed opportunities to pick up early health risks. The introduction of this benefit can be viewed as a nod to consumers who often express concern over the lack of scheme-funded benefits for preventative/ diagnostic treatment in relation to ‘cure’ benefits.

Introduction of New Medical Scheme Plans

In addition to the above, the industry still needs to resolve the stagnant membership growth. The average age of open medical scheme membership increased by approximately 1.5 years. This can be attributed to hesitancy in the younger South African population to purchase medical scheme cover as they find the entry-level cost of medical scheme options too high compared to entry-level salaries and corresponding affordability. Younger consumers tend to opt for cheaper health insurance, or no private cover at all, considering comprehensive medical scheme cover as not a priority.

Medical schemes are challenged to design benefit options that will appeal to this demographic. In the last three years, there has been an emergence of network-based low-cost medical scheme options that cover in-hospitalisation claims as well as a defined list of out-of-hospital medical claim expenses, examples of these options are the Bonitas – BonStart, Discovery Health – Smart range, and recently Fedhealth launched the flexiFED Savvy option. It remains to be seen if this will encourage the desired target market to enter the medical scheme environment.

Healthcare Sector Developments

The National Health Insurance (NHI) which has been publicised as the healthcare cover model that will turn the tide, has had no significant progress in implementation by the Department of Health in the last two years as there have been challenges identified, such as the funding model, lack of feasibility studies and lack of capacity. The Deputy-General of the NHI, Michael Crisp, indicated they would embark on the next phase early this year, and the next step towards the proposed bill will be the consultations at the provincial level.

The CMS is also slowly making strides in the implementation of Low-Cost Benefit Options (LCBOs); this may result in significant growth to the medical scheme industry dependent on the outcome of the regulated benefit design to these options.

From a market competition point of view, the decrease in the number of open medical schemes remains a concern. The annual financial reports indicate that the top five open medical schemes are still in a financially strong position giving medical scheme members assurance of the cover available when they need it most.

Although the medical scheme industry is struggling with the shrinking pool of potential new members, most medical schemes have exhibited a strong capability of absorbing shocks. As the medical schemes industry returns to normalcy with the increase in benefit utilisation and rising medical inflation, we are faced with similar issues. The duality of the healthcare sector in South Africa, and the number of people without access to quality care, remains a challenge. At the fore, affordability remains a barrier to access.

We have seen the capability of the healthcare sector to pivot when faced with a challenging scenario; the complexity of healthcare in South Africa means there is a lot more work to be done before we see the tide turn in a meaningful way.