Could this be the year things improve for medical schemes?
The industry has had a tough couple of years, but efforts to address some of its troubles might start to bear fruit, writes Roshan Bhana
Only four of SA’s 10 open and top 10 restricted schemes — Discovery Health Medical Scheme, Sizwe Medical Fund, SAMWUMED and LA Health — achieved the required operational surplus (that is, income from contributions that is sufficient to cover all claims and expenses) in 2015.
This trend is expected to continue for 2016. Some of the possible reasons for the poor financial performance are:
1. Age profile of members
The profile of schemes has changed due to a combination of factors including the issue of ageing members. Only in workplaces where medical scheme membership is compulsory are schemes getting young members as soon as they start work. Rather, the healthy and young join only when they need cover, such as when they start a family or are diagnosed with a health condition.
For schemes that have relaxed underwriting, this is an issue. The waiting periods where new joiners cannot claim are not a sufficient deterrent — a three-months general waiting period, and 12 months for specific conditions.
Main members are also not adding all beneficiaries until they require medical care, and the increasing average age of beneficiaries indicates a worsening profile and higher expected claims.
2. Use of benefits
Schemes have done much in an attempt to contain claims costs from one year to next; however, it is the ever-growing utilisation factor, which is counting against these efforts. People have become unhealthier over the years. Even the people in the system already are victims of lifestyle diseases caused by poor diet and lack of exercise. This contributes to increased utilisation of healthcare benefits.
From an industry perspective, some medical aids have introduced rewards programmes aimed at helping members to become healthier. However, many of the benefits are geared towards younger people, so while there could be pockets of success, the effectiveness of these for the industry as a whole is yet to be established.
3. Regulation of tariffs
Schemes have tried to keep the increases in the tariffs paid to providers to within the consumer inflation rate, as measured by the consumer price index (CPI).
The lack of regulated tariffs in SA is a downfall in this regard, as regulated costs would provide schemes with more certainty, specifically for prescribed minimum benefits, where different tariffs may be applied for the same treatment by different providers. Up to 60% of all claims paid are for prescribed minimum benefits.
4. Financial risk management
From a contributions perspective, schemes have to remain competitive. Thus there are schemes that deliberately use some or all of their reserves (if they are above the statutory solvency level of 25%) to under-price their plans to remain attractive. It is common practice for schemes to do this on occasion; however, it is not sustainable, and if their solvency dips below 25% they will need to start playing catch up through higher increases in future years.
Overall, the industry’s performance remains satisfactory despite the strain experienced during 2015, and this trend is likely to have been repeated in 2016. Schemes have introduced measures to try to arrest the poor financial performance of 2015 and 2016, with improved results likely to be seen from 2017.
The finalisation of the demarcation regulations and the potential reintroduction of the low-cost benefit option framework may result in some interesting changes in the profile of the medical schemes industry during 2017.
The recommendations of the Competition Commission’s health market inquiry to control future costs and contributions in the industry are also awaited. In addition, the industry may face further changes in the build-up to full implementation of the National Health Insurance (NHI).
• Bhana is the head of technical and actuarial consulting at Alexander Forbes Health.