Medical schemes pay out more in claims than they earn in premiums
People are quick to blame their medical scheme for "not paying enough" towards their annual medical expenses. But a report by Alexander Forbes Health entitled Diagnosis‚ released on Monday‚ shows that most South African medical schemes are‚ for the third year‚ paying out more in claims than they earned in premiums.
At the same time‚ consumers’ medical premiums will again increase above inflation in 2018‚ as Alexander Forbes noted has happened for 17 years in a row.
The Diagnosis report shows that in 2016‚ the medical-aid industry spent R2bn more than it earned in monthly premiums.
Medical schemes use investment income from reserves to pay health claims when their payouts exceed what they are paid in a year.
The overall industry deficit was R2.390bn‚ almost twice the R1.219bn deficit in 2015.
Head actuary of technical actuarial consulting solutions at Alexander Forbes Health‚ Roshan Bhana‚ said the research team had anticipated that the 2017 financial results of schemes would reflect an improvement from the 2015 and 2016 experience‚ in which the schemes had high claims. "This is in part due to the interventions that schemes have put in place to manage two years of unusually high claims."
But this was not the case. "The industry‚ as a whole‚ also experienced its highest claims ratio since 2009‚" according to Alexander Forbes Health.
A claims ratio is a calculation how much of all members’ monthly premiums are paid out in claims. Alexander Forbes Health said that "the generally accepted risk claims ratio benchmark" was 85%‚ meaning 85% of premiums should be spent on members’ healthcare needs. Again‚ this was not the case. "The risk claims ratio for all medical schemes increased from 91.4% in 2015 to 92.1% in 2016."
Medical schemes are dipping into their reserves to cover claims. "In 2016‚ 54 of 82 medical schemes (65.9%) failed to achieve an operating surplus and had to draw on their investment returns‚" according to Alexander Forbes.
The company also worked out that increases to medical premiums had ranged between 2.5% and 4.5% above consumer price inflation over the past 17 years.