Keep medical scheme hikes near inflation rate, regulator urges

SA’s medical schemes regulator has advised the industry to limit 2025 contribution hikes to the Reserve Bank’s inflation forecast of 4.4% plus “reasonable estimates of benefit utilisation” to help members maintain cover.

The Council for Medical Schemes (CMS) said consumers remained under “serious financial pressure” due to high interest rates, and warned the cost-of-living crisis combined with high household debt levels could affect members’ ability to afford medical scheme premiums.

“Although private medical inflation generally exceeds the CPI (consumer price index) by 2% or 3%, CMS believes that the annual industry price increase assumptions should be closely tied to the CPI. In the current challenging economic climate, raising contributions above the inflation rate is simply above the budget of most cash-strapped consumers,” CMS acting registrar Mfana Maswanganyi said in a circular.

Medical scheme membership has remained flat for many years, largely due to SA’s high unemployment rate. Just more than 9-million people were medical scheme beneficiaries at the end of 2022, the latest year for which data is available.

In a separate statement, the CMS said health minister Aaron Motsoaledi had appointed Maswanganyi acting registrar for three months, after former registrar Sipho Kabane’s term ended on July 31.

Maswanganyi issued the circular as schemes finalise their planned benefits and contribution increases for 2025. He emphasised that schemes should make it clear that any changes to benefits and contributions announced in the coming months were subject to regulatory approval.

Last October, the CMS’s then acting registrar, Zongezile Baloyi, sent letters to SA’s five biggest open medical schemes instructing them to retract all communication about their planned premiums and benefits for 2024 because they had not yet been given the green light by the regulator.

His move stunned the industry because for the previous 25 years medical schemes had publicised their plans for the following year in September, to give financial advisers, employers and consumers time to consider their options before changes take effect on January 1.

Alexforbes branch head for technical and actuarial consulting solutions Paresh Prema said it was unrealistic to expect schemes to tie their contribution increases for 2025 to CPI, as they faced rising claims costs due to an ageing membership profile and increased usage.

For example, schemes were experiencing increased cancer costs due to the delayed diagnosis of some patients during the Covid-19 pandemic, new treatments and an ageing population, he said.

Discovery Health Medical Scheme principal officer Charlotte Mbewu said schemes based their annual contribution increases on medical inflation; the year-on-year increase in the cost of healthcare claims, which was influenced by CPI; and underlying utilisation factors such as tariff increases, greater demand for services as members age, new technology, and savings from risk management and wellness programmes.

“In recent years some medical schemes elected to use some of the reserves accumulated during the Covid-19 pandemic to subsidise lower annual contribution increases,” she said.

Government Employees Medical Scheme (GEMS) principal officer Stanley Moloabi said implementing CPI-related contribution increases would cause significant pressure on scheme reserves and might result in even higher future contribution increases.

GEMS is SA’s biggest restricted scheme, open only to public servants and their dependants, and had just more than 844,000 principal members and 2.3-million beneficiaries at the end of 2023.

It covers 51% of the restricted scheme market, and is one of the few schemes that is growing, increasing its membership by 8.5% between 2021 and 2023.

Update: August 1 2024
This story was updated with comment from Discovery Health Medical Scheme and the Government Employees Medical Scheme.

kahnt@businesslive.co.za