Discovery delays medical aid contribution increases again

Discovery Health Medical Scheme (DHMS) will again delay the implementation of its annual contribution increases because of “the decline in non-Covid-19 healthcare claims seen over the course of the pandemic,” says Discovery Health CEO Dr Ryan Noach.

Annual contribution increases of 7.9% will only be implemented from May 1 next year. This follows a six-month delay in implementing the increases for this year. Discovery says this makes DHMS the only medical scheme to have deferred contribution increases twice since the onset of the pandemic. It says the contribution relief to members totals over R4 billion.

Noach says: “The deferral of the increases for 2021 and 2022 means that members will have an actual effective increase in total contributions of 2.9% in 2021 and 5.3% during 2022. At the same time, the scheme’s contributions are keeping pace with the medical inflation anticipated once Covid-19 becomes endemic in the healthcare system and avoids the need for increase ‘shocks’ at that time.”

Medical inflation breakdown

The 7.9% estimate for medical inflation in 2022 is comprised of a 4.4% increase in the cost of healthcare services (tariff inflation), a 1.5% increase in claims (utilisation changes) and 3% because of changes in the demographic profile of the medical scheme (demographic risk). Discovery says this is unaffected by Covid-19.

This totals 8.9% and will be offset by a 1% reduction in expected future claims in “benefits derived from risk management and Vitality”.

Noach says the trend of lower healthcare utilisation “has strengthened the scheme’s reserve position relative to regulated solvency requirements”.

Reserves

The scheme has maintained its strong reserve position over 2021 and is projecting solvency to be well above the regulated requirements by the end of the year.

Read: Discovery: Profitable in a pandemic

“While reserve levels remain high, medical schemes must account for the return of non-Covid-19 healthcare demand once Covid-19 becomes a stable, endemic infection. Strong reserve levels are essential to manage short-term Covid-19 spikes, and the return of latent, non-Covid-19 healthcare demand.

“This is why contribution increases must be priced absolutely correctly to allow for expected future healthcare utilisation,” it says.

“Setting contributions lower than medical inflation will result in contributions falling behind claims and lead to ongoing medical scheme losses, ultimately resulting in future contribution ‘shocks’ to maintain sustainability.”

While medical scheme claims are currently depressed because of Covid-19, the trend is temporary and not reflective of underlying medical inflation.

Claims higher between waves

Discovery says the DHMS claims experience for 2021 shows that healthcare claims between Covid-19 waves are higher than pre-pandemic levels.

It says that as an example, between waves of Covid-19 infection, elective surgical admissions such as major joint replacements and cataract surgery have increased to 113% and 120% of pre-Covid-19 levels respectively.

Noach adds: “The claims experience of DHMS provides guidance on the expected future cost of healthcare claims between Covid-19 waves and once Covid-19 becomes endemic.

“The trends imply that medical inflation has persisted at a rate of 3% to 4% above consumer price inflation since 1 January 2020, and that DHMS will be well positioned with contributions at the level of anticipated claims before considering contribution increases for 2023.”

Contribution changes

Discovery has not confirmed the contributions from May onwards, but applying the 7.9% increase to current contributions provides the following estimates. Some of these may end up being R1 or R2 higher or lower.

Discovery says there has been a reduction in members withdrawing from the DHMS, and an increase in the number of new members joining the scheme.

As at the end of August, the scheme had grown its membership by more than 27 000 lives during 2021.

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