Medical schemes have to do with small premium increases

Most medical aid schemes have announced how much members will pay for their medical cover in 2021, giving them the usual few months’ warning of increases in one of the biggest expenses families face every month.

Most medical aids have limited their increases for the coming year to around official consumer price inflation, even though the cost of medical care goes up much faster than general retail prices.

While officials at the Council of Medical Schemes (CMS) might feel pleased that the industry it regulates has responded to its pleas to limit increases in member contributions to the general inflation rate of 3.9% or close thereto, most schemes have adjusted their rates by a little more, and for different reasons than the simplistic guideline issued by the CMS.

Commentary by Discovery, which operates the largest medical aid scheme in SA, indicates other reasons for lower increases in medical aid premiums. Firstly, it says medical aids should have ample reserves available to make larger increases unnecessary, and secondly because the real cost of medical care is expected to increase by less than expected.

Demand down during lockdown 

The general lockdown of the economy for a few months at the beginning of the year also meant that people actually used less in terms of medical services than usual. For instance, visits to dentists were expressively prohibited for months, while the medical profession has reported fewer cases of normal winter flu as people took careful precautions to guard against viruses during the Covid-19 pandemic.

“In the first half of 2020, non-Covid patients on Discovery Health have used a lot less of their medical aid compared to previous years,” said Discovery in a release when announcing its premiums for 2021. “As a result, the solvency of the Discovery Health Medical Scheme has improved.”

Briefly, medical schemes in SA are non-profitable trusts that are owned by the members of the scheme.

They are structured in such a way that the scheme itself does not make profit, but merely charge premiums to cover members’ medical expenses. In addition, the scheme needs to hold enough reserves to be able to honour future claims.

The management company of any medical scheme does however aim to make profit for its shareholders.

Balancing costs, claims and reserves

This means that medical schemes need to balance the expected medical cost for the next year with its actuarial forecast of claims and its available reserves.

Discovery told its members that lower claims in the first half of 2020 means “there will be no increase to your medical aid premium in the first half of 2021”.

It expects the demand for medical services to return to previous levels and premiums will be adjusted in the middle of 2021, by a maximum of 5.9% for all its different medical aid plans.

The cost of medical aid has increased by the inflation rate plus 3-4% per annum over the last four years, according to Discovery. Now it has announced no increase for the first half of the year and a maximum increase of consumer inflation plus 2% in the second half.

Read: Members are ditching top-end Discovery Health plans

This will result in an average increase of less than 3% for the year, making Discovery’s increase in premiums the lowest of the big ‘open’ medical schemes.

Range

The latest CMS quarterly report lists 80 registered medical schemes in SA, 21 of which are open to all members while 59 are restricted to certain individuals and their dependants, usually limited to the employees of a specific company or the government.

Bonitas, the second largest open scheme, announced that its premiums for 2021 will increase by an average of 4.6% across all it different plans, but that the premiums of some of its options won’t increase at all.

“Individual plan increases ranged from 0%, with an average increase of 4.6%. This translates into 95% of members experiencing an increase of under 4%,” according to Bonitas’s announcement to its members.

The Bonitas announcement shows how difficult it is to try and compare different plans and premiums – Bonitas itself has 16 different options to choose from.

Momentum Medical Scheme, the third largest open medical aid scheme in SA, says its premiums will increase by 3.9% in 2021 on a weighted average basis. It claims the increase is lower than those of its competitors and notes that is much lower than its own previous increase of 8.2% (effective in 2020).

Momentum attributes the low increase to the fact that the average age of its members is well below the industry average and that claims (from the presumably healthier younger members) will be lower over the long term.

Favourable member profile

“When one factors in a pandemic such as Covid-19, the impact of a favourable member profile becomes even more important,” said Damian McHugh, head of marketing at Momentum Health Solutions, when announcing the new premiums. “We have made provision for the unexpected future pandemic-related costs, but we are able to focus more on helping our members retain their medical aid cover during these tough economic conditions.”

Bestmed, the fourth largest open scheme in SA according to CMS statistics, announced an annual average increase of 4% in premiums for 2021. Management says this is the lowest in the history of the scheme. It also increased its benefit limits by 5%.

Bestmed noted that this was possible because the scheme is financially healthy, indicating lower claims and/or lower medical inflation than in the past.

Medshield said in its announcement to its members that monthly contributions will increase by an average of 5.9% over its product range. This is somewhat higher than the increases claimed by other medical schemes, but not as high as the average increase of 8.6% announced by FedHealth Medical Aid.

However, the percentage increase in premiums is only a small part of the story, with the real measure of value for money hidden in the confusing array of plans and their varied benefits.

Comparing all the plans from different companies – ranging from less than R1 000 per month to R10 000 per month – is extremely complex.

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