Medical aid price warning in South Africa as new trend emerges

GTC Healthcare Consulting warns that delayed increases in medical scheme contributions in South Africa are likely to be followed by above-inflation hikes in January 2023.

The financial advisory business, which specializes in the administration of pension funds, has seen a recent wave of price hikes in deferred medical plan contributions and anticipates further hikes above inflation in 2023.

Traditionally, medical aid schemes apply fee increases from January 1 each year. However, the past two years have seen new trends emerge due to the Covid-19 pandemic.

These include postponing increases, drawing down reserves to reduce increases and announcing delayed increases above the CPI, noted Lee Callakoppen, senior director of Bonitas Medical Fund.

The reduction in claims experienced during the Covid-19 pandemic, alongside a desire to maintain affordability for members in a low inflation environment, has seen many plans postpone their increases from 2022, the largest open medical plan – Discovery – originally postponing its January increase until May 2022, then again until October.

Although the January 2023 increases have yet to be announced,Discovery confirmed a 7.9% increase in October 2022, which will continue until December. Various other schemes increased their contributions earlier in the year, although many were also postponed beyond January.

The October 2022 increases will almost certainly be followed by increases scheduled for January 2023, GTC said. “Interim increases are administratively costly and disruptive, and we suspect programs will revert to the traditional January increase date from next year,” said Jill Larkan, head of health care advice. at GTC.

In a circular issued in July (Circular 44 of 2022: Guidance on Benefit Changes and Contribution Increases for 2023), the Medical Schemes Council (CMS) recommended that contribution increases for the 2023 benefit year should not not exceed 5.7%, “in line with the Reserve Bank of South Africa’s 2023 consumer price inflation (CPI) forecast”, but that “due to unique cost-push factors specific to industry…some plans may require contribution increases in excess of inflation”.

“In previous years, medical plans have generally exceeded CMS increase guidelines by around 4%, as evidenced by information provided by CMS in their circular,” Larkan said.

On this basis, given the projected “return to normal” in medical aid demand patterns reported by plans at this time, GTC expects the 2023 increase to be within the range of the CPI (5 .7% projected by the SARB in their July monetary policy statement) plus 4% (overall average increase above inflation provided by the CMS), which translates to an average increase of between 8% and 10% per year in January 2023 – if nothing else drastically changes.

The CMS Circular itself notes that “…the rates of increase in medical scheme contributions have consistently exceeded the CPI, except in 2021… [which was] the first time in over a decade that the industry has implemented contributions that rise below the CPI.

“The lower than expected increases in 2021 were due to the financial constraints that South African consumers face on the one hand, and the under-utilization of medical aid benefits resulting in record reserves held by medical plans. somewhere else,” Larkan said. .

Lower than normal use of medical plan benefits among members fearful of doctor visits and hospitalization amid the Covid-19 pandemic has led to the medical plan’s combined reserves rising to a record high of R73.29 billion in 2021.

“If plans do not at the very least keep their increases in line with year-over-year medical inflation, recognizing that medical inflation has always exceeded the CPI, there will come a time when their members will have to undergo a sudden adjustment to ensure premium rates match projected year-over-year rates of medical inflation increases,” Larkan said.

“And in our current economic climate, no member wants to endure that kind of ‘catch-up’ pain after a financially bountiful ‘budget-friendly’ period of postponed or non-existent annual increases.”

Larkan advised all members that the personal budget relief – granted by deferring increases until October 2022 – is rapidly coming to an end. These October increases, along with the expected back-to-normal adjustments in January, just four months later, will further tighten fiscal purse strings for many families.

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