Medical schemes to pass on costs

Medical scheme members will continue to be worse off every year as the steady rise in medical claims will see schemes pass on the costs through contribution increases. According to the medical schemes rating bulletin released by Global Credit Ratings (GCR) yesterday, certain schemes have reported elevated claim ratios despite adopting strategies to manage their claims costs, such as forming doctor networks and naming designated service providers.

Marc Joffe, the director of GCR, said consumers would be slightly worse off each year because as claims costs increased, medical schemes passed on the cost. He said only the schemes with stronger solvency would be able to absorb the cost and those medical schemes that were not in a sound financial position had very little power to negotiate and keep their claims down. The bulletin showed that while schemes had significantly improved their financial performance over the past three years, the trend of gradual increases in claims costs could result in the industry exhibiting slightly weaker operating results in the future. GCR observed claims trends from 15 of the country's largest open schemes for last year.

Joffe noted that claims increases at the open schemes were fairly aligned with those of restricted schemes although claims relating to prescribed minimum benefits (PMBs) were more prevalent in the former. Joffe said the difference in the prevalence of PMB claims was a result of differing beneficiary demographics between open and closed schemes. The Council of Medical Schemes (CMS) 2012/13 annual report showed the age of restricted scheme beneficiaries had declined significantly between 2004 and 2011 and was now sitting at 29.5 years.

On the other hand, open schemes battled with aging beneficiaries, whose average age was now 33.3 years. Joffe said all schemes said their claims costs were largely driven by PMBs. He said it was a catch-22 situation because they wanted to keep the medical inflation low, but at the same time PMBs had to be paid in full. Medical inflation has consistently been about four percentage points above the consumer inflation rate and Joffe said it was likely to remain between three and five percentage points above inflation in future.

This meant that medical aid affordability challenges would persist and people would continue buying down on benefits as they had been doing. Joffe said once the Competition Commission's inquiry into the healthcare sector had identified the cost drivers in the private sector, a reduction of claims costs would be likely but he did not see medical inflation reaching the consumer inflation rate.

The CMS figures showed that medical schemes spent 10 percent more on healthcare claims in 2011. Between 2000 and 2011, amounts paid by schemes to private hospitals for each member increased by 82.2 percent when adjusted for inflation, and by 74.3 percent in the case of medical specialists. Joffe said even with growing scheme pools as a result of consolidation, which was expected to accelerate, he did not see these costs coming down much because hospital groups were largely in control of the price negotiation processes. He said medical schemes would remain price takers.

Londiwe Buthelezi: Business Report, 15 November 2013