Why medical aid prices increase in South Africa

South Africans should brace for an increase in medical aid rates in 2022 as inflation and other factors take effect, says Alexia Graham, director of Hippo Advisory Services.

Graham said that medical aids base their rate increases on a combination of the expected and the unexpected. Inflation, for example, is an expected factor, with the South African Reserve Bank (SARB) pegging the consumer price index (CPI) at 5.0%.

“The private healthcare industry in South Africa has experienced pressure over the past few years because of factors including the regulatory environment, the state of the economy and the impact of the Covid-19 pandemic,” said Graham. “Medical schemes that demonstrate net growth, stable reserves and good governance are better prepared for volatility in claims experience.

“The sustainability of a medical scheme is largely dependent on its ability to grow membership with young, healthy lives. Schemes are also required by the Council for Medical Schemes to achieve minimum solvency levels of 25%, which is challenging in highly regulated environments that are exposed to uncontrollable factors.”

It’s precisely these uncontrollable factors that are driving 2022’s rate increase, said Graham.

She added that the potential implementation of the NHI as a competitor to private sector healthcare in the future may also place smaller schemes under pressure of long-term survival, which could result in industry consolidation. However, this may take time to have an effect, she said.

Impact of Covid-19

Graham said that the biggest uncontrollable factor for medical aids is still Covid-19.

“The pandemic is a perfect example of an unexpected, unavoidable crisis impacting the healthcare industry and the risk management, access to appropriate care, and benefit structuring of medical aid schemes.

“The annual price increase of a medical aid product is influenced by the claims experience of the membership on that product and the anticipated expenditure for the forthcoming benefit year.”

The pandemic is challenging schemes to manage its associated treatment costs, as well as to prepare for the impact of related comorbidities and Covid-19’s lingering effects, Graham said.

“Although we saw a sharp escalation in the cost of a Covid hospital admission compared to a standard hospital admission over the course of the pandemic, schemes experienced a reduction in standard admissions because of the postponement of planned procedures.

“The resultant unexpected claims dynamic that comes with each wave creates a pricing challenge for all medical aid schemes. Members are experiencing changes in the way medical aids usually manage their annual adjustments, with schemes deferring their rate increases to later in the year. Although this may bring temporary relief, a price increase is inevitable.”

For medical schemes, these challenges are compounded by the need to remain competitive, which is why some have introduced new product options aimed at younger, healthier families, she said.

Costs 

What does all of this mean for South African consumers?

Hippo provided the following table which shows the costs of premiums for single members and for small families (member plus adult dependant plus child) in the entry-level offerings of five leading South African open-market medical schemes.

“Given the state of flux of the market and the inconsistency in the timing of increases across the industry, it’s important to remember that we bank rands not percentages, so it’s critically important to compare like for like when it comes to products and prices,” said Graham.

Read: The hidden cost of getting Covid-19 in South Africa: medical aid boss