Why you should expect medical aid price hikes above inflation in South Africa – expert

 ·12 Aug 2022

The Council for Medical Schemes (CMS) has this month recommended that increases to medical aid contributions for 2023 stay at or below inflation (5.7%).

The association’s latest circular found that in the context of the current economic climate – characterised by surging inflation and a rising interest rate – above inflationary contribution increases are simply unaffordable for most members of medical schemes.

The CMS is a statutory body established by South African legislation. It provides set requirements that must be adhered to by medical schemes when determining annual medical scheme contribution increases and benefit changes for the 2023 benefit year.

Speaking to Bruce Whitfield on The Money Show, Profmed chief executive Craig Comrie said the CMS is trying to put pressure on schemes and providers in the industry to cap their increases.

He said that healthcare inflation is typically 4% above CPI – so an average of 7% – typically costs run at 4% above that, said Comrie. “If your costs run at that, your premiums usually have to mimic that otherwise you are eating into reserves, and the sustainability of schemes will then come into question.”

“We do see that those premium increases cannot be different to between 8% and 10%, unfortunately for the next 5 or 10 years. That’s what the premiums have to be,” he said.

Profmed is a closed medical scheme designed exclusively for graduate professionals in South Africa.

Comrie has previously unpacked the cost of healthcare inflation in private healthcare.

“The issue is that most people tend to use standard inflation measurements such as consumer price inflation (CPI). This is a false equivalency as healthcare costs tend to sit 3% – 4% above inflation every year. This is why the industry references healthcare inflation as a more relevant metric.”

Comrie said there are numerous drivers of healthcare inflation, but every year those drivers shift and change. Covid-19, he said, provides a perfect example of how new diseases and new technology drive healthcare inflation.

“At the start of the pandemic we didn’t have the vaccines, and luckily they came through relatively quickly. But these came at a cost,” he said. “Where in 2019 there was no Covid-19, in 2020 we had to pay for general treatment, hospital and pharmaceutical costs that we never saw in the previous year.”

Comrie said the cost to research, procure and distribute these treatments form part of what the healthcare industry calls “new technology tax”, a typical driver of healthcare inflation. “Sometimes you can’t predict what is going to drive inflation in healthcare but new technology, like Covid-19 vaccines or new expensive oncology treatments, remain one of the constant drivers.”

Another driver of healthcare inflation comes in the form of population demographics. “When you have a young population like we do in South Africa, the benefits of fighting a disease like Covid 19 are different to other older countries. We have had fewer deaths despite very large infection rates. This is a result of a younger population; however we are seeing an ageing population in the professional market and even the medical scheme market,” said Comrie.

“This number of elderly people will continue to increase, which will put further strain on the healthcare system and lead to rising costs,” says Comrie.

Comrie also pointed to basic economics and the fact that the country has fewer doctors and specialists which means long waiting lists even in the private sector further while these specialists can demand much higher remuneration.

“This is not about the clinic or available hospital facilities but the skills who operate and provide services in these facilities. We are simply not creating enough nurses, doctors, and specialists in our system to actually create more supply of services  for people to access.”

Read: Proposal to cap medical aid price increases for 2023

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