Medical aids are in trouble – and you’re going to pay the price

While the National Treasury has introduced new regulations that will have a significant impact on the medical aid scheme industry in 2017, there are more changes coming that will also have an impact.

Treasury has introduced two regulations which will see a limit on the amount of gap cover and hospital cash-back policies you can claim, as well as the discontinuation of all primary healthcare policies.

The question on everyone’s mind is whether or not these, and other coming changes will mean customers will pay more at the end of the day.

Speaking to Business Day TV, Roshan Bhana, head of Alexander Forbes Health said that, ultimately, yes you will – at least until the industry changes.

While the demarcation regulations will certainly have an impact (and the expected conclusion of the Competition Commission’s Health Market Inquiry, as well as the expected re-introduction of the low-cost benefit option framework, will too) – the real problem is that the medical aid industry is old, and has not aged well.

The simple fact of the matter is that the medical aid industry is in trouble, with 16 of the 20 top medical aid schemes having to dip into investment funds to stay afloat during the course of 2016.

The reasons for this are varied, but it’s mostly due to three key issues, Bhana said.

  • The age profiling of medical aids is broken – there are not enough young healthy people to finance the older, ailing members like the schemes were designed to operate.
  • People are claiming more, and want access to newer drugs and treatments which medical aids need to pay for. And people in general are becoming unhealthier through their lifestyles (alcohol, tobacco and a poor diet), which has put pressure on the entire system.
  • And pricing has become unsustainable, with medical aids no longer being able to thin margins to remain competitive, while their own costs escalate.

These factors led to a tougher year for medical aid schemes, and subsequently higher than expected price increases for 2017 – which were far higher than consumer price inflation (CPI).

But this is nothing new – it’s a trend seen since 2006.

Prices will keep going up

According to Alexander Forbes, the average contribution increases for the top nine open medical schemes since 2006 have far exceeded average CPI. The margin between the level of CPI and the industry’s contribution rate was highest from 2008 to 2011.

Since 2012, the contribution increases have tended to be closer to CPI as schemes have aimed to limit increases in contributions to increase competitiveness and minimise membership losses due to affordability constraints.

According to Bhana, medical aid contributions will likely continue to increase at CPI plus 3-4% per year. This is a result of the limited ‘pool’ of contributions – consumers tend to drop to lower-cost plans, while client adoption is too slow to cover the short-fall.

This current problem highlights the affordability crossroads between clients and medical aids, Bhana said, where members are feeling the pinch of tough economic times, but schemes, by law, need to remain solvent.

Much of the higher price hikes in the past few years could even be the market correcting itself from prior years of not increasing contributions enough, he added.

The recent moves and regulations from Treasury are a step toward changes making healthcare more affordable through government’s NHI programme – but this will see medical aids having to restructure, too.

According to Bhana, one way or another the medical aid industry is going to be disrupted, though it may take 3 to 4 years for these changes to materialise – until then, the current problems are not going to go away.

You can read the full Alexander Forbes Health Diagnosis for 2016/17 here. And view Bhana’s interview on Business Day TV.

Read: Medical aids are not-for-profit: Discovery Health

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Medical aids are in trouble – and you’re going to pay the price