Medical schemes are likely to announce contribution increases for 2022 that are in line with the Council for Medical Schemes (CMS) recommendations, says Jill Larkan, head of healthcare consulting at financial and wealth advisory GTC.
Before the Covid-19 pandemic in 2020, medical schemes typically exceeded the CMS increase guidelines by around 4%, Larkan said. The CMS publishes an annual set of guidelines for medical scheme contribution increases in South Africa.
These guidelines are based on a review of national and global macro-economic outlooks and, this year, the significant effects of the coronavirus pandemic on medical scheme reserves and member hospitalisation trends.
In 2020, the CMS recommended companies implement a freeze where possible. Where this was not possible, it recommended that increases be capped at 3.9%, in line with inflation.
While not all medical aids acceded to this, the largest funds, including Discovery and Bonitas, managed to keep prices low, with the former even freezing prices for the first six months of 2021.
For 2022, the CMS has recommended that contribution increases be limited to 4.2%, in line with the National Treasury’s projected CPI figure. Larkan expects medical schemes to align very closely with this recommended contribution increase.
“The lower-than-anticipated increases are due to the financial constraints that South African consumers are facing on the one hand and record reserves held by the medical schemes on the other.
“Lower-than-usual usage of medical scheme benefits amongst members who have generally been fearful of doctor visits and hospitalisation, have resulted in combined medical scheme reserves growing to a record R73.29 billion.”
However, this behavioural pattern could reverse if vaccinations and infections combine to confer herd immunity on the population, she said.
“In that case, members could flock back to doctors to catch up on delayed procedures and some conditions which could have been worsened after a year of delayed care,” she said.
“Medical schemes thus have a precarious balancing act ahead of them so as not to overburden struggling members on the one hand and ensure adequate reserves for their future care on the other.”
The CMS believes that medical schemes with adequate reserves should be ‘well insulated’ against such a spike.
The regulator has also issued a specific warning for medical schemes whose financial sustainability was already questionable pre-pandemic, advising them to consider ‘interventions such as amalgamating with other schemes’.
Larkan said that contribution increases around the CMS-suggested level of 4.2% would significantly affect members’ budgeting and future outcomes forecasting.
“Given that financial planning forecasts typically assume contribution increases of at least 2–3% above CPI, GTC would consider it prudent for South African medical scheme members to reconsider their projections for the 2022 year if the increases announced in October 2021 are at the expected lower levels.
“Many South Africans will then have the option of redirecting ring-fenced medical aid increase budget allocations toward increasing savings or retirement savings contributions instead.”