The South African Reserve Bank has published a research note on medical aid contributions in South Africa and how the Covid-19 pandemic has impacted prices.
Discovery published a white paper in May last year, quantifying the likely medical costs of Covid-19. Claims were projected to range between R7.3 billion – R31.8 billion by June 2021.
This would have equated to additional costs of R816 – R3,561 per beneficiary. This provided a formal statement of a common intuition that Covid-19 would drive up medical costs and feed into higher medical insurance inflation.
Contrary to these expectations, Covid-19 and related lockdown restrictions have to date resulted in less insurance utilisation, the Reserve Bank said.
“People cut back on visits to medical facilities as much as possible to avoid exposure to the virus. Lockdowns also limited mobility and access to alcohol, which are common causes of harm. For example, non-trauma surgery admissions declined nearly 50% from 7.96 to 4.49 per day.
“In itself, Covid-19 obviously created new medical costs, but its net effect on the medical industry was actually to lower expenditure,” the central bank said.
In this context, medical schemes began accumulating additional surpluses. Discovery’s net surplus rose from 2.7% in 2019 to about 6.5% in 2020.
These surpluses will feed into reserve holdings but are not expected to remain elevated indefinitely, as beneficiaries undertake postponed procedures and overall conditions normalise, the Reserve Bank said.
“However, it is not necessary for schemes to hold such large reserves, so most schemes are returning them to beneficiaries by implementing lower 2021 increases.
“Based on SARB data collection, medical insurance inflation is therefore likely to average 5% in 2021. This will lower headline inflation by 0.3 percentage points, and services inflation by 0.7 percentage points.”
The data shows that the five-year average across the country’s major medical schemes was around +10%. By comparison, members of Discovery Health, the country’s largest open medical scheme, will pay an average of +3% in 2021.
Similarly, Bonitas, Momentum and Bestmed all announced average increases below 5%.
*Bestmed has clarified that its 2022 average increase is 3.9% and not the 4% included in the SARB’s graph.
Expect to pay more next year
On the upside, demand may surge in 2021, given both steady demand plus catch-up from 2020, the Reserve Bank said.
“Practitioners may also work longer hours and raise prices to accommodate this demand. Covid-related costs, including vaccines and chronic symptoms of the virus, will raise expenditure. There could also be higher health care costs linked to other conditions not being diagnosed or treated timeously.”
On the downside, the supply of medical services is relatively inelastic, which likely caps the scope for catch-up consumption of medical services, the central bank said.
“Additional Covid-19 waves and lockdown measures could limit medical spending further, as they did in 2020. Finally, the 2020 experience has revealed areas of inefficiency and overutilisation – information which may help lower cost pressures in future.”
As of January 2021, the SARB disaggregated inflation model forecast has medical insurance inflation at 9% for 2022 – implying the 2021 moderation is purely temporary.
“Health insurance inflation has long been high relative to headline CPI. This trend has been disrupted by Covid-19, which has led – unexpectedly – to reduced utilisation of benefits and therefore lower increases in 2021 medical scheme contributions,” the Reserve Bank said.
This, however, does not correct the structural issues in the medical industry, so medical insurance inflation is likely to return to pre-crisis levels from 2022, it warned.
“Accordingly, we expect 5% health insurance inflation in 2021, down 4.5 percentage points from 2020, with a rebound to 9% inflation in 2022.”