South Africa’s medical aids are running into a big problem – and it’s going to lead to price hikes

Ageing membership profiles and a greater proportion of over-65s could herald future medical scheme contribution increases well over inflation, says financial and wealth advisory firm GTC.

The group said that ability of schemes to attract younger members will also directly affect their ability to manage future increases.

“Some medical schemes released constant increases for the year, whilst others released delayed increases starting from March, April or even September 2022,” said Jill Larkan, head of healthcare consulting at GTC.

She said that the benefit to members of these delayed increases is especially welcome as many families continue to experience financial strain due to the economy’s slow recovery following the easing of Covid 19 restrictions.

Whether delayed or not, Larkan said that South Africa would continue to experience regular annual increases in medical aid contributions invariably ahead of headline inflation.

“If one looks at long-term trends that influence the price of medical scheme contributions, few are as important as the age profile of a scheme’s membership base.

“The age profile of a medical scheme’s membership base is directly linked to its benefit payment expenses and therefore to the price of its contributions. Statistically, older members use more benefits than younger members. However, they both pay the same contribution level.”

Young members effectively cross-subsidise older members. The long-term sustainability of medical schemes depends on continually enticing younger entrants to balance an otherwise ageing membership, she said.

Tipping point

Without the continued flow of younger members, a scheme will be forced to increase contributions by more than the medical-inflation rate year-on-year unless they reduce benefits, and the scheme will eventually become unaffordable, Larkan said.

She said this ‘unaffordable point’ may be close for some of the smaller medical aid schemes at the moment, especially when considering that most pensioners live on fixed or nominally increasing pensions.

Larkan drew attention to the latest Council for Medical Schemes (CMS) Annual Industry Report for the year ended 31 December 2020,  which shows that the average age of all members of medical schemes has increased from 32.5 in 2016 to 33.4 years in 2020.

The report also notes an increase in the pensioner ratio – the percentage of members over 65 – from 7.9% in 2016 to 8.9% in 2020.

“These continued ageing trends could herald future contribution price increases if not balanced by the introduction of new young members,” she said.

“Those medical schemes with the product and marketing capacity to successfully entice younger South Africans to join will be better positioned to resist these inflationary pressures in the long term than those schemes which can’t, or which are too small to absorb this impact”.

Read: This is how many people left South Africa’s biggest medical aid schemes in the last year