Proposal to cap medical aid price increases for 2023
The Council for Medical Schemes (CMS) recommends 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 proposed 5.7% increase follows a 4.2% recommendation for 2022.
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.
To estimate price increases in the health sector, the CMS relies on the consumer price index (CPI), as South Africa does not have an official medical price index, said the CMS.
According to the latest inflation forecast of the SARB, as outlined in the July Monetary Policy Statement (MPC), headline inflation is expected to average 5.7% in 2023 before moderating to 4.7% in 2024.
“While the CMS encourages the industry to implement contribution increases that are affordable to members, CMS is also cognisant that due to unique industry-specific cost-push factors such as the impact of the weaker rand exchange rate, the burden of diseases, etc., some schemes may require contribution increases above inflation,” said the CMS.
The CMS requires schemes to approach the council for approval. If an increase greater than 5.7% is proposed by a scheme, then the council will need to be provided with adequate reasoning as to why.
The CMS added that all pricing models for the 2023 benefit year must be data-dependent and subject to independent actuarial evaluation.
For schemes that are financially well-off, the council recommended that they could provide further financial relief to their clients by implementing contribution increases lower than the recommended CPI-linked increase.
According to the CMS, medical scheme contribution increases have consistently surpassed the CPI, except in 2021 during the Covid-19 pandemic, where it was the first time in over a decade that the industry implemented contributions increase below CPI.
Shift in pricing
Medical schemes are looking to deferred payments or simply passing on the costs – leading to a change in how medical aids are traditionally priced in South Africa, says Lee Callakoppen, principal officer of Bonitas Medical Fund.
As a result of Covid-19, medical schemes have altered how they implement fee increases; new trends include:
- Deferral of increases;
- Dipping into reserves to reduce increases and;
- Announcing delayed increases above CPI.
Bonitas this year used R600 million of its reserves to help limit contribution increases to below CPI for roughly 82% of its members, said Callakoppen.
Changes in how medical schemes manage contribution increases to accommodate members during tricky times have had unexpected consequences, such as when schemes opt to defer increases – they typically see members pay a higher than the industry average.
“For example, a scheme that offered a contribution deferment for the first six months of 2021 but then applied a 5.9% contribution increase, when the industry average was 4.6%.”
Callakoppen said that contribution increase percentages could not be looked at in isolation without looking at the rand value of the contribution.
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