Huge trouble for medical aid members in South Africa
Medical aid scheme costs are rising faster than contributions, which is putting pressure on future premium increases and the sustainability of private schemes in South Africa.
This is the feedback from Leo Dlamini, CEO and principal officer at Bestmed Medical Scheme, who questioned whether the industry can continue to operate in its current form.
To answer this question, in an interview with HOT Business, he pointed to recent data from the Council for Medical Schemes (CMS) showing a structural imbalance between income and expenditure.
“According to the latest CMS industry data, for every R100 that schemes received in contributions, they spent just over R103. This means reserves are increasingly being used to plug the gap,” Dlamini explained.
He said this reliance on reserves is happening at the same time as multiple cost pressures are intensifying.
This includes an ageing membership base, rising chronic disease, higher hospital and specialist costs, and medical inflation running ahead of contribution growth.
Dlamini cautioned against viewing the situation as purely alarmist when responding to concerns about whether the industry is becoming structurally unstable. “I think it’s not being alarmist. I think the industry, for a little while, has been struggling.”
He explained that healthcare costs are rising consistently above general inflation. “Any industry where your cost is ever increasing, and it’s increasing slightly higher than CPI, we know in our industry it’s 3.5 to 4% higher than CPI. So that cost is running away.”
Additionally, affordability pressures are limiting member growth and retention due to South Africa’s high unemployment and rising cost of living.
“The ability of our members to continue to buy medical cover is increasingly becoming difficult just because of the disposable income,” Dlamini said.
He added that any industry with costs running away, affordability issues, and no growth is under threat of sustainability.
The age of members is a problem
He noted that while the short-term position remains manageable, the medium- to long-term outlook is more concerning. “It is a challenge in the medium to long term. Clearly, in the short term, we are managing to cope with it,” he said.
He further explained that a key structural issue is the changing age profile of medical scheme members.
“The average age of beneficiaries in the industry was below 35 years. Currently, it’s almost 37 years old. That means that our ageing membership translates into higher costs,” Dlamini said.
According to Dlamini, even small shifts in the age profile have significant financial consequences. “If the average age of the industry increases by 1 year, it translates into an increase in cost by up to 2%.”
In a R250 billion industry, that translates to about R5 billion in costs, which wipes out the sort of reserves a medical aid scheme would have.
He also warned that younger members are increasingly affected by chronic conditions. “What we’re seeing with the chronic comorbidities and lifestyle-related diseases is that younger members are starting to pick up all of those elements, which also impacts the cost curve.”
CMS data shows healthcare costs rising at about 9% while contributions increased by 8.4%, which is unsustainable.
He said the system is now at a critical point where reserves are being used to subsidise ongoing shortfalls. “The income is less than the expenditure, which means that we’re digging into our savings,” Dlamini explained.
“You can do that for one year, maybe two or three years, but you can’t keep digging into your savings to fund your lifestyle.”
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