Discovery Health says that it will freeze monthly contributions for its medical aid plans for the first half of 2021 – after which it will introduce a price increase capped at CPI+2%.
“In 2020 we have experienced a discontinuity in the usual healthcare utilisation patterns, with a consequent 0% medical inflation impact expected for the first half of 2021,” said CEO of Discovery Health, Dr Ryan Noach.
“For the first six months of 2021, DHMS will deliver a contribution freeze for all scheme members across all plans, mindful of and sensitive to the financial pressures facing individuals at this time within the country’s stressed economic climate. This freeze matches contribution increases to the expected medical inflation during the January – June 2021 period.”
According to Discovery, the group experienced and continues to experience a drop in demand from beneficiaries on its plans, which it anticipates will only return to normal levels by mid-year 2021. From this point on, demand is likely to increase well above normal levels as beneficiaries take on deferred medical care, and potentially, Covid-19 vaccines become available.
“While we have seen increased demand for healthcare services related to Covid-19, there has been a concomitant marked reduction in health-seeking behaviour for non-Covid related healthcare needs,” it said.
“This is reflected in 20 – 40% reductions in usual healthcare utilisation patterns, driven predominantly by cancellations of elective surgeries, marked reductions in discretionary medical admissions, cancellations of preventative healthcare and wellness checks and reductions in infectious diseases typical of the winter months.”
The net effect of this utilisation discontinuity has been to reduce the total claims received by DHMS during the period, resulting in a marked increase in scheme reserves.
However, the group said that the discontinuity being experiences is temporary as it is related directly to the Covid-19 epidemic.
“We anticipate a return of non-Covid healthcare demand to pre-Covid levels by the middle of 2021 and we also expect the demand for healthcare funding to be higher in the second half of next year.
“Consequently, it is necessary to match the DHMS contributions for the second half of 2021 to this higher medical inflation expectation. The DHMS mid-year contribution increase for 2021 will be announced during the second quarter of the year,” it said.
The scheme currently projects an increase reflective of medical inflation at no more than 5.9% (i.e. CPI + 2%), across all plans for the second half of 2021, translating to a weighted annual increase of less than 3% for all DHMS members on all plan options in 2021.
The group’s announcement follows reported weighted average increases of 3.9% and 4.6% from Momentum Health and Bonitas, respectively.
Discovery’s decision to freeze contributions is in line with CMS’s call earlier this year for companies to implement a freeze where possible. If not possible, the CMS recommended that increases be capped at 3.9%, in line with inflation.
The CMS said that despite the cost savings accrued to most schemes due to noticeably decrease in utilisation during lockdown, there was risk that the savings might be wiped-out due to the Covid-19 peak in the country, as well as because of pent-up demand.
“Accordingly, certain schemes may need to increase their contribution to mitigate against the risk of high-cost claims and subsequent reserves erosion,” it said.
“In cases where schemes are unable to freeze their contribution increase for 2021, CMS recommends that schemes should limit their increases to 3.9% in line with CPI.”
“It is the CMS’ view that above inflationary contribution increases, are simply above the budget line for most consumers and are therefore unaffordable for the majority of members of medical schemes.
“Similarly, notwithstanding the unique industry-specific cost-push factors such as the impact of the weaker rand exchange rate, the burden of diseases etc., it remains the position of the CMS that the increase in hospital fees and therapeutic appliances should also be limited to 3.9% in line with inflation,” Discovery said.
In reporting its annual results for the year ended June 2020, Discovery noted that despite the overall decline in earnings across the group by 26% to R3.75 billion, segments, such as health, still delivered a strong performance over the period, despite challenges.
Discovery Health (DH) saw normalised operating profit increase by 5% to R3.19 billion and total revenue grew 8% to R8.37 billion, with non-scheme revenue showing accelerated growth of 23%.
Discovery Health Medical Scheme (DHMS) grew open medical scheme market share to 56.8% in a declining market, Discovery said.
“The operating result and solvency were higher than expected as a result of the reduction in health system utilisation during lockdown, which included a 27.5% reduction in hospital admissions at the end of August 2020.”