Every year your medical scheme contribution increases sharply – often as much as double the CPI rate. Last week two schemes, Momentum Health and Discovery Health, announced average increases in the double digits to the dismay of many consumers. And the other schemes are likely to follow suit.
But people who think the schemes are raking in the cash are simply wrong, even though they are often the easy target of members’ ire. Two-thirds of medical schemes didn’t break even in 2014, and they are not registered as organisations for profit.
Yet there seems to be no end to increasing private healthcare costs.
Often, the medical fund rate covers no more than half or a third of a private specialist’s fee, and the already embattled consumer is left footing the bill as a co-payment. That comes on top of an already crippling scheme contribution.
This leaves scheme members with a couple of choices:
- Cancel the scheme membership if it is not a condition of employment and take your chances with state health services;
- Lower the number of dependants you pay contributions for;
- Buy down to a cheaper option (such as a hospital plan) available from your scheme with fewer benefits; or
- Check out offerings from other schemes to see if you can get anything cheaper with roughly the same benefits
How this affects medical schemes
Schemes have only two sources of income: the contributions from their members and the income from the investments of the reserves (25% of all contributions). They spend their money mainly on settling members’ medical claims (hospital bills, doctors’ and other allied health professionals’ bills and medication costs), administration and staff costs.
Medical schemes survive because of cross-subsidisation between members. Some members may put in for high claims, such as after a car accident, and others do not, because they are accident-free or healthy. So the low claimers carry the high claimers, and the young the old. We all get our turn. Or so the thinking goes.
However, when the contribution costs rise sharply, as has happened in South Africa especially over the last 10 years, younger and healthier members tend to buy down to cheaper options or leave the schemes entirely. The result of this is that on high-cost options the majority of members who choose to remain are traditionally high claimers, whose claims tend to exceed their contributions by far.
The claim pattern across all medical schemes has increased sharply in the last three or four years. Despite efforts to give more South Africans access to private medical care, and to increase the number of medical scheme members, the percentage of those with medical cover has remained at roughly 16% of the population – between 2000 and 2014, there was an increase of only 1.4 million principal members across the population. The reality is that scheme contributions are simply beyond the reach of the average working person in South Africa – and getting more and more so.
So if the members are out of pocket, and the schemes are not making ends meet, where is the money going?
Exorbitantly priced private healthcare
Into the pockets of the private hospitals and doctors, says Health Minister Aaron Motsoaledi, who recently again stated that private healthcare is exorbitantly priced – and a World Health Organisation report supports him in this. The cost of SA’s hospitals and private doctors was high when measured against the GDP per capita, compared to those of 20 other countries in the Organisation for Economic Cooperation and Development.
But, says the private healthcare industry, equipment is expensive and their services, and those of their specialists and doctors are subject to normal supply and demand of the market (after all, many of them studied for 12 years). And health inflation worldwide rises faster than normal inflation. Which is true. And of course, what they don’t remind us of, is that they have shareholders who want their pound of flesh.
Of course people should be paid a fair wage, and businesses be allowed to make reasonable profits. But at what point does short-term greed threaten the survival of the whole system? Personally, I think we are there now.
So what will happen if consumers simply become unable to afford scheme contribution increases and private healthcare costs?
If your scheme contribution rises by 4% more per year than your salary does, you might not feel it in the first or even the third year, but after 10 years, hard decisions will have to be made by most salary earners. And when your average salary earner can no longer afford medical scheme contributions, it will not be possible for the majority of schemes to survive.
In order to offset their rising costs, they will have to increase contributions even further, dig into their reserves, and reduce their benefits even more than they already have. It doesn’t take a genius to work out that there is a tipping point, where consumers pay more and more and get less and less – and where they will leave in their droves, as it is simply not worth their while to remain.
And when medical schemes collapse, the private hospitals will be next – there are simply not enough people in SA who can afford to pay these exorbitant costs out of their own pocket. The hospitals will not be able to stay afloat.
The state healthcare system will become even more overburdened than it already is – it will be like taking in more people into a sinking life raft. Everyone will go down.
So what is the solution? I am no economist, or for that matter a medical professional, but in my humble opinion rising healthcare costs are partially driven by private hospitals and private doctors charging as much as they can get away with – not as much as is reasonable.
A lower return for the shareholders will, I think, be easier to explain than no return at all, which is what will happen if the hospital is forced to close its doors.
It might be time for private healthcare providers to take a careful look at what percentage of their income is derived from medical scheme members, and to calculate what their income would look like if that were taken away. Times are tough for everyone, and I see no reason why they should be exempted.
The vicious cycle of rising costs is simply unsustainable, and it is matter of time before a system such as the one we have collapses on itself.
I, for one, would certainly not be able to afford a week-long stay in a private hospital if I had to foot the whole bill myself. And I know I am not alone in this. In short, as far as the private healthcare industry goes, we are running up the burning stairs.