Why are private healthcare costs rising?
It’s no secret that healthcare costs are on the rise. At a medical scheme conference in August last year, it was announced that it will only get worse. However, a number of factors were identified, and at Cape Medical Plan, we will be doing our best to combat the problem.
Issues brought to the fore included the growing use of healthcare services, Prescribed Minimum Benefits (PMBs), increased prevalence of chronic illnesses, rising costs of medication and technologies, age and gender profiles, anti-selection, fraud, and abuse of the system.
Increased use of healthcare services
It was identified that medical scheme members’ increased use of healthcare services was the biggest culprit when it came to the rise in annual contributions.
When the cost of medical scheme claims increases by more than the inflation rate, it translates into high contributions for the member – so your scheme has to find ways to contain these costs.
At Cape Medical Plan, we have various procedures in place to protect the Scheme. This includes pre-authorisation, waiting periods, limitations and Preferred Providers, for example.
Chronic illness and how it affects utilisation
One of the reasons members are using their benefits more than they used to is the increase in the prevalence of chronic illness. As you know, chronic diseases are considered a PMB, which medical schemes have to cover in full by law.
The average cost of the claims of a member with a chronic illness is generally 1.5 times more than the average cost of a member without a chronic illness. Also, if a member has more than one chronic illness, the cost increase is up to six times more.
Prescribed Minimum Benefits
The Medical Schemes Act requires that all medical schemes in South Africa cover PMBs. This includes a list of 270 conditions (some of which are very expensive to treat) and 25 chronic diseases.
Because the PMB list is so extensive, this makes even the most basic hospital plan offered by a medical scheme in South Africa an expensive option.
Rising cost of new medicines and technologies
Treatment of illness and disease can be very expensive. Although medication is evolving and becoming more effective, it is not becoming any cheaper so it’s an ongoing challenge to find a balance. Cancer medication, for example, can be very costly.
Hospital admission spikes
Many of the larger medical schemes in South Africa have seen a spike in hospital and hospital-related claims. The same has been experienced by Cape Medical Plan.
Studies have shown that new hospitals result in a significant increase in hospital admissions among scheme members. This is a serious concern, as hospital and hospital-related costs (for example, pathology and radiology) account for more than half of all scheme claims.
Anti-selection, also known as adverse selection, refers to people who buy medical aid because they are sick or know they will need treatment, and seek to claim the maximum from the scheme whilst paying in the minimum. This is often in contrast to the number of healthy people who don’t join schemes because they are less likely to use it.
This is human nature, but unfortunately, in order for medical schemes to work, they require healthy people to contribute so there is enough money to pay for the needs of those who are sick. It’s important to remember that nobody is immune to illness or accident.
An indication of anti-selection can be seen in the increase in the number of members claiming for rare diseases. The prevalence should be random, but many schemes have noticed a spike in the number of people claiming for these types of illnesses in their first year of membership. This indicates anti-selection.
In South Africa, there are two types of anti-selection that contribute to why medical aid is expensive, and these are age and gender selection.
Age and gender selection
There is a big gap in membership of those between the ages of 19 and 35. This is because they are less likely to be sickly at that age.
Additionally, there is often an influx of women between the ages of 20 and 35 who join schemes, and this can be attributed to the fact that women during child-bearing ages are more likely to need medical aid for maternity benefits. This number drops drastically from the age of 40.
The problem with not enough young people being on medical aid and too many women dropping their medical aid after having children is that it increases the cost of medical aid for everyone else. If people were to join medical schemes early and stay on them for their whole lifetime, the cost would reduce for everyone.
Fraud and abuse in the medical industry
Medical scheme fraud is on the rise. At the conference, it was highlighted that a fair portion of members’ contributions were wasted on fraud and unnecessary healthcare.
Another trend is the abuse of hospital cash-back plans offered by life assurers and short-term insurers. Medical scheme members are sometimes admitted to hospital under false pretenses – which is another reason why we insist on pre-quotes and the pre-authorisation process – the scheme then pays the hospital bill and the member collects the cash payout from the insurance policy as well.
At Cape Medical Plan, we have instituted safeguards that help us manage the above difficulties. Often, members wonder why we are insistent on using Preferred Providers or obtaining pre-authorisation, for example. If we did not have anything in place to cushion the blow, contributions would be sky high and our reserves would likely be depleted.
We hope this gives you a better understanding of what we, and other medical schemes, are facing at the moment.
Cape Medical Plan
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