Medical scheme increases for 2021 – do you know what your actual premium increase will be?
2020 is the year that changed us a lot and taught us a lot.
By referring to it as the worst year in decades we mean many entwined things: a world-wide pandemic; death and economic destruction; governmental mismanagement of the pandemic and failures of our social system to name a few.
To the contrary, there were many silver linings: we realised the value of healthcare workers; an abundance of creativity; bonding time with family; we recognised teachers for the heroes they are; drive-in movie theaters made a comeback and a 103-year-old granny survived Covid-19.
Private healthcare 2021 and beyond
As far as the medical schemes landscape for 2021 is concerned, we certainly learnt a lot too … or have we …?
In recent years medical scheme contribution hikes have been consistently above inflation. The average increase for 2020 was 8.2%, or double the average inflation rate.
For 2021, the Council for Medical Scheme (CMS) requested the Trustees of medical schemes to consider members’ affordability constraints and to either freeze their contribution increases or to limit their increases to 3.9% (around the current inflation rate). According to the CMS, high contribution increases will pose serious affordability challenges for members, especially in the current and post Covid-19 economy where annual salary adjustments are unlikely to keep pace with monthly expenses, if at all.
According to Dennis van der Merwe, Principal Officer of Genesis Medical Scheme, two important facts have however been overlooked.
2021 cost and utilisation assumptions
“Although schemes have built up surpluses due to lower claims (mainly as a result of elective procedures during the pandemic that have not taken place), those procedures (and expenses) have in fact just been deferred. Once things return to normal (hopefully) in 2021, the reality is that those elective and other procedures will increase exponentially. When claims costs rise rapidly there is a real likelihood for significant increases in 2022, says van der Merwe.
“Whilst the CMS’s directive is to limit increases to no more than 3.9%, they fail to identify the basis on which this percentage is applied.” In other words, 3.9% of what exactly as each medical scheme asks a different contribution? “Furthermore, we are unaware of any directive to private hospitals, doctors and other service providers to limit their cost increases to 3.9% for 2021. To the contrary, we are bracing ourselves for big increases due to the loss of revenue caused by Covid-19. Some media reports speculate that the increase for 2021 may be 8% plus”, says van der Merwe. “The logic of limiting contributions without any limit on expenses appears somewhat irrational.”
Don’t just focus on the %
Another aspect that is often overlooked, is that member contributions are paid in money; hard earned money. Not percentages. Yet, year after year the general media (and medical schemes) use “percentages” as the only benchmark to compare increases. This practice is, at its best, misleading and inappropriate.
It is important to understand the percentage increase relative to the Rand value amount increase per member per month. To put this into perspective, consider the following example:
* Source: Comparemed
The above table provides a summary of the average contribution increases of some medical schemes for 2021, expressed as a percentage, as well as the overall average Rand value of their increases. But percentages can be misleading, as medical schemes have a wide variety of benefit options. Without consideration for the monthly contribution, an increase expressed as a percentage is not a measurable reflection of what monetary increase the member will actually have to pay. We pay our accounts and expenses with money, not percentages.
A 10% increase on a contribution of R1,000 p.m. is R100, but on a contribution of R4,000, it is R400. Big difference. Similarly, the above information demonstrates that the lowest percentage increase does not necessarily equal the lowest Rand value increase and vise versa.
Consistency and reliability
According to van der Merwe, Genesis is applying its 4.9% average increase, or R85 per adult per month across all benefit options, to an already existing low contribution base. At the same time, member benefits are being enhanced above inflation and innovative and additional benefits will also be registered. In monetary terms, Genesis has not increased monthly contributions by more than R90 per adult member during the past seven years.
Make the right choice
There can be no doubt that we are experiencing some very challenging times financially. Each month the task of balancing the budget takes on a new meaning with the ever increasing cost of living. Members of medical schemes should consider their options for 2021 carefully and do their homework properly. Expensive medical aid cover does not buy a better bed in hospital.
By Elmarie Jensen
The information provided herein is for information purposes only and is not intended to flout or in any other way compromise the conditions prescribed in the Financial Advisory and Intermediary Services Act’s General Code of Conduct insofar as comparing different financial products with each other is concerned. Nothing herein contained is intended to be advice and any uncertainty regarding anything said should be referred to an accredited financial advisor.