Costs continue to rise

While fraud, waste and abuse remain a concern, healthcare costs continue to rise. According to the Council for Medical Schemes (CMS) Annual Report for 2018/2019 the year 2018 was a challenging year for schemes as there was an increase in claims, utilisation, etc.

Contributions received

According to the report, gross contributions received from members of medical schemes in 2018 was R192.28 billion compared to R179.82 billion in December 2017. This is an increase of 6.93% from the prior year.

Risk contributions (gross contributions excluding personal medical savings account contributions) increased by 6.81% to R173.96 billion from R162.87 billion in 2017. The equivalent increase from 2016 to 2017 was 10.42%.

Investment income and reserves, according to the report, have assisted medical schemes to reduce the burden of increasing healthcare costs, maintain reserves and retain members. Factors such as increasing claims, technology costs, members getting sicker and older, and stagnant growth in members, have had a collective negative impact on available reserves.

All medical schemes incurred a surplus of R5.0 billion compared to R8.9 billion in 2017, representing a decrease of 43.8%. The net assets in terms of Regulation 29 of the Medical Schemes Act increased by 11.3% from R59.7 billion in 2017 to a reported R66.4 billion in 2018. Net assets per Regulation 29 rose by 11.29% in 2018 at R66.41 billion. Accumulated funds grew by 9.99% to R67.67 billion from the R61.52 billion recorded in 2017. The industry average solvency ratio increased to 34.54% in 2018 from 33.19% in 2017.

Claims and health expenditure

The total gross relevant healthcare expenditure incurred by medical schemes increased by 8.46% to R174.12 billion in 2018 from R160.53 billion in 2017. Risk claims increased by 8.64% to R156.95 billion from R144.46 billion in 2017.

A combination of factors, according to the report, have impacted on the claims experience of medical schemes over time, more so in recent years. These include changing benefit design, demographic profiles, increased utilisation of benefits in some schemes and a higher number of high cost cases. Some medical schemes were also affected by widespread fraud and abuse of benefits, as well as wastage of resources. The industry trend in claims experience deteriorated in 2018 compared to 2017, with the majority of schemes experiencing claims that were worse than expected in the year under review. The change in Value Added Tax also had an impact on claims costs.

The risk claims ratio increased in 2018 from 2017 for both open and restricted schemes to 89.84% and 90.71% respectively. For the savings pool, 94.93% of the contributions received from members of open schemes was paid out in claims, compared with 88.67% for restricted schemes. The contributions and expenditure on savings in open schemes is much higher than it is in restricted schemes. This could be partially due to the nature of benefit design. Restricted schemes generally have more traditional and richer options.

Non-healthcare expenditure

Non-healthcare expenditure refers to all other expenditure incurred by medical schemes that is not related to relevant healthcare services i.e. claims. It consists mainly of administration expenditure, broker costs and impaired receivables. According to the report, curbing of increasing costs, elimination of fraud, waste and abuse as well as affordability of medical schemes have increasingly become an important consideration in the private healthcare sector. When medical schemes determine contributions, factors such as the claims experience of the scheme, operational costs and the level of reserving required, are taken into consideration. The report states that it is therefore essential to ensure that monies collected from members are directed at the appropriate interventions and expenditure, and that non-healthcare expenditure is managed judiciously. 

The gross non-healthcare expenditure for all medical schemes at the end of 2018 was reported at R15.79 billion, an increase of 5.01% from R15.04 billion in 2017. Broker costs increased by 8.32% from R2.18 billion in 2017 to R2.36 billion in 2018 (2017: 9.6%).

Out of pocket, PMBs and CDL

In 2018, the total out-of-pocket expenditure amounted to R32.9 billion – up from the R31.8 billion in 2017. This represents 19.0% of the total benefits paid. The largest component of out-of-pocket expenditure is attributable to medicines dispensed.

Overall, the report states there has been an increasing upward trend in the out-of-pocket payments across the industry.

The total expenditure on Prescribed Minimum Benefits (PMBs) by medical schemes amounted to R87.8 billion in 2018. The total benefits paid in 2018 was R173.3 billion.

Hypertension remains the most prevalent condition on the CDL among medical schemes. In 2018, the number of beneficiaries registered for hypertension was 143.72 per 1 000 beneficiaries. This is also the most expensive condition on a pbpm basis and in 2018, medical schemes spent R24.98 pbpm on hypertension.

Hyperlipidaemia is the second most prevalent condition, with a prevalence of 77.91 per 1 000 beneficiaries, followed by Diabetes Mellitus Type 2 – with a prevalence of 50.26 per 1 000 beneficiaries. The decline in the number of registrations for HIV, asthma, rheumatoid arthritis and diabetes mellitus type 1 is due to the marginal decline in the number of beneficiaries diagnosed with these conditions.

Medical scheme numbers

According to the report the medical schemes industry has seen consolidation in terms of the number of registered schemes over the past 18 years. The number of medical schemes has declined significantly from 144 in 2000, to 79, consisting of 21 open schemes and 58 restricted schemes, in 2018. The decline was more pronounced between 2008 and 2010 when the industry lost almost 20 schemes over a period of two years through mergers, deregistrations and liquidations. In this period (2018), the number of schemes classified as ‘small’ decreased at a faster rate than those classified as ‘medium’ and ‘large’.

Most of the medical scheme’s beneficiaries are in Gauteng with a total of 3 543 351 beneficiaries followed by Western Cape and KwaZulu-Natal with 1 327 573 and 1 256 360, respectively. The province with the least beneficiaries was Northern Cape with 2% of the total beneficiaries. The number of beneficiaries grew in all provinces except Mpumalanga, where a decline of 0.8% was experienced in 2018 compared 2017. 

Overall, the industry grew by 0.5% in 2018, an improvement from a decline of 0.07% in 2017. 

Healthcare benefits paid

Total healthcare expenditure on benefits paid in 2018 amounted to R173.3 billion, an increase of 8.0% from the 2017 reported amount of R160.5 billion. Ninety percent of these benefits were paid from risk benefits and 10% from medical savings accounts.

Expenditure on hospital services accounted for 37.12% of total benefits paid, followed by medicine dispensed at 15.56%, and then supplementary and allied health professionals at 7.5%. These proportions are similar for risk benefits paid, with hospital expenditure taking up just over 41%, medicine dispensed accounting for 13.21% and supplementary and allied health professionals being 6.4% of risk benefits paid.

The bulk of medical schemes’ total expenditure continues to be paid to hospitals and specialists. Total hospital expenditure amounted to R64.3 billion of the R173.3 billion (37.1%) that medical schemes paid to all healthcare providers in 2018.

Writer’s Thoughts:
According to the CMS, managing the change in the age distribution, burden of disease and membership growth is a challenge for the private medical scheme industry. Healthcare costs continue to rise, there continues to be above inflation increases in healthcare benefits paid, out of pocket expenditure, etc. It is important that cost containments strategies are out in place, benefit design processes are improved, and member education and product knowledge is enforced. Do you agree? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za