The introduction of the National Health Insurance (NHI) initiative has been comprehensively examined as to the impact it will have for those who don’t currently have any medical cover, yet one of the overlooked areas is the fact that it will also help to
According to Olabode Olajumoke, Employee Benefits Actuary at Aon Hewitt South Africa, medical schemes and related-healthcare expenses are often the biggest financial burdens facing those in retirement. “The need for comprehensive medical cover is most critical for older persons – who are likely to have more of a need for healthcare – yet at the same time the cost can also be prohibitive and many pensioners are forced to opt out of medical cover at a time in their life when they need it most.”
Olajumoke says that compounding the problem is the fact that the cost of healthcare has risen significantly in recent years, to the extent that many medical schemes have also been forced to reduce the level of benefits offered to members. “While this has had an impact on the healthcare needs of all South Africans, the impact is hardest on pensioners who, as a proportion of income, tend to have the highest healthcare costs of all.
For example, a pensioner’s retirement income may increase, at most, by the Consumer Price Index (based on what pension funds declare) which has lagged medical inflation in recent years by as much as 2% to 3%. It is evident that with time, a large proportion of a pensioner’s income will be absorbed by healthcare costs.
He says the rising cost of healthcare has also had a knock-on effect to the employee benefits industry, particularly with regards to post-retirement medical schemes. “Companies are increasingly choosing to reduce the benefits offered to staff with many employees now working on a cost-to-company basis. The consequence of this is that with fewer companies subsidising contributions after retirement, when employees retire, their medical scheme contributions may also stop.
Olajumoke says that in light of the above, introduction of NHI should therefore mean that all pensioners will be better off in retirement, although the impact will vary for each income group. “The lower income bracket would most likely not have paid for private medical care previously, so they will not be financially better off by this move. They would not be worse off either. What is important is that they will benefit from a better quality of life.”
“In the middle income bracket, they are likely to be better off financially as they should have more disposable income available to them if they are no longer solely funding a private medical scheme. For the higher income bracket, they may also benefit financially. However, it is also possible that they will choose to continue funding their healthcare privately.”
Ultimately, under the proposed NHI, the pool of beneficiaries would be larger and this will help spread the risk and therefore reduce costs.
He says further clarity is still needed by the government in order to establish exactly how the funding for NHI will work to determine how it will affect those in retirement. Government also has a moral obligation to partner with all stakeholders in this initiative, address the legitimate concerns they may have, and incorporate suggestions into the final legislation.
“At the moment, NHI appears to be an excellent step forward for South Africa’s retired population. However, it is important that we ascertain what proportion of pensionable income retirees will be expected to contribute, particularly those who may have a higher than average pension.
“We welcome the introduction of NHI as a fairer means of providing quality healthcare to the majority of the population, not just those in the lower income bracket but also for all who are in retirement, as this will provide comfort to all who are most in need of proper healthcare.”
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