Buy down option impacts negatively on affordability
Affordability of healthcare is no longer confined to low-income earners alone. The industry is now seeing a general trend of people buying down to lower cost options. Even the minority who can afford private medical cover are feeling the financial impact of current economic factors such as interest rate, food and petrol hikes and the resulting ripple effect thereof, which are all taking their toll on buying ability.
The government has also embarked on numerous projects to improve state facilities while trying hard to encourage low-income earners to buy into medical aid membership. The budget speech by the minister of finance, Trevor Manuel confirmed the government’s plans. He clearly outlined initiatives that could result in low-income earners receiving incentives for joining medical schemes. Consequently, Manuel announced that with effect from March 1 2009, the monthly monetary caps for tax-deductible contributions to medical schemes will increase to R625 for each of the first two beneficiaries and to R380 for each additional beneficiary.
According to experts in the healthcare industry, it looks like Manuel is trying to give lower income earners the possibility of a full deduction while higher income earners will have a limited deduction. “Thokozani Magwaza, CEO of Sechaba Medical Solutions, the rebranded Sizwe Medical Services, applauds this move as an initiative to attract the lower income earners into private healthcare, however, says it does not address the question of affordability for those who are members of medical schemes but are facing hardships due to the worldwide economic meltdown. To add to their woes, most employers are threatening to discontinue providing healthcare benefits altogether. “
For instance, a study conducted by Hewitt Associates in the U.S. discovered that two out of every three US employers are examining ways to reduce the amount they contribute to employee’s healthcare expenses in 2010. Hewitt said 4% of US employers were planning to discontinue providing healthcare benefits altogether. Hewitt surveyed more than 340 large firms comprised of more than five million employees.
A worrying international trend, especially when in South Africa the mining and the automobile sectors are hard hit by international economic downturns and are facing heavy retrenchments. This has a knock-on effect in other areas and industries too, which shrinks medical aid membership even further. The obvious plan of action for most employees who are struggling to make ends meet due to the credit crunch and the worldwide economic meltdown is to opt out of medical schemes to increase their disposable income or buy down into lower options.
Magwaza says consumers are definitely more cost conscious than they were in the past and that is just as true for medical schemes. “Today people are weighing up the Rand and buying down into lower options to maximise their budgets. For example, this year we have seen a total of 43% of our membership shifting from higher options to more affordable or lower options. This is a clear indication of the increasing financial demands consumers are faced with which is also aggravated by the inevitable decision by most companies to increase employee’s out of pocket cost for co-payments and deductibles.
“According to Magwaza, the buying down shift from higher to lower products within schemes is a very distinct trend and so when the issue of affordability is tackled it should not only be at entrance level, but must be addressed holistically as a blanket issue of concern at all levels across the industry.”
Magwaza believes over-regulation of the private healthcare sector is doing little to assist the situation. “Not many of the legislative interventions are helping the "sustainability" of private healthcare provision, but have rather tipped the demand/supply scales by increasing demand yet limiting supply through a highly regulated industry. This has a tendency to drive up costs, rather than address the affordability issue so critical in this industry at present”.
“What is needed is an industry agreed-to model that, together with government, will find real and practical solutions to the current affordability problems”.
“There seems little debate that in order to survive, medical aids in South Africa will require systems with the necessary flexibility to meet the stringent demands of legislation and provide the necessary support systems to consumers battling to survive and keep up with the high costs of healthcare.Without a competent system that can seamlessly adapt to its environment, schemes will not be able to cope with legislative demand and economic demands,” concludes Magwaza.
