Brace for inflation-plus healthcare insurance increases

01 November 2009 FAnews

Why do medical aid contributions increase in excess of inflation each year – and what does 2010 have in store for private medical schemes members? We asked some industry stakeholders to share their views.

As the end of 2009 draws near, private medical scheme members are preparing to receive notice of their annual premium increases. The majority expect an inflation-plus hike. But in a year that saw Eskom apply for 45% per annum electricity tariff increases till 2012, most members will soak up new premiums with a wry smile.

Blame rising input costs

Medical schemes contributions are driven by core healthcare expenditures that tend to outstrip measured inflation by some margin. According to the Council for Medical Schemes (CMS) 2008/9 Annual Report the bulk of 2008 healthcare expenditure went to hospitals (R24.0bn), medical specialists (R14.0bn) and medicines (R11.2bn). Willem Claasen, actuary at FedHealth says it is "difficult for any medical scheme to give contribution increases that are not in excess of inflation (CPI) because more than 85% of contributions are typically used to pay claims for medical services!"

"Momentum Health has seen a dramatic increase in specialist and other healthcare costs since 2007, with the average rate of medical costs increasing far in excess of inflation," says Lee-Ann Du Toit, Head of Health Marketing at Momentum." Spiralling costs can only be dealt with in one of two ways. Either beneficiaries pay more for their healthcare cover or schemes need to come up with new and innovative ways to curb the high increases." Momentum suggests introducing financial rewards for members who comply with chronic conditions as one such innovation.

There's more to medical inflation than meets the eye. According to Hylton Kallner, Chief Marketing Officer at Discovery, "many complex dynamics underlie healthcare cost drivers." He used the scarcity of specialist skills as an example. The problem with healthcare inflation is not unique to South Africa either. Kallner notes that "healthcare systems around the world tend to have medical inflation that outstrips general price inflation. The reasons for this include demographic changes, the cost of new technology, the impact of better diagnostic techniques and higher disease burdens."

Policing the medical services providers

We asked the schemes how they managed fraudulent transactions, including overpricing or unnecessary procedures. "At FedHealth we utilise proper managed care processes to ensure there is no fraudulent over servicing and place the responsibility on our administrator, Medscheme, to have the necessary processes in place to identify fraudulent claims," says Claasen.

Discovery says "the majority of healthcare professionals and providers are honest and transparent in their dealings". They agree that "fraudulent transactions, inefficiencies and waste in the system are significant contributors to healthcare inflation," and suggest schemes actively monitor and manage this risk while seeking ways to "eradicate waste, prevent fraud and drive down artificially inflated healthcare costs."

Another solution is for medical schemes to encourage greater vigilance from members. Momentum ‘shares' the reference price for all procedures and medical services with members and encourages them to check what the standard costs are before going for a procedure. "Always consult your GP before you see a specialist," says Du Toit. A reliance on general practitioners to holistically service members' health needs can greatly reduce the number of unnecessary hospital admissions.
Khaya Gobinca, Managing Director of Qualsa, the wholly owned managed healthcare subsidiary of Metropolitan Health Group expanded on this topic. "The challenges we have with overpricing is due to the scarcity of provider options leading to a demand supply imbalance," says Gobinca. Prescribed Minimum Benefits (PMBs) and anti-competitive regulations exacerbate the situation. According to Gobinca fraudulent transactions are an entirely different concern and not limited to the healthcare industry.

Regulators must shoulder some of the blame

Ironically, while the CMS raps the private services providers and administrators over the knuckles for repeated price hikes, legislation is also driving costs higher. Premium inflation is about more than increases in the price of goods and services in the healthcare environment.
Midical shemes have to extend cover to more beneficiaries across a greater range of ailments in recent years.

Under current conditions most scheme members face steep premium increases. "Discovery Health's contribution increase for 2010 is 9.8% across all plans and family sizes," says Kallner. This increase is "within the group's medical inflation ‘corridor of certainty' and the Regulator's guideline of CPI+3%." The good news for beneficiaries is that "Discovery benefits have been maintained or enhanced across the board."

Other major players in the domestic medical schemes environment are doing their best to keep costs down too. "The Momentum Health increase for 2010 is 11.6% on average," says du Toit. Momentum members who select "associated in- or out-of-hospital providers" will experience smaller premium increases. There are significant ‘savings' available to members who are prepared to change providers.

Medical schemes members in smaller schemes may not be as lucky. "Based on the financial pressure facing the industry as a whole, we anticipate that many medical schemes will hike contributions at rates far in excess of the Council's guidelines," says Kallner. Momentum says despite medical schemes' best efforts many will have to pass on "increases in the range of 13% to 16% for 2010!"

How to control costs

According to Discovery one of the ways to control costs is to "work closely with the medical profession and providers of healthcare, including hospitals and pharmaceutical companies to remove waste from the system and arrive at sustainable solutions. These solutions are cost-efficient for the medical scheme and its members, but must also meet the reimbursement needs of healthcare providers."

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