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Clickbait headline triggers an unfair swipe at medical schemes

20 October 2023 Gareth Stokes

You need only spend a few moments interacting with your medical scheme to appreciate why private healthcare costs tend to inflate well ahead of South Africa’s official consumer price index (CPI) inflation. This writer’s outcry over a recent 10-page-long hospital invoice was, for example, shot down by his scheme’s call centre personnel as “well within tolerance”. And more recently, a pre-op authorisation revealed how doctors and specialists view the current system, with a ‘2x or 3x?’ accidently scrawled across the page.

Charge it, and they will pay…

It does not require more than a high school diploma to realise that doctors, hospitals and other suppliers in the private healthcare value chain will charge as much as the consumers’ health insurance will pay, as further evidenced by the ‘do you have gap cover’ check box that now appears on most hospital admission forms. 

Here, the sinister undertone is that healthcare providers can charge their gap cover clients the absolute maximum with some level of assurance that the client will not be bankrupted in the process. Above inflation increases have been a major stumbling point in the medical schemes industry, as illustrated by the frequent back-and-forth on annual increases between the Council for Medical Schemes (CMS) and the Board of Trustees and Principal Medical Officers at the many medical schemes it oversees. 

In Circular 27 of 2023, issued end-July, the CMS offered some suggestions on how schemes should handle contribution increases and benefits changes for the 2024 calendar year. “One of our primary statutory mandates, as enshrined in section 7 of the Medical Schemes Act, is to protect the interests of beneficiaries at all times, and to coordinate the functioning of medical schemes,” the CMS explained, before decreeing “to ensure that annual medical schemes contribution rate increases remain affordable” as a primary objective. 

PS, they also noted a duty “to promote equitable access to quality healthcare” which this writer reckons is rather ‘rich’ given the regulator’s multi-decade fumbling of the low-cost benefit option (LCBO) segment. 

Too many economic experts?

It turns out that everyone, including the CMS, is now an expert on the South African economy. Circular 27 shared a list of domestic and global macroeconomic factors that would have made the chief economist at a private sector firm, or even the governor of the South African Reserve Bank (SARB), proud. Globally, the regulator drew attention to muted economic growth prospects and restrictive central bank monetary policy, the latter in response to high inflation. At the time, uncertainty over the likelihood of a United States recession dominated discussions, with the International Monetary Fund pencilling in just 3% growth worldwide for 2023. 

“The South African economic growth outlook mirrors the uncertainty of the global environment,” the CMS wrote, before noting that the energy supply constraint that led to unprecedented levels of loadshedding would continue to hamper the country’s GDP growth, and further constrain job creation. They quoted the SARB forecast of just 0.7% GDP growth for 2023, and 1% in the following year. 

At the time, the central bank warned that there was a significant upside risk to inflation, indicating that additional interest rate hikes were on the horizon. Alas, the latest inflation ‘print’ confirms the SARB’s rather hawkish view; the Repo rate is likely to go higher than its current 8.25% before the year is out. 

Weighing up healthcare benefits, costs

The economic background shared by the CMS in Circular 27 of 2023 sets out how the regulator intended weighing up benefit changes, contribution rate increases and overall cost increase assumptions for the 2024 benefit year. Inflation, as measured by the country’s consumer price index (CPI), is a core input to this consideration, and was forecast to average at 5% next year before moderating to 4.5% in 2025. 

Unfortunately, medical schemes have a long track record of pushing through higher-than-inflation increases on members, with 2021 and 2022 increases bucking the trend in recognition of the pandemic-related financial stresses affecting households. “The lower-than-CPI contribution increases implemented in the past two years were mainly due to a collaborative effort between the CMS and the industry aimed at insulating members of medical schemes against the adverse economic climate in the aftermath of the COVID-19 pandemic,” the CMS wrote. 

Your annual medical scheme contribution increase has to be submitted by your scheme to the CMS each year. For 2023, the CMS set a deadline of 1 September 2023 for applications for new benefit options, and 1 October for benefit and contribution changes. As it turns out, this process goes way beyond simply inflating the current year premiums by a thumb-suck percentage. The CMS is hands on, requiring schemes to conduct and submit an independent actuarial review of their 2024 pricing models, completed under five headings, and it will only consider new benefit options under exceptional circumstances. 

The regulator is massively prescriptive too, announcing that its two-year forward-looking contribution increase assumption stood at 5% and 4.5% respectively, plus a ‘reasonable utilisation estimate’ of around 3.2%. All this with due consideration for evolving inflation and interest rate outlooks, and schemes’ sustainability. In other words, the CMS would tolerate increases of around 8.2% for 2024. It seems their wish was granted… 

Premium escalations meet expectations

A recent article published on Moneyweb.co.za under the headline ‘Highest and lowest increases announced thus far’ suggested that schemes had, for the most part, kept premium escalations in line with CPI expectations, though some were accused of a bit of creative ‘behind the scenes’ tinkering through benefit erosion and / or changes to members’ contributions to medical savings accounts. PS, the Moneyweb.co.za article was based on known scheme increases published by independent healthcare consultant and diversified financial services firm Alexforbes. 

If you have read this far, then you are probably stumped by the article’s cranky headline. By way of an explanation, this writer pleads guilty to a kneejerk reaction to another recent medical schemes related headline that appeared on Fin24.com, titled ‘Regulator slams top SA medical schemes in battle over 2024 premium hikes’. His immediate, human response to this line was: “damn these medical schemes for always being out to bust our wallets”. 

Upon reading the piece, he discovered that the latest dust-up had nothing to do with excessive medical scheme tariff hikes, and everything to do with the regulator’s alleged unhappiness that certain open medical schemes had published their 2024 increases before final regulatory approvals. “To our knowledge, five schemes made public pronouncements on changes to benefits and contributions for 2024 without indicating [that] the planned changes are subject to approval by the regulator,” the CMS complained in a statement. Oh boy… 

Triggered for nought

And there you have it, dear reader, the ‘how to’ of getting triggered by a clickbait headline. There was nothing in the piece about consumers begin crushed by inflation-plus medical scheme contribution increases, and just a rather megalomaniacal rant about how dastardly medical schemes failed to comply with a CMS directive. PS, most commentators seem to agree that such approvals were fait accompli. 

Follow the writer on

LinkedIn: https://www.linkedin.com/in/gareth-stokes-media/

Twitter: @stokesmedia

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