According to Dr Bobby Ramasia, Principal Officer of Bonitas, “expenditure in the private sector has continued to increase on an annual basis since the 1980s. This medical inflation—unavoidable contribution increases on medical schemes—ranged between 5% and 3% higher than consumer price index (CPI) over the past 13 years.”
These rising costs are, in turn, a reflection of the pressure that the medical aid industry is under.
Says Jeremy Yatt, Fedhealth’s Principal Officer, “Unlike other types of insurance, medical schemes derive no benefit from higher fees because there are no shareholders, dividends or bonuses to be paid out. Rather, it’s an indication that the current medical scheme model in South Africa is deeply flawed.”
According to Yatt, a number of factors are combining to drive the cost of medical schemes through the roof. For example, medical practitioners are paying more for insurance costs, as medical malpractice insurance premiums are skyrocketing. Gynaecology and neurology are especially affected. More and more South Africans are suing for malpractice and negligence. At the same time, more and more people are having medical procedures done. Inevitably, medical scheme members have to shoulder the cost.
Another problem is that, in South Africa, all the different role-players in a procedure—ward and theatre, anaesthetist, consulting doctor and surgeon—charge separately for their contributions, making it harder for medical schemes to negotiate reduced fees.
On top of that, says Yatt, scheme members often lack the incentive to take responsibility for their health. This is because, unlike car insurers with their no-claim bonuses, medical schemes may not use claims behaviour to reward or penalise their members for good or bad health practices.
From a different perspective, another driver of soaring costs is the lack of supply-side regulations. Since medical practitioners and specialists are free to charge whatever they want for the services they provide, the only cost inhibitor is the market.
Unwilling to risk state hospitals, despite the fact that many of them offer an excellent quality of care, those who can still afford to pay continue to cough up. It is for this reason that the Competition Commission is currently reviewing the entire private sector healthcare supply chain.
According to Gavin Griffin, Business Unit Head of Aon Employee Benefits, “With mounting costs, many are looking at alternatives such as primary care options; downgrading their healthcare cover, changing to a different provider or, in some instances, forgoing cover completely.
While the cost pressures are felt all around, low- to middle-income earners are hardest hit, given the additional cost pressures of living costs, education, transport and so on. In many instances, private healthcare costs can account for up to 30% of monthly household expenditure,” says Griffin.
Dr Ramasia urges, “We have to adapt our business model to meet the challenges, most of which are beyond our control, such as rising hospital and specialist costs. We believe that the landscape is changing rapidly as a result of treatment innovations, increasingly early detection and treatment.”