The challenge of purchasing value-based healthcare cover

For the past decade medical scheme contribution increases have averaged 3-4% above CPI inflation, causing health care to become increasingly unaffordable for the average South African. Added to this, salary increases are generally linked to inflation. This means that, all things being equal South Africans have less disposable income in real terms should they wish to maintain their current level of cover. So, you pay more for same or similar benefits with less income. For people on fixed incomes, like retirees, the situation is even worse.

With this back drop, it is not surprising that growth in medical scheme membership is marginal and consumers are increasingly buying down to less benefit-rich options or looking for affordable alternatives

To identity solutions it’s helpful to first understand how consumers should choose their level of healthcare cover. Ideally, you should (with the help of an astute healthcare consultant) make sure that you have an adequate level of cover - not too much nor too little - for each stage of your life. This makes sense when its understood that as we grow older our health status tends to decline and our chosen level of cover should be revised in response to changes in our health status and to our personal situation.

In a life-stage approach to healthcare cover, young, single people entering the workplace usually need cover for major medical expenses and emergencies like car accidents. Some may also require a basic level of primary care. This type of benefits package is typically found in a core hospital plan or in a low-income network plan within a medical scheme.

For young families, maternity benefits and primary care benefits like GP visits, medicines and dentistry become important, while in middle-aged families some people start developing chronic lifestyle related illnesses like high cholesterol, hypertension and diabetes that needs regular monitoring and expanded primary care benefits.

As people move into their retirement years the need for even richer primary care benefits and comprehensive major medical and chronic illness cover increases. In this life-stage, people often need the richest cover possible but ironically, at this stage of life personal income levels usually stagnate and become fixed.

Value based medical services

In an ideal, well-functioning environment where participation in a medical scheme is compulsory, premiums are community-rated (this means the young and healthy members cross-subsidize older and sicker members) and consumers can choose an affordable and appropriate level of cover for each life-stage. But in the South African medical schemes market this is difficult to achieve. While medical aid may be a condition of employment for some people, at an industry level medical aid is voluntary for working South Africans. This means that people usually only join a medical scheme when they need it, as the cost of cover is far too high for most young, single people to perceive value. The result is that they delay joining a medical scheme or they choose to self-insure and this response then leads to an erosion of cross-subsidy necessary to preserve affordability and sustain the life-stage pathway.

So, what is the answer?

Most industry experts agree that a set of relatively simple interventions like the introduction of risk equalisation and a low-cost benefits package would go a long way to making medical scheme cover more accessible and affordable to working South Africans. Yet, with government’s unwavering view that national health insurance is the ideal solution for everyone – rich and poor, young and healthy, much needed regulatory reform of private healthcare seems far off.

So, where does that leave the average consumer?

For older, retired members options are limited. You can buy-down to a lower benefit option that at least preserves major medical and chronic illness cover but increases out-of-pocket costs or opt out of medical schemes altogether and use state healthcare facilities.

For young families, they too can buy-down cover and self-insure primary healthcare costs. One way to do this is to set some funds aside in a tax-free savings account.

For young families, they too can buy-down cover and self-insure primary healthcare costs. One way to do this is to set some funds aside in a tax-free savings account. For young, single members, health insurance is becoming an increasingly popular alternative to medical aid. While health insurance does not qualify for tax credit relief (this only applies to registered medical schemes) and is now demarcated and more restrictive, these products are usually priced according to age and health status and are much cheaper, making them more attractive to younger consumers.

Fore more information please contact Anthea Towert CFP® on 011 305 1970 or anthea@axiomatic.co.za