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Medical aid contributions for 2015 compared

The gap between medical scheme contribution increases and CPI inflation is widening, with higher monthly premiums taking a huge chunk out of household budgets.

However, consider your medical schemes’ health carefully before changing to a less expensive benefit option or a scheme which apparently has lower premiums. You may end up paying dearly for a lack of cover.
The average increases announced for the larger schemes for 2015 are 9.9% for Discovery Health Medical Scheme (DHMS), Bonitas 7.2%; Momentum Health 7.9%; Medihelp 12.8%; Bestmed 8.59%; and Medshield 9.5%.

In comparison, CPI inflation stood at 5.8% for November and even lower levels are expected for 2015.

That being said, medical schemes need to increase contributions annually to carry rising medical costs and to keep up with medical inflation.

The high increases in healthcare service provider fees; a rising disease burden; and new and more costly medical technologies are among the cost drivers pushing medical inflation approximately 2% to 3% higher than CPI inflation.

The Alexander Forbes Health Diagnosis 2014/2015, an analysis of key trends in the medical schemes industry between 2000 and 2013, shows that over the past 14 years medical inflation averaged 7.9% per year, compared with CPI inflation at 5.8% on average.

During the same period, the average medical scheme contribution inflation was 7.5% per year, resulting in actual increases in medical scheme contributions per principal member exceeding CPI inflation by at least 1.7% per year.

Time to move

The high cost of monthly contributions, which for a family of four can easily amount to a vehicle instalment, pressures members to consider lower cost options or even change schemes.

It is crucial never to change schemes just because another schemes’ contribution increase or the monthly premium seems to be lower. Always compare the benefits, exclusions, added value and service delivery.

A schemes’ financial health and performance also need to be considered. Size and scale; membership growth; and financial sustainability does matter.

Understanding size

In general larger, growing funds are financially more sustainable than smaller funds which show little membership growth. The scale of larger funds also supports their buying power when negotiating with healthcare service providers.

Medical schemes work on the concept of risk pooling, where the risk contribution charged to members is based on a combination of expected medical and non-healthcare expenses, as well as the returns expected from the scheme’s assets. The larger the membership, the larger the risk pool of the fund.

In size, DHMS outranks the other open schemes by far - with more than 50% of total open medical scheme principal membership. It also has the largest range of options for members in 2015 and claims its health plan contributions are as much as 14% lower than those of all South African medical schemes for the same benefits.

The other big open schemes are Bonitas, Momentum, Medihelp, Bestmed and Medshield.  The biggest four represents around 75% of the open medical scheme membership.

Size is however not everything, as a scheme should be financially sustainable and have the ability to pay its members’ medical expenses. According to the Diagnosis 2014/2015 report there are still a fair number of small schemes that are performing well, despite the risks involved in small medical schemes and the fact that many are amalgamating.

Financial health

To measure the sustainability of schemes, Alexander Forbes Health developed a Medical Schemes Sustainability Index.

It combines certain key factors such as the size and the operating results relative to the average scheme in the industry; the scheme’s actual solvency relative to the statutory requirement of 25%; and the average age change of beneficiaries over time (as an increasing average age indicates a worsening profile and higher expected claims).

Using a base year of 2006, these factors are considered for each of the years from 2007 to 2013 with the final index score reflecting the cumulative impact over this period. The medical schemes are ranked from highest to lowest to give an indication of their relative sustainability.

According to Alexander Forbes the purpose of the index is to provide a comparative assessment between schemes, hence the relative positioning is more important than the absolute score.

The Sustainability Index 2012 and 2013 for open and restricted schemes has Polmed ranking first, followed by DHMS, Fedhealth; LA-Health and Bankmed as the top five.

The financial strength of a scheme can also be measured by its claims paying ability, which is rated by an independent credit rating agency, such as Global Credit Ratings.

Changes

If you want to change to a more cost efficient plan on your own scheme, find out if it will cover your specific needs and what additional payments are applicable.

Many people move for instance to network options because they believe it will save them money. It does, but members tend to forget that the benefits are also more sparingly provided. You may be required to pay in extra for certain operations and all treatment must also be done through the fund’s preferred service providers, which could be the government.

Schemes allow changing benefit plans at year end, but upgrading or downgrading options during the year is limited.

When changing from your existing scheme to a new one a notice period of 30 days may apply. Also, the new scheme will generally have a waiting period of up to three months before paying claims. During this period contributions are payable without the member being entitled to benefits, which means that general medical expenses will not be covered. Prescribed minimum benefits should however be covered during the waiting period.

Source: http://today.moneyweb.co.za/article.php?id=801358&cid=2015-01-06#.VL97LEeUfw8
MoneyWeb Today
6 January 2015
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