Sunday, October 17, 2021
HomeSouth AfricaLagging middle-class incomes hurt medical scheme take up

Lagging middle-class incomes hurt medical scheme take up

Spiralling costs are playing havoc with middle-class incomes amid a stagnant economy and are driving people to reconsider whether they should be re-joining medical aid schemes. Business Day reports that this is according to the country’s biggest medical insurer Discovery Health CEO Jonathan Broomberg who said at the group’s AGM: "One of the difficulties right now is the lapse rate. Because of the state of the economy, people are dropping off a little bit quicker than they used to a few years ago."

A lack of affordability means that people are joining schemes like Discovery at a much slower pace than in previous years as incomes fail to keep up with annual increases that can go into double digits.

Data by interbank payment service BankservAfrica showed that on average South African salaries grew just 0.5% in the five years to 2018 when inflation was taken into account, while medical increases in 2018 were between 5.8% and 10.9%.

The report says the demise of the middle class is yet another ticking time bomb in the country’s myriad economic and social problems. In a period that President Cyril Ramaphosa characterised as "nine wasted years" under his predecessor, Jacob Zuma, the economy and income hardly grew, and unemployment surged even as other emerging markets recovered from the global financial crisis. The corruption that defined Zuma’s presidency, including the destruction of the South African Revenue Service, hurt state coffers and South Africans were hit by an increase in VAT to help plug the gap, adding to the burden caused by a depreciating currency and record high petrol prices.

Broomberg said membership growth rates had been declining across the industry, with Discovery, which commanded 56.6% of the open scheme market share by September 2018, recording net membership growth of 2% in the year to September. Five years earlier, the net growth rate was almost double at 3.9%, the report says.

Profmed increased membership 1.6%, compared to a net growth rate of 2.62% in 2017 and 4.68% in 2015. Bonitas, which has not released its 2018 numbers yet, has also seen membership growth decline.

Broomberg said while Discovery recognised that people were struggling to afford medical aid, the combination of an ageing medical scheme population, rise in chronic diseases, new medical technology and anti-selection policy, which allowed people to join or upgrade their medical scheme option when their health deteriorated, made hikes unavoidable.

The report says in 2019, Discovery increased member contributions an average of 9.4%, more than three percentage points above the upper end of the SA Reserve Bank’s 3% to 6% inflation target. The annual inflation rate was 4.5% in May.

Broomberg said increases in medical aid costs were directly related to claims received the previous year, with the scheme’s claims inflation at 11.3% in 2018. Discovery paid out R56.4bn to doctors, hospitals and for medicines.

He said the biggest driver of the increase in claims was hospital admissions, some of which were not necessary. "People are walking into casualty room with suitcases, quite often because they’ve run out of day-to-day benefits," Broomberg is quoted in the report as saying.

[link url=""]Business Day report[/link]

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