Causes of Yearly Rises in Health Insurance Rates

An evaluation by Moneyweb regarding the rising prices of various products and services, which constitute the consumer price index (CPI), has prompted numerous readers to inquire why medical insurance and aid fees are increasing more rapidly than the costs of doctors, dentists, hospitals, and medications.

It’s a pertinent question.

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Statistics SA data indicated that premiums for medical insurance, including those from medical schemes, have risen nearly 24% since 2021.

Conversely, the costs associated with doctors, medical services, and products saw an increase of about 16% during the same timeframe, while hospital costs escalated by 15%.

Older Members

Craig Comrie, CEO of Profmed Medical Scheme, offers a straightforward explanation as to why “healthcare inflation” surpasses CPI annually.

“Healthcare inflation is influenced not only by the direct rise in fees from hospitals and doctors but also by the fact that the average population is aging, which leads to a higher demand for additional services.”

“Medical schemes may negotiate based on the CPI; however, we observe an additional 3% increase each year due to members utilizing more services,” states Comrie.

“For instance (hypothetical case), if our members visit the hospital 1,000 times a year at R1,000 per event, the total cost would be R1 million annually. If these same members increase their hospital visits to 1,030, the costs escalate to R1.03 million, not factoring in the CPI rise.”

The rise in medical aid expenditure directly translates to higher premiums.

“Health inflation is also impacted by general supply and demand issues. With a decrease in the number of specialists and doctors and an uncompetitive hospital environment, those with strong skills tend to increase their fees significantly above the CPI,” Comrie elaborates.

“Furthermore, the introduction of costly new technologies, such as biologic drugs that are life-saving, can contribute an additional 1% to annual increases. The benefits derived from new health technologies (medications and devices) are crucial—our average lifespans have risen significantly due to medical advancements.”

He notes that the figures from the Stats SA inflation report are even lower than the assessments conducted by Profmed’s actuaries.

“Depending on the year and recognizing our scheme’s focus on professionals, our figures tend to fluctuate more, with annual claims increases averaging between 8% and 12%. Profmed offers more extensive benefits than many other schemes.”

Data shows private medical expenses are rising faster than overall medical costs, reflecting the assumption that medical aid members primarily opt for private care.

Comrie points out that medical schemes are collectively owned by members, not shareholders, meaning any surplus is reserved within the scheme for future claims.

Several Factors

Deon Kotze, chief commercial officer at Discovery Health, states that even though the rise in contributions for medical schemes is mainly due to medical inflation, this inflation differs from the cost surge in medical services and products.

“The increase in medical services and products costs is just one of the many factors that shape medical inflation.”

“The Stats SA figures represent the annual price increases of medical services and products.

“These increases do not capture the annual growth in the consumption of these services and products by members of medical schemes,” remarks Kotze.

“Thus, the annual Stats SA increases differ from the annual rises in medical insurance costs and medical scheme contributions, the latter encompassing both price increases and increased usage.”

“For sustainability, a medical scheme must accommodate both the price hike in healthcare services and products along with the heightened usage of these services.”

Additionally, Stats SA figures portray average price modifications across public and private healthcare, whereas medical scheme claims data predominantly pertains to private healthcare costs.

“Members of medical schemes mainly utilize private healthcare services, which are structured distinctively compared to public healthcare services regarding cost recovery,” Kotze adds.

“Although risk pooling helps distribute costs across a wide member base, it does not nullify the impact of medical inflation. Over time, as members age and healthcare usage rises, claims costs follow suit.”

The Data of Six Medical Schemes

Kotze mentions that Discovery’s analysis of the annual financial documentation of six substantial open medical schemes (including Discovery Health Medical Scheme) indicates that the average increase in claims cost per beneficiary has risen by inflation plus 4.2% each year over the last five years.

Discovery outlines several reasons behind the rising costs for medical schemes:

• Tariff or price hikes—the fees for doctor visits and the unit cost of medications have historically aligned with CPI;
• Growing demand for healthcare services as medical scheme members age and more members are diagnosed with chronic diseases, resulting in a higher volume of claims from the same population each year;
• Other elements that escalate the cost and volume of healthcare services in the healthcare supply, such as advanced healthcare technology, often at a significantly higher treatment cost.

Efforts to Contain Costs

Cost-reduction initiatives are beneficial.

“Benefits resulting from risk management and wellness programs lead to more modest contribution increases or improved benefits for members. For example, in 2024, these strategies resulted in a 2% decline in anticipated future claims,” Kotze highlights.

Medical schemes employ extensive methods to manage these costs through provider networks, risk management programs, and wellness incentives.

Kotze stresses that medical schemes are overseen by the Council for Medical Schemes, with existing legislation stating that:

• They cannot risk-rate member contributions;
• They may only apply limited underwriting to new members;
• They must provide a regulated set of minimum benefits.

“These parameters limit medical schemes’ capabilities to handle the impacts of benefit utilization by members on claim costs.”

More Reasons …

Leo Dlamini, CEO and principal officer of Bestmed Medical Scheme, points out that healthcare costs have risen significantly in recent years.

“For numerous years, medical inflation has surpassed CPI, a critical factor driving annual medical scheme increases beyond CPI levels.”

“Moreover, the industry has encountered a surge in fraud, waste, and abuse,” he comments.

“One of Bestmed’s fundamental aims is to strike a balance between providing extensive coverage while actively managing our long-term financial viability.

“We have observed an industry-wide trend where schemes’ solvency ratios are diminishing, largely due to historical contribution increases that fell below inflation, coupled with increasing utilization and treatment costs, particularly in oncology and pathology,” he mentions.

Read:
Another SA medical scheme is facing solvency issues [Oct 2022]
Transmed Medical Scheme’s solvency issues continue [Dec 2023]
The growing burden of medical aid on South Africans [Aug 2024]

“We have also witnessed an increased demand for mental health services intensified by the pandemic (alongside post-pandemic realities), together with a rising frequency of chronic conditions such as diabetes and hypertension, all contributing to higher claims for chronic disease management,” Dlamini remarks.

He emphasizes that a scheme’s financial stability in the current and subsequent year influences contribution increases, underscoring the importance of maintaining adequate reserves for sustainability.

Bestmed discusses its efforts to mitigate steep contribution increases for members. “We are continually assessing ways to efficiently manage costs while guaranteeing the best possible care access for our members.”

Listen/read: CompCom shuts down medical aid negotiation bid [Jan 2025]

“We have executed strategies such as negotiating improved pricing with healthcare providers and enhancing our preventative care programs,” Dlamini notes.

“Alongside these efforts, we have introduced new value-added benefits on certain options to ease some costs burden.

“However, the sector must transition toward outcomes-based healthcare instead of the currently existing fee-for-service model to make a significant impact on controlling steep price hikes.”

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